ahm 540_merged document

AHM Medical Management: The Role of Medical Management in a Health Plan

Course Goals and Objectives

After completing lesson The Role of Medical Management in Health Plans, you should be ableto:

Define the term medical management and explain the goals of this function. Describe some common components of medical management programs. Describe the role of the medical director in a health plan. Explain the purpose of medical management committees and identify several common

types of medical management committees. Define the terms delegation and subdelegation. Explain why health plans sometimes delegate medical management activities.

Introduction

When you read or hear about health plans, you may encounter the term medical management orreferences to specific components of medical management, such as disease management, casemanagement, preventive care, or utilization review. You may have wondered what these termsmean and how they are related, as well as why and how health plans conduct medicalmanagement. These issues are the focus of this course.

Because health plans integrate the financing and delivery of healthcare, a health plan musteffectively manage both the cost and the quality of healthcare services. Without adequate cost-management measures, a health plan's financial viability may be jeopardized. However, a healthplan cannot focus on cost alone. The delivery of high-quality care and service is one of a healthplan's core goals, and this quality goal is typically a component of a health plan's missionstatement.

In a managed care context, quality consists of two major components: healthcare quality andservice quality. STRONG Healthcare quality is "the degree to which health services forindividuals and populations increase the likelihood of desired health outcomes and are consistentwith current professional knowledge."1

High-quality care is appropriate care provided in an appropriate amount at the appropriate timeand for an appropriate duration. Service quality generally refers to the success of a health planand its providers in meeting the nonclinical needs of plan members. Quality service is reflected ina high degree of satisfaction among a health plan's members.

Many states have specific laws regarding healthcare quality, and some health plans are subject tofederal laws and regulations on quality. In addition, health plan members and purchasers andhealthcare providers all expect a health plan to set and meet high standards for quality care. Wediscuss expectations and regulations regarding quality further in lesson, Environmental Influenceson Medical Management.

Achieving the goals of quality care and cost-effectiveness simultaneously presents an ongoingchallenge for health plans. This course explores how health plans use medical managementprograms to achieve and maintain both high quality and cost- effectiveness. First, we describe theprimary medical management processes and programs that are used by health plans. We then

consider how a health plan can apply these programs for different types of healthcare services anddifferent member populations.

What is Medical Management?

Before we introduce the specific types of medical management programs, we will first definesome basic terminology. Throughout this entire course, keep in mind that medical managementterminology and the definitions of these terms vary greatly among different health plans. Medicalmanagement, also known as care management, encompasses all the activities that health plansand their providers conduct to (1) maintain or improve the quality of service healthcare receivedby members; (2) meet budget projections for medical services; (3) achieve member satisfaction;and (4) respond to accreditation and regulatory requirements.2

Medical management attempts to integrate and improve healthcare services from variousproviders to maximize the benefit to the plan member while avoiding both inadequate andexcessive utilization of healthcare resources. One important purpose of medical management isthe improvement of a member's overall health over time by coordinating care across the differenthealthcare services that a member receives and the different providers who treat the member.3

Two main categories of medical management activities are quality management and utilizationmanagement. Quality management (QM) , also called quality assurance (QA), is an organization-wide process of measuring and improving the quality of the healthcare and services provided tothe members of a health plan. For example, a health plan periodically measures membersatisfaction with the healthcare services rendered by the health plan's providers and takes actionto address any areas of dissatisfaction. Utilization management (UM) refers to health planprograms that manage the use of medical services so that a patient receives appropriate care in acost-effective manner in an appropriate setting. UM typically includes a variety of programs, suchas utilization review, case management, and disease management. Many medical managementprograms, such as case management and disease management, serve to increase both quality ofcare and the efficient use of healthcare resources.

Medical management frequently involves issues of medical necessity or medical appropriateness.The contract between the health plan and a purchaser (sometimes called the benefit plan) usuallycontains a definition of what constitutes medically necessary services, medically appropriateservices, or both. Some organizations in the healthcare industry distinguish between medicallynecessary services and medically appropriate services, while other entities consider the two termssynonymous and use them interchangeably. For the purpose of this course, however, medicallynecessary services and medically appropriate services will be addressed as related, but distinct,concepts.

The following description of medically necessary services is used by many health plans in theirbenefit plan documentation. Medically necessary services are services or supplies as provided bya physician or other healthcare provider to identify and treat a member's illness or injury, which,as determined by the payor, are:

Consistent with the symptoms of diagnosis and treatment of the member's condition. In accordance with the standards of good medical practice. Not solely for the convenience of the member, member's family, physician, or other

healthcare provider.

Furnished in the least intensive type of medical care setting required by the member'scondition4.

As a general rule, medically necessary services should be effective and not experimental. Adiagnostic service is deemed effective when it yields the expected information, and a therapeuticservice is effective when it results in the intended health outcome. A medically necessary servicehas been proven through clinical evidence to be effective when compared to the best alternativeservice for a given medical condition or to no service, if no alternative method of diagnosis ortreatment exists.

Medically appropriate services are diagnostic or treatment measures for which the expectedhealth benefits exceed the expected risks by a margin wide enough to justify the measures.5

Generally, questions of medical necessity apply to the needs of particular plan members, whilequestions of medical appropriateness concern a plan's population. In other words, medicalnecessity drives case-by-case quality and utilization decisions, while medical appropriateness isthe basis for decisions that affect a segment of the member population.

For example, although liver transplantation is often an appropriate treatment for patients withliver failure, liver transplantation may or may not be medically necessary for a particular patientwith this condition. The determination of medical necessity depends on medical information fromthe patient's physician, such as a confirmed diagnosis of liver failure, how advanced the failure is,and any patient characteristics indicating that the patient is or is not a good candidate for thissurgery.

Health plans often specify which medical treatments are appropriate in an attempt to reduce thevariation in the medical services rendered by different providers. Consistent treatment fromdifferent providers effectively reduces inequitable treatment among plan members and enables ahealth plan to compile data in a uniform manner to track quality measures.

The following section of this lesson provides an overview of the scope of activities typicallyincluded in medical management. We then describe how the medical management function of ahealth plan is organized and staffed. We also discuss variations in the approach to medicalmanagement based on health plan characteristics, the type of care, and the nature of the memberpopulation. Finally, we explain how and why a health plan may contract with other entities toperform medical management on behalf of the health plan.

The Scope of Medical Management

A health plan develops and implements medical management programs in an attempt to see thateach member receives medically appropriate, cost-effective care in the most appropriate setting.Achieving both high-quality care and the most efficient use of medical resources is a complicatedtask, given the vast array of health problems that members may experience and othercircumstances that may affect members' access to healthcare services. Because medicalmanagement is multi-faceted and complex, this function typically includes many differentactivities and often goes beyond the traditional boundaries of QM and UM.

The types of programs that a health plan includes under the umbrella of medical managementvary from plan to plan, largely depending on applicable laws, regulations, accrediting agencystandards, and the expectations of purchasers, members, and providers. Beyond these external

considerations, a health plan sets its own goals and priorities for medical management and tailorsits programs accordingly.

Another influence on the basic approach to medical management is a health plan's arrangementfor the delivery of healthcare services. The majority of health plans arrange for the delivery ofcare by contracting with providers. Health plans rely on their contracted providers to performmany of the basic activities that are necessary to achieve healthcare quality. However, somehealth plans, such as staff model health maintenance organizations (HMOs), that deliverhealthcare services directly to their members are also providers. Health plans that are alsoproviders must have programs for improving the quality of care rendered by their ownprofessional staff. For example, a staff model HMO must develop and implement measures tosupport the safe, effective delivery of medical care. We discuss how contracted providers mayassume more responsibility for medical management activities later in this lesson.

Medical management programs generally include QM, UM, the management of clinicalservice delivery by providers, and the resolution of member appeals of authorizationdecisions. Medical management is often closely linked to provider network management,and in some health plans, network management is classified as a medical managementprogram. For the purposes of this course, however, our focus will be on quality andutilization, with network management discussed as a related function. Figure 1A-1 listssome of the most common medical management programs and activities. The nextsections provide a brief introduction to many of these activities,

6

FIGURE 1A-1. COMMON MEDICAL MANAGEMENT ACTIVITIES.

Clinical practice management

Evaluation of medical technologies Development of policies on the appropriate use of

medical services, including prescriptionmedications

Development of guidelines for providers to usewhen delivering clinical services

Quality standard development

Accreditation

Performance measurement

Measurement of healthcare service outcomes,including clinical results, cost, and membersatisfaction

External measures of plan performance, such as theHealth Plan Employer Data and Information Set(HEDIS®), ORYX®, and report cards

Performance improvement

Preventive care and self-care initiatives

Health risk assessment Immunizations and health screening activities Health education Services to assist members with healthcare decisions

Utilization Review

Precertification Second surgical opinion Concurrent review Discharge planning Retrospective review, including appropriateness

evaluation Authorization of services and referrals

Case Management

Disease Management

Compliance with regulations

Oversight of medical management activities performed by

Quality improvement studies Provider profiling Member education

other entities on behalf of the health plan

Clinical Practice Management

One key component of a medical management program is clinical practice management. Clinicalpractice management is the development and implementation of parameters for the delivery ofhealthcare services to a health plan's members. Clinical practice parameters provide a foundationfor a health plan's QM and UM programs. Among the parameters for clinical practicemanagement are medical policies and clinical practice guidelines. Clinical practice guidelines(CPGs) are statements of recommended medical practices that help providers make decisionsabout the most appropriate course of treatment for specific patients.7 Definitions of the termmedical policy vary in the healthcare industry, but in the broadest sense, a medical policyprovides information to guide the health plan staff who recommend or decide which healthcareservices are medically necessary for a particular patient. For example, a medical policy usuallydescribes situations in which a particular healthcare service is an appropriate intervention for amember. We discuss the role of medical policy further in lesson, Clinical Practice Management.

Increasingly, health plans rely on evidence-based medicine for decisions about medical necessityand clinical practice management. Evidence-based medicine is the practice of medicine accordingto:

The findings of clinical trials and other scientifically valid research as reported in thecurrent body of medical literature.

Opinions from unbiased expert clinicians.

A foundation in evidence-based medicine holds the medical policy and CPG developmentprocesses to a higher standard and typically improves the quality of care. The use of evidence-based medicine during medical policy development, evaluation of new medical technology, andthe development of CPGs also increases the credibility of these clinical practice managementtools to providers.

Quality Management

Quality management has traditionally been a cornerstone of medical management within healthplans. In fact, most health plans have a formal program for QM and undertake a wide variety ofactivities to support the delivery of high-quality healthcare services by their providers. QM is acontinuous process to which a health plan typically dedicates substantial human, technological,and financial resources. For selected healthcare services covered in the benefit plan, a health plandevelops quality goals, measures its performance against those goals, implements correctiveaction as needed, and monitors the impact of its actions.

One way for a health plan to demonstrate its quality and accountability for healthcare services isthrough accreditation by an external agency. Accreditation is an evaluative process in which ahealthcare organization voluntarily undergoes an on-site examination of its policies and operatingprocedures to determine whether they meet the criteria as defined by the accrediting body.Accreditation implies that the organization meets a specified level of quality.8

Most health plans also have internal quality programs to measure the appropriateness of specifictypes of care and identify areas with opportunities for quality improvement. For example, a healthplan may notice an increase in the utilization of resources and cost of care for diabetes patients.That health plan may decide to conduct a study to determine the effectiveness of its efforts tomanage diabetes. Health plans must carefully evaluate which issues to study and how to studythem before deciding the focus of a quality initiative.

In many instances, health plans use outcomes as a measure of quality. Within a healthcarecontext, outcomes are defined as the measurable results of health-related interventions. Healthplans often examine outcomes for both individual members and for groups of members. Forexample, did a particular stroke patient show a positive change in medical condition or ability toperform everyday activities following a course of physical and occupational therapy? In anexample of outcomes for a group, how many emergency department visits were made in the pastyear by asthma patients who participate in an asthma disease management program? By studyingoutcomes and linking those outcomes to specific medical interventions, a health plan candetermine which approaches to healthcare service delivery typically yield the best clinical andeconomic results.

Other sources of information about health plan quality are periodic assessments of providerperformance, member satisfaction surveys, and evaluation of specific health plan performanceindicators by external entities.

Preventive Care, Self-Care, and Decision Support Programs

Many health plans also include in their medical management strategy programs to keep membersas healthy as possible (preventive care) and to help them manage their needs for care when theydo experience illness or injury (self-care and decision support). Such programs are sometimescollectively known as demand management or demand-side management.

Preventive care programs that address the causes of disease and injury can improve members'health and prevent illness and injury, thus reducing their needs for services. By assessing healthrisks, a health plan may identify members' physical characteristics and lifestyle factors thatindicate an increased risk of experiencing certain types of illness or injury. For instance, anevaluation of health risks would point out that overweight members who smoke and rarelyexercise are at greater risk of developing heart disease than plan members who do not have thesecharacteristics. Once such at-risk members are identified, their chances of developing heartdisease can be reduced through preventive care programs.

Some health plans have telephone information lines that are staffed by nurses who may determinethe urgency of a member's medical problem and recommend the most appropriate type of serviceand care setting for a member's condition.

Health plans also design health education programs to help members make informed decisionsabout their needs for healthcare and, in some cases, to perform certain aspects of their care. Forexample, suppose that a health plan has identified its members who have non-insulin-dependentdiabetes. If the health plan provides these members access to instruction on nutrition, activity, andblood glucose monitoring, they will be better able to manage their diabetes on a day-to-day basis.

Utilization Review

Utilization review is one of the most frequently used medical management approaches.Utilization review (UR) is the process for evaluating the medical necessity, efficiency, andappropriateness of healthcare services and treatment plans for a given patient.9 The goal of UR isthe most appropriate use of medical resources and treatment in the most appropriate setting. URmay enhance both the quality and cost-effectiveness of care. Traditionally, health plans have usedUR primarily for cases involving hospital care, costly procedures, and referrals for specialty care;however, its use for outpatient services and pharmaceutical treatments is expanding.

Because a health plan's determinations of whether or not a particular service is appropriatesometimes conflict with provider recommendations and member preferences, an appeals processis critical to protect the interests of all parties involved. The steps and timing of the appealsprocess vary from plan to plan and may be mandated by regulatory requirements; however, healthplans typically strive to design appeals procedures that will provide a timely resolution to memberand provider appeals of authorization decisions. Consumers have indicated that understandability,timeliness, and ease of use are important characteristics of any appeals process. Many healthplans have established processes for external review of appeals in addition to their internalappeals systems.

Case Management

For individual members with conditions that require complex care and/or treatment from multipleproviders, health plans often employ case management as a means of achieving optimal outcomesand resource usage. Case management, also known as large case management, catastrophic casemanagement, or complex case management, is the process of identifying plan members whorequire extensive, complex healthcare; developing an appropriate treatment strategy; andcoordinating and monitoring the care.10

Most members who are selected for case management have a chronic medical condition, seemultiple providers in different specialties, or have experienced a catastrophic illness or injury.Examples of conditions appropriate for case management include AIDS, multiple trauma, headinjury, spinal cord injury, stroke, burns, premature birth, and mental illness. Candidates for organor bone marrow transplant may also benefit from case management. By incorporating self-care,care by the member's family, and community services with the services of the health plan'sproviders, case management can enhance the quality of care without exhausting the financialresources of the benefit plan or the member.

Disease Management

A large proportion of healthcare service utilization is the result of long-term medical conditionssuch as heart disease, diabetes, low-birth-weight babies, chronic back pain, depression, andasthma. In addition, many patients who experience these medical problems are subject to seriouscomplications and further deterioration if their conditions do not receive proper treatment.Concerns about the quality and the cost of care for these individuals have led many health plansto establish disease management programs.

Disease management, also known as disease state management, is a coordinated system ofpreventive, diagnostic, and therapeutic measures intended to provide cost-effective, quality

healthcare for a patient population who have or are at risk for a specific chronic illness or medicalcondition.11

Disease management focuses on comprehensive care across different providers and healthcaredelivery settings to improve members' long-term health status. Disease management seeks tointegrate various medical management approaches including CPGs, case management, evaluationof health risks, and health education with the services of a carefully selected multi-disciplinaryteam of providers who are most appropriate to treat a particular condition.

By creating a disease management program that focuses on a specific condition, a health planmay lessen the risk of complications and progression of the condition, treat complications anddeterioration more effectively when they do occur, and generally improve the quality of life forits members. The improved health status of members may result in cost savings for the healthplan.

Integration of Medical Management Programs

As the components of medical management programs vary from one health plan to another, sodoes the level of interaction and collaboration among the different components. Many healthplans developed each of their medical management initiatives individually over time as needsevolved and plan resources permitted. Consequently, such components evolved as separatefunctions, even though the goals of these components overlapped. When quality and cost-effectiveness goals overlap, duplication of activities and wasted health plan resources are thelikely result.

In contrast, many health plans have achieved some integration of their medical managementfunctions and information management systems for those functions. Although the initial costs ofintegration are considerable, long-term costs for integrated medical management activities may bereduced. Improvements in technology for information management have facilitated integration byallowing the shared use of databases and more sophisticated analysis of medical managementinformation.

Enhanced communication and coordination of medical management activities should optimize theuse of medical resources and may improve the overall quality of care. For instance, by evaluatinghealth risks, a health plan can identify members in the early stages of a chronic illness such asdiabetes. In a well-integrated medical management system, the health plan can place thesemembers into an appropriate disease management program. On a more basic level, collaborationbetween UM and QM can facilitate the timely delivery of medically appropriate care and preventmembers from being subjected to the inconvenience, discomfort, and potential risks of treatmentsthat are not medically necessary.

Organization And Structure Of The Medical Management Function

Organizational structures for medical management vary among health plans primarily because,over time, each organization has developed a structure that works well for its own circumstances.Health plans usually have a separate division dedicated to medical management programs. Thisdivision goes by different names, such as Healthcare Management, Medical Services, PatientManagement, Healthcare Services, or Healthcare Policy and Operations. The medicalmanagement division typically has separate departments for various medical managementcomponents. The number and types of components vary, but generally include both QM and UM.

Some plans place network management together with medical management while other healthplans consider network management a separate function. The medical management division mayalso have a risk management component. We discuss the influence of network management andrisk management on medical management programs in lesson, The Relationship of MedicalManagement to Other Health Plan Functions.

The UM section of medical management includes UR and case management, while typicalactivities conducted under QM programs are quality improvement initiatives and performancereporting activities, such as reports to state and federal agencies and accreditation agencies. Somehealth plans classify clinical practice management, preventive care, self-care, and diseasemanagement as subcategories of either UM or QM, but other organizations have separatedepartments for these programs.

The size (based on the number of members), geographic scope, and the types of servicesdelivered by a health plan can affect the structure for medical management. A large health planoften divides its service area into geographic sections that are sometimes known as medicalservice areas (MSAs) and establish regional or local offices.12

A health plan with multiple offices may decentralize some or all medical management activities.Consider quality improvement initiatives as an example. The health plan may establish thestandards and procedural guidelines for a quality improvement study at a central location and thenhave local medical management staff implement the study and measure the results. After the localstaff reports its results to a centralized data input unit at the health plan's state, regional, ornational headquarters, the medical management personnel at the headquarters location canprepare comprehensive reports that show aggregate results across the entire service area andcompare results among different MSAs. Decentralized data collection requires extensive effortsdirected at data definitions and staff training since much of what is measured has a subjectivecomponent and may be interpreted differently by different observers.

The size and products of a health plan can affect medical management operations in other ways.For instance, small health plans typically have more integration among activities and lessspecialization of roles than larger health plans. Large health plans often have separate medicalmanagement programs for different types of services (such as hospital care or pharmacy services)and products (such as Medicare or Medicaid managed care plans).

The medical management division develops a written program for medical management thatincludes an evaluation of previous monitoring activities and actions and goals for the comingyear. In most cases, health plans have separate programs for UM and QM. Medical managementpersonnel review this program annually and update it as needed. The program is then passedupward to the board or to the appropriate executive committee for approval, and downwardthrough the entire organization for implementation.

Staffing for Medical Management

Because each health plan develops its own plan for medical management programs, it is notsurprising that there is no standard approach to staffing for medical management. However, mosthealth plans have the following four categories of medical management personnel: medicaldirectors, program directors, clinical staff, and administrative staff. In some companies, themedical management division has a vice president or other administrative officer who overseesthe operational aspects of the division. In other health plans, the medical director performs this

function. Figure 1A-2 depicts a simplified example of an organizational structure for medicalmanagement. Keep in mind that the different medical management components may be combinedand organized into any number of combinations.

Medical DirectorsA senior medical director, also known as a chief medical officer, is the health plan physicianexecutive who oversees the medical care delivered by the health plan's providers and isresponsible for the quality and cost-effectiveness of that care. The senior medical director mayalso have a vice president's title. The role of the senior medical director varies, depending on thehealth plan. In some instances, the senior medical director participates in day-to-day operationssuch as authorization decisions on non-routine cases and provider education. At other healthplans, the senior medical director develops policies and procedures for medical management, butis not involved on an operational level. A senior medical director of a small plan is more likely tohave direct responsibility for the implementation of programs and provider performance than thesenior medical director of a medium-sized or large plan.

Medical Directors

A senior medical director who primarily focuses on policy issues often has additional medicaldirectors to assist with various aspects of medical management operations and oversight.Although the actual titles vary from one health plan to another, for the purposes of this course,these additional medical directors will be called associate directors.

Health plans that divide their service areas geographically usually have associate medicaldirectors who supervise the medical management activities for a particular region. A health planmay also have associate medical directors who assist the senior medical director with certainduties (such as appeals processes) or who oversee medical management for specific types of care(such as cardiology, oncology, or geriatrics).

The associate medical directors follow the health plan's general medical management policies andprocedures, although specific activities may be modified according to the type of care or the localmember population's needs. Associate medical directors typically report directly to the seniormedical director.

The responsibilities of a senior medical director vary from plan to plan, but often include:

Developing medical management strategy that is in alignment with the health plan's goalsand mission

Guiding medical policy development and implementation, technology assessment, anddevelopment of CPGs for providers

Prioritizing medical management program needs (e.g., selecting which diseasemanagement or preventive medicine programs to offer)

Overseeing QM and UM programs Participating in network management activities such as strategy development and

contract negotiation Serving as the health plan's medical liaison to its provider networks, government

agencies, and large purchasers Collaborating with the health plan's sales and marketing department

Figure 1A-3 lists more specific operational activities that either senior medical directors orassociate medical directors may perform, depending on the health plan's organizational structure.

To meet the demands of the position, a senior or associate medical director must possess thefollowing skills and qualifications:

Health plan philosophy and ability. The medical director should believe that a health plancan achieve healthcare quality and cost-effectiveness simultaneously. Relevantexperience with UM, QM, and provider management is also essential, as is the ability tointegrate medical issues with business concerns.

Clinical credibility. A medical director must be a licensed physician with relevant clinicalexperience, although a medical director does not typically maintain a clinical practice. Inmany cases, medical directors have primary care backgrounds. To be effective, themedical director must have the respect of the providers in the network. Medical directorsare virtually always certified by one of the examination boards of the American Board ofMedical Specialties.

Analytical skills. A medical director needs the ability to analyze and integrate data,clinical information, and laws and regulations into meaningful, workable programs.

Communication skills. The medical director should be able to communicate effectively,both verbally and in writing, with providers, members, purchasers, regulators, variouslevels of health plan staff, and the general public. In many instances, medical directorsmust also negotiate agreements and resolve conflicts.

Leadership skills. A medical director must have the ability to motivate and influence planpersonnel and providers and, on occasion, to challenge the opinion of the majority withinand outside the health plan.

Program Directors

Each of a health plan's medical management programs has a director or manager who isresponsible for the operations of the program. Working in conjunction with the medical directorand personnel from other related health plan functions, the program director develops program-specific policies, procedures, and processes to accomplish the plan's QM and UM goals. Inaddition, the program director sees that the program's activities adhere to any applicable laws,regulations, or accreditation standards.

Program directors are often clinicians (such as physicians, nurses, or pharmacists), especially inlarger health plans. In addition to relevant clinical knowledge, medical management programdirectors also need health plan experience, communications skills, analytical abilities, andleadership skills similar to those described for medical directors. A program director oversees avariety of clinical and nonclinical staff members who conduct the day-to-day activities of theprogram.

Clinical Staff

A health plan's medical management programs employ a variety of clinicians whoseresponsibilities involve managing the quality or cost-effectiveness of some clinical aspect ofpatient care. For example, nurses often perform the initial clinical review of providers' requestsfor precertification of a hospital admission or other clinical services such as ambulatory surgery.Other medical management activities that require the services of clinical staff are telephoneinformation lines that help members manage their healthcare needs, concurrent UR, qualityimprovement studies that focus on healthcare quality, and case management.

In addition to having appropriate clinical training and experience, clinical staff may need some orall of the following qualifications:

Basic knowledge and understanding of health plan medical management programs. Ability to communicate and coordinate activities with varying levels of health plan

personnel, providers and their staffs, and external entities such as regulatory agencies andcommunity services.

Analytical ability to identify problems, develop solutions, and implement the chosencourse of action in a timely and effective manner.

Computer and information management experience. Ability to contribute to the generation of cost analysis and other documentation necessary

to report departmental activity.

Administrative Executives and Staff

A health plan's medical management division usually employs various administrative personnelwho supervise or conduct operations that do not directly involve clinical aspects of patient care.The types of administrative personnel in medical management range from a vice president whooversees all of the division's business practices to a UR intake coordinator who checks basicinformation such as members' eligibility status. The higher levels of administrative staff mayreport directly to a senior or an associate medical director or even to the company's chiefexecutive officer (CEO). The responsibilities and qualifications of administrative personnel varywith the nature of each position.

Medical Management Committees14

Each health plan has one or more organizational committees whose purpose is to approve andperform oversight of medical management programs. In addition to tracking overall trends inquality and utilization, these committees also evaluate and make recommendations on specificquestions and problems related to the delivery of healthcare services. A medical managementcommittee typically conducts an annual review of past program activities, current initiatives, andwork plans for future activities. Based on the annual review, the committee makesrecommendations for change

A health plan's senior medical director participates on and often serves as the chairperson formedical management committees. The medical director has the responsibility to see that oversightactivities are coordinated across committees and that recommendations for change arecommunicated promptly between committees. However, the depth and breadth of the issuesaddressed by these committees often require clinical expertise beyond the contributions of themedical director and other clinicians who are employed by the health plan. Accordingly, healthplans frequently solicit their providers to participate on medical management committees.

Health plans have several other reasons for including providers on medical managementcommittees. In addition to contributing clinical knowledge, these providers can draw upon theirdaily involvement with healthcare delivery to plan members and bring a significant real-worldperspective to QM and UM programs. Providers who participate on medical managementcommittees also serve as a communications conduit to and from other local providers. Further,provider participation in the design and oversight of medical management programs lendsincreased credibility to these activities in the eyes of the provider community and may enhanceprovider cooperation with these programs. Finally, accrediting agencies often require activeparticipation of providers on medical management committees.

Committee membership has advantages for providers as well. One of the main benefits for aprovider who participates on a health plan committee is the opportunity to help shape theprograms and activities of the health plan. In addition, such a provider can become more familiarwith health plan operations. To encourage provider participation on committees, health plans mayreimburse providers for the time they serve on committees. To maintain continuity of providerparticipation on committees, some health plans attempt to carry over at least 50 percent of acommittee's provider members from one year to another.

The number and types of medical management committees vary from one health plan to another.Health plans generally have committees for UM, QM, and pharmacy issues, and may have othercommittees specifically for clinical practice management, provider credentialing, and peerreview. Small health plans may have a single medical management committee that addresses allof these issues. In the next sections, we briefly describe several common types of medicalmanagement committees.

Quality Management Committee

The quality management committee: (*below is what you view when you click on the link thanthe sentence is continued with ‘generally…)

Identifies appropriate issues for monitoring

Evaluates the results of quality studies to determine the need and opportunity forperformance improvement

Prioritizes improvement opportunities Develops action plans for improvement Provides oversight of action plan implementation Monitors the effectiveness of the action Performs an annual evaluation of program effectiveness

generally oversees the health plan's quality improvement activities in both clinical and nonclinicalareas.

The QM committee also reviews and updates the health plan's QM program for approval by thehealth plan's board of directors and recommends policy decisions to the board.

Health plans may separate the QM committee into two components: a clinical QM committeecomposed primarily of providers and a corporate QM committee that may or may not includecontracted providers. When the QM committee is divided in this way, the clinical componentoften serves as an advisory board or subcommittee of the corporate committee. For example,when the clinical QM committee develops action plans that involve increased costs or policychanges, these action plans are submitted as recommendations to the corporate committee for itsapproval or rejection of the plans.

Medical Advisory Committees

The medical advisory committee oversees the establishment of medical policies and CPGs,although many health plans have a separate committee to direct clinical practice management.Health plans have different names for the committee in charge of clinical practice management,and the scope of oversight for this committee may also include network management activitiessuch as credentialing and recredentialing. One common name for this committee is the medicaladvisory committee, which is the terminology that we will use in this course.

The medical advisory committee evaluates proposed policies and action plans regarding clinicalpractice management parameters. For example, health plan staff who assess new medicaltechnology gather and analyze data and draft proposed medical policies for the medical advisorycommittee's examination.

The extent of the medical advisory committee's influence varies across health plans. Often thiscommittee's role is advisory in nature and it does not have the authority to finalize the healthplan's medical policies or CPGs. In this situation, senior management and ultimately the board ofdirectors has the responsibility to adopt, approve, or reject the committee's recommendations.

The size and composition of the medical advisory committee is also variable. In addition to thehealth plan's medical director, this committee may include the plan's directors of medical policy,pharmacy services, utilization management, quality management, and other medical service areasas well as physicians, pharmacists, nurses, and other healthcare personnel from the plan'sprovider network. In some health plans, the committee also includes a consumer representative (aplan member) and/or a purchaser representative (usually a human resources employee from amajor employer).

Utilization Management Committee

The UM committee reviews and updates the health plan's UM program description andestablishes utilization review protocols. In many health plans, the UM committee also

The UM Committee

Reviews and evaluates referral and utilization patterns for over- or under-utilization Reviews medical appropriateness for utilization decisions that are under appeal Provides oversight of all UM activities

Some health plans have a separate committee to handle member appeals.

Pharmacy and Therapeutics Committee

The pharmacy and therapeutics (P&T) committee is responsible for developing, updating andadministering a health plan's formulary. A formulary is a listing of drugs, classified bytherapeutic category or disease class, that are considered preferred therapy for a given health planpopulation and that are to be used by a health plan's providers in prescribing medications.16 Theformulary should include safe, effective drugs that are cost-effective. In order to manage theformulary, the P&T committee reviews the following types of information:

The P&T committee reviews

Medical literature including reports on clinical trials Drug utilization reports Current therapeutic guidelines and reports on the need for revised or new guidelines Economic data on drugs Provider recommendations

Peer Review Committee

Peer review is the analysis of a clinician's care for patients by a group of that clinician'sprofessional colleagues.17 The peer review committee reviews cases of healthcare service deliveryin which the quality of care is questionable or problematic. Such cases are identified throughutilization review processes, complaints and grievances, or clinical monitoring activities. Thiscommittee formulates, approves, and monitors corrective action plans for providers as needed.Generally, the only members of this committee who have voting rights are the providers.

The health plan also draws from its other committees for peer advisors. Peer advisors areproviders who are consulted when the expertise of a certain specialty is needed to review aquestion on utilization, quality of care, or provider performance. State laws on peer reviewdetermine the structure and functions of the peer review committee. In some health plans, the QMcommittee conducts peer review.

Variations in Approaches to Medical Management

No single approach to medical management can meet the needs of all health plans, so each healthplan must determine its own combination of programs and activities. When designing medical

management programs, a health plan's management team must consider a variety of factorsspecific to the health plan, its services, and its member population. A health plan's contractualarrangements with its providers and mechanisms for provider compensation may also influencemedical management programs, as we will discuss in lesson, The Relationship of MedicalManagement to Other Health Plan Functions.

Characteristics of the Health Plans

The use and organization of medical management can vary significantly depending on the type ofproduct (e.g., HMO, preferred provider organization, or point of service option) offered by thehealth plan. Each product has characteristics that affect the way the health plan implementsmedical management.

HMOs typically have a variety of medical management programs in place. Many HMOs contractwith provider organizations or medical groups rather than with individual providers. In manycases, HMOs work closely with their provider organizations or groups to develop and implementmedical management programs. HMOs may delegate medical management activities to providersor adapt a provider organization's medical management programs for the plan's use for all itsmembers.

In preferred provider organizations (PPOs), however, medical management across the entiremember population is more difficult because, unlike HMOs, these health plans usually contractwith individual practitioners, pay for out-of-network services, and do not have a designatedprimary care provider (PCP) to coordinate care. As a result, a PPO may not have access tocomplete information about member care. PPOs generally have fewer types of medicalmanagement programs than HMOs and structure their programs more loosely than those ofHMOs.

In the past, PPOs have typically focused on UM activities for the types of care that result in thegreatest costs for the plan, such as precertification for hospital care and case management forcatastrophic cases. Most PPOs do not have programs that focus on long-term health status (suchas preventive care or disease management). However, the majority of PPOs have some qualityinitiatives (such as credentialing) in place and many are working to strengthen the number andscope of their QM activities.

Although point of service (POS) products generally utilize the same types of medicalmanagement programs as HMOs, these plans may also encounter difficulty obtaining informationin a timely manner about services rendered by out-of-network providers.

Health plans with multiple products (such as an HMO and a PPO) may use different approachesto medical management for the different products, or they may adopt the same programs for allproducts. Using the same medical management programs for all products helps to simplify theadministration of the programs. Some purchasers request or even require that medicalmanagement be consistent across the products that they purchase from a health plan. Forexample, an employer that offers an HMO and a POS product to its employees may want allemployees to have access to the same telephone healthcare information lines and preventive care.In addition, having different medical management programs for different products may create theappearance of inequity or even discrimination.

Type of Care

A health plan's approach to medical management should address all of the different types of careand services that are included in the benefit plan. Medical management personnel may need todesign their programs according to

The type of care (e.g., preventive measures, primary care, acute care, subacute care, orrehabilitation)

The nature of the service (e.g., traditional medical and surgical services or specialtyservices such as behavioral healthcare or dental care)

We will discuss variations in medical management according to the type of care in more detail inlater lessons.

Member Population

The needs of a health plan's members are a driving force behind a health plan's approach tomedical management. A member population may have additional distinguishing characteristics,but the health plan should always consider the population's income level, age mix, and gendermix.

The income level has a direct impact on the healthcare services needed and the manner in whichthese services should be delivered. For example, low-income populations have a higher incidenceof chronic illnesses such as asthma, diabetes, and heart disease, and are more likely to needdisease management programs than the general population. Further, low-income populations tendto have relatively low levels of education, so complicated authorization procedures may deterthem from obtaining the services they need.

The age and gender mix of the population also affects the delivery of services. In general,members' healthcare needs increase with age, so a health plan with a significant number of seniormembers may tailor medical management programs for this population segment. For example, aMedicare plan is likely to have health risk assessments that focus on health issues associated withaging and geriatric case management that addresses the healthcare needs of patients with multiplemedical problems.

Although a younger population requires a smaller volume of healthcare services than seniormembers, a younger population also has specific needs. For example, women of child-bearing ageoften need ready access to obstetrical services. A health plan that covers women in this age groupmay establish an authorization system that allows members to obtain obstetrical services directly,that is, without receiving a referral from another provider or authorization from the health plan.

Cultural characteristics such as race, ethnic origin, and religion may also affect medicalmanagement. For example, language barriers may hinder members' understanding of the potentialbenefits of a preventive care initiative or the requirements of a health plan's authorization system.In addition, members' expectations about the nature and delivery of healthcare services may varyaccording to racial, ethnic, or religious backgrounds. For instance, in some cultures, patientsbelieve that injectable medications are far superior to oral treatments and strongly prefer toreceive an injection. In other cases, patients may want to incorporate folk remedies or spiritualhealing into the treatment plan. Some groups resist certain types of medical services, such asblood transfusions or birth control.

A health plan must also consider the possible effects of racial, ethnic, and religious diversity onmembers' medical needs. For instance, regardless of economic status, African Americans have ahigher incidence of low-birth-weight babies than the general population. Consumers of Asiandescent have a relatively high incidence of osteoporosis.18 health plans should recognize racialand ethnic differences in the design of medical management programs. For example, a health planmay target preventive care and disease management programs toward the medical problemscommonly experienced by members of a particular race or ethnic group.

Government-sponsored programs, such as Medicare, Medicaid, and workers' compensation, haveunique requirements for UM and QM. We explore medical management for these populationsfurther in Medicare, Medicaid, and Other Government Sponsored Programs.

At this point, you should have a basic understanding of the most common medical managementactivities and some of the variables that can affect the design and implementation of theseactivities. It is important to note that health plans do not always perform all aspects of medicalmanagement functions within their plans. In many instances, health plans contract with theirproviders or other external entities for the delegation of selected medical management activities,as we will discuss in the following section.

Delegation and Medical Management19

In the context of health plans, delegation is a formal process through which a health plan transfersto another entity the authority to conduct certain functions on behalf of the health plan. The entitythat contracts with the health plan to perform the specified function is the delegate, and the healthplan that transfers the authority is the delegator. The delegator remains accountable for thefunctions being performed by the delegate.

In addition to delegating medical management activities, health plans often delegate variousaspects of other functions, such as network management, member services, medical recordsreview, and claims administration. The list of potential delegates includes hospitals and otherhealthcare facilities, provider organizations, case management companies, claims administrators,management service organizations (MSOs), credentials verification organizations (CVOs), andindependent utilization review organizations (UROs). With so many delegation options available,health plans face ongoing challenges in determining the appropriate use of delegation, selectingqualified delegates, and overseeing the delegated functions.

The use of delegation for an activity changes a health plan's requirements for staffing, systems,and processes. Rather than maintaining the personnel and systems necessary to perform theactivity, the health plan must develop organizational structures and programs to provide oversightof a delegate's performance of that activity.

Delegation by health plans is governed by various regulatory agencies and by state laws.Accrediting agencies also have standards for the use of delegation. We discuss laws, regulations,and accrediting standards that affect delegation in Environmental Influences on MedicalManagement.

Why Delegate?

Decisions on whether to delegate a function and which aspects of a function to delegate dependon several factors including a:

The health plan's available resources for the function. A proposed delegate's willingness and ability to perform the function according to the

health plan's standards. The costs of performing the function internally versus the costs of delegating the

function. The health plan's philosophy about delegation. The expected effect of the delegation on the satisfaction of providers, members, and

purchasers.

A health plan might choose to delegate because it does not wish to dedicate internal resources toperform the activity or because its staff seeks additional expertise for the activity. Many delegatesfocus on a limited number of activities, rather than on the entire spectrum of medicalmanagement. As a result, a delegate often possesses greater knowledge and experience with aspecific activity than a health plan. Also, the health plan may realize that its current informationsystem cannot handle the demands of a particular function. If another organization already has thenecessary systems and personnel in place to perform an activity, the health plan may find it moreefficient in terms of time and money to delegate to that entity than to conduct the activity with itsown staff.

Some health plans find delegation to be a particularly useful option for services that are utilizedby a relatively small number of members or for specialty services that require a differentknowledge base, such as behavioral healthcare or chiropractic care. For instance, many healthplans that contract with a managed behavioral healthcare organization (MBHO) for behavioralhealthcare services also choose to delegate quality-related activities for behavioral healthcare tothe MBHO. These health plans believe that the MBHO's expertise in behavioral healthcare willresult in more clinically appropriate performance of UM, QM, credentialing, member services,and medical records review activities than the health plan could achieve.

Delegation often occurs because the network's providers request the responsibility for certainactivities (such as utilization review and case management), especially when the provider sharesfinancial risk with the health plan. Financial risk is the possibility that the actual costs of a healthplan member's care will be greater than projected costs. Hospitals and provider organizations thataccept financial risk for the delivery of healthcare services may even require that the health plandelegate functions such as credentialing or UM to them as a condition for contracting with thehealth plan. However, the delegation of functions to providers can also occur without the transferof financial risk, and the transfer of financial risk does not in and of itself equal delegation. If theprovider already has satisfactory systems for an activity in place and the health plan does not, thehealth plan may simply find it more practical for the provider organization to assumeresponsibility for the function, at least on a temporary basis. Over time, the health plan maychoose to develop its own mechanisms to conduct functions that have been previously delegated.

A health plan typically compares the expected costs with the expected benefits of delegationbefore entering into a proposed delegation arrangement. A cost/benefit analysis examines thecosts of payment to the delegate as well as the costs of oversight of the delegated function by thehealth plan. The cost/benefit analysis also considers any expected improvements in utilization,cost, or quality that may result from the delegation. The oversight of delegated functions istypically a complex, time-consuming process for a health plan, especially if the health plandelegates several different functions or delegates a function to more than one entity. In somecases, health plans find it easier to perform the function within the health plan than to conduct the

oversight process. These organizations typically delegate few functions or delegate no functionsat all.23

In addition, when a health plan delegates a function, it relinquishes some control over thedelegated function. A health plan that is uncomfortable with diminished control is unlikely todelegate.

Types of Delegated Activities

Credentialing, pharmacy benefits management, utilization review, case management, and diseasemanagement activities are among the most frequently delegated functions. Member services,medical records review, and claims administration functions are also commonly delegated.Depending on the particular health plan and the situation, the delegation agreement may or maynot include all activities for a particular function. For example, Health Plan A delegates to adisease management company all of the activities necessary to implement a diabetes diseasemanagement program, while Health Plan B contracts with a disease management company onlyfor services to identify plan members who have or are at risk of having diabetes. Health Plan Bconducts the rest of the diabetes disease management activities within the plan.

Virtually all medical management activities are subject to delegation; however, the number andtypes of medical management functions that are actually delegated vary among health plans.Figure 1A-4 shows some examples of specific activities that health plans delegate. Regardless ofwhich medical management activities are delegated, the health plan is responsible for ensuringthat access to care and the quality of care are comparable for all plan members.

In many instances, the delegation arrangements for utilization review, case management,credentialing, member services, and medical records review activities are made between thehealth plan and provider organizations such as physician groups, independent practiceassociations (IPAs), hospitals, or MBHOs. When the delegate is a provider organization, thedelegation arrangement sometimes includes two or more major functions. For instance, a health

plan might delegate to a network hospital the credentialing of hospital practitioners, as well as theutilization review and medical records review functions for services provided by the hospital.

Many health plans also contract with CVOs for one or more aspects of their credentialingfunction or with UROs for utilization management activities. While the delegation agreementbetween a health plan and a provider applies only to the healthcare services rendered by thatparticular provider, CVOs and UROs can assume responsibility for a function across many or allproviders in the network. Delegation is less common for quality management and preventivehealth services, possibly due to the more complex processes required for these activities.24

Quality management activities and preventive health services should be performed across a healthplan's entire member population. If network providers are widely dispersed or not affiliated with aprovider organization, the health plan may be unable to coordinate QM activities or preventivehealth services across providers.

The Delegation Oversight Programs

Delegation can be a complicated process for a health plan. Careful planning and continuousmonitoring are essential to the successful management of a health plan's delegation arrangements.To comply with regulatory and legal requirements and accreditation standards, and to decreasethe health plan's legal risk associated with delegation, health plans usually establish a formalprogram for the oversight of delegated functions. This program outlines the health plan'sprocesses for evaluating proposed delegation arrangements, reviewing the performance ofdelegates, and providing delegates with corrective action plans as needed.

The ultimate goal of the delegation oversight program is to see that delegated functions areperformed at or above the standards of the health plan and the applicable accrediting andregulatory agencies. Another objective for the delegation oversight program is to integrate anydelegated activities into the health plan's overall programs for medical management and otherfunctions. A health plan is accountable for equal and consistent treatment of plan members acrossthe health plan's entire network. Coverage of services, access to care, the quality of care, andmember service should be comparable for all members, regardless of which activities aredelegated.

The Delegation Oversight Programs

The delegation oversight process generally includes the following steps:

1. Proposal for delegation.2. Evaluation of the candidate(s) for delegation.3. Selection of a delegate by the committee responsible for delegation oversight.4. A written document describing the delegation arrangement.5. Continuing oversight of the delegated activity, with corrective actions, follow-up

evaluations, and application of sanctions when indicated.

Figure 1A-5 illustrates the steps involved in a health plan's delegation oversight process

Ideally, all documents related to a delegation arrangement contain precise language describing theactivities to be delegated and the time period for which the delegation agreement will beeffective. The use of broad terms such as "key activities for utilization management" or theomission of specific dates can create confusion about the scope and duration of the delegation.For example, the health plan and its delegate (or potential delegate) may interpret differentlywhich activities are included in credentialing, member services, or quality management. Inaddition, the activities viewed as most important by the health plan may seem only incidental to

the delegate. Terminology must be clearly explained so that both organizations understand theexact nature of the delegation arrangement. Clarity is especially critical when delegatingfunctions to network providers who may be less aware of the health plan's expectations than aCVO, a URO, or another organization specifically dedicated to performing delegated functions.

The Proposal for Delegation

The written proposal generally consists of a letter of intent, an application, and, perhaps, a draft ofthe delegation agreement. The letter of intent is a preliminary agreement that indicates the healthplan's and the candidate's intentions to enter into a delegation arrangement. The letter of intenttypically outlines the delegation oversight process. It also establishes a mutual agreement aboutthe confidentiality of patient information and the policies and procedures of the health plan andthe potential delegate. However, a letter of intent is not a contract and does not create a legallybinding relationship. Figure 1A-6 lists the typical components of a letter of intent.

The plan's delegation oversight program and the nature of the proposed delegation determine theamount and type of information that a health plan requires the delegate to submit prior to the sitevisit. In addition to requiring the candidate to complete a standard application, health plans oftenrequest some or all of the following documents:

Health plans often request some or all the following documents:

The candidate's policies, procedures, and program descriptions for the delegated activity. Evidence of any certification or accreditation by external agencies. The candidate's QM plan. Historical information about the entity (such as the date of formation, the names and titles

of officers, and an organizational chart). Evidence of experience with the delegated activity, such as references, sample activity

reports, previous audit results, and any corrective action plans. Information on any activities that the candidate plans to delegate to another entity.

When the health plan receives the completed application and the requested supportingdocumentation, the health plan can begin to evaluate the candidate.

Evaluation of the Candidate

The main purpose of the evaluation is to determine if the candidate can perform the delegatedfunction as well as or better than the health plan at an acceptable cost. Ideally, the system forselecting delegates thoroughly explores a candidate's understanding of both the activity to bedelegated and the health plan's standards for that activity. The evaluation process must alsoconsider the adequacy, qualifications, and capabilities of the candidate's staff. In most cases, asite visit to assess the candidate's operations is a necessary component of the evaluation.

In addition, the health plan determines if the candidate plans to delegate any of the delegatedactivities to another entity and, if so, how the candidate plans to manage this delegationarrangement. We discuss delegation by delegates (known as subdelegation) in more detail later inthis lesson.

Decision on the Proposed Delegation

Based on the results of the evaluation of the candidate, the health plan either approves, denies, orpends the delegation. In cases where the candidate does not fully meet the health plan's standardsbut does not have significant deficiencies, the health plan may pend the delegation and send thecandidate a letter outlining recommended changes, expected completion dates for the changes,and a date for a repeat site visit. The candidate's request for delegation will be approved or deniedbased on the second evaluation.

The Delegation Agreement

A delegation agreement is the contractual document that describes the delegated functions andthe responsibilities of the health plan and the delegate. The delegation agreement may be in theform of a contract (the form generally preferred by health plans), a letter, or some other writtendocument. For a delegation arrangement with a provider organization, the delegation agreementmay be included in the contract for the delivery of healthcare services or it may be a separatedocument. Many health plans prefer to keep the delegation agreement separate to allow for

termination or modification of the delegation arrangement without affecting the contract forhealthcare services.

An agreement that lists the individual services to be delegated and then defines the components ofthese services reduces the chance for misinterpretation. When a health plan contracts with morethan one delegate for a particular function, a clear and detailed agreement can help ensure that alldelegates perform the function in the same consistent manner. The health plan can further lessenthe chance for confusion by describing in detail the responsibilities retained by the health planand the responsibilities transferred to the delegate.

Although the delegate is responsible for performing the function according to establishedstandards, the health plan is ultimately accountable for any deficiencies. The health plan,therefore, must oversee the quality of the delegate's work and propose corrective action if theneed arises. To assist the delegate in meeting the health plan's requirements, the performanceobjectives for conducting the activity and the methods of measuring performance should beclearly stated in the delegation agreement. Other specific elements typically included in thedelegation agreement are the required format for reports from the delegate, the schedule forsubmitting reports, and the dates on which the delegation begins and ends.25

Delegation agreements usually specify contingencies for potential problems associated with thedelegated function. One type of contingency clause allows the health plan or the delegate toterminate the agreement under certain circumstances, that is, with cause. For example, if adelegate with poor performance fails to implement corrective action as directed by the healthplan, the health plan may end the arrangement with appropriate written notice. In otheragreements, either party may end the delegation arrangement without cause after giving adequatewritten notice to the other party.

Continuing Oversight

Diligent oversight of a delegation arrangement is just as important to ensuring quality, cost-effective care as the initial selection process. A health plan must regularly audit a delegate to seethat the delegate is following the health plan's guidelines for the function. During an audit, arepresentative from the health plan revisits the delegate at least annually to observe operations,check documentation, and attend committee meetings related to the delegated function.

After comparing the delegate's results and processes to the goals and standards established in thedelegation agreement, the health plan sends its comments back to the delegate. When there aredeficiencies in the delegate's performance, the health plan may send a corrective action plan tothe delegate, or the health plan may work with the delegate to develop a corrective action plan.Continued poor performance may indicate the need for the health plan to select a differentdelegate to conduct the activity or to conduct the activity using its own resources.

If the delegated function is QM or member services, one important report that the delegateregularly submits to the health plan is an account of adverse events and consumer complaintsregarding the delegated function. This document identifies the number of complaints (oftenreported as the number of problems per 1,000 members), the type of complaints, and an overallassessment of quality.26

Subdelegation

As part of the delegation process, the health plan also monitors any use of subdelegation.Subdelegation is the process that occurs when the health plan's delegate contracts with a thirdentity to perform activities that were originally delegated by the health plan. For example, ahealth plan may delegate utilization management to an IPA that, in turn, transfers the authorityfor case management to an organization that specializes in that activity. The case managementcompany becomes the subdelegate, and its performance is subject to the same standards as theoriginal delegate. Either the health plan or the delegate may conduct the oversight of thesubdelegate. Once again, however, the health plan is ultimately accountable for the performanceof the subdelegate.27

The delegation agreement between the health plan and the delegate should clearly define anylimitations that the health plan places on subdelegation. For example, the agreement may forbidthe delegate to subdelegate activities without informing the health plan and obtaining the healthplan's express written approval prior to subdelegation, or it may specify certain activities that maynot be subdelegated.

Many health plans inquire about the delegate's plans for subdelegation on the original application.Figure 1A-7 lists typical questions that health plans might ask a potential delegate aboutsubdelegation.

Since subdelegation removes the delegated activity further from the health plan's control, healthplans are generally cautious about subdelegation. As a result, the health plan may prefer toconduct its own initial and continuing oversight of the subdelegation rather than leaving thisresponsibility solely to the delegate.28

Conclusion

Ideally, a health plan's overall approach to medical management is proactive and includesinitiatives to preserve and improve members' health, such as preventive care and diseasemanagement. The goal of all medical management programs should be to maintain members'health and reduce the incidence and severity of health problems by delivering the right care.Appropriate, high-quality care will improve members' level of function, quality of life, andsatisfaction with the plan, as well as reducing the level of medical resource usage.29

Resources for medical management are limited, so a health plan must examine the availableoptions and decide how much of its resources to devote to each initiative. For each program underconsideration, the health plan should examine how the program will (1) affect costs and (2)change clinical outcomes, functional status, and satisfaction for members.

A health plan must also consider how each medical management program will affect and beaffected by other health plan functions, as we discuss in the next lesson.

Endnotes

1. Institute of Medicine, Medicare: A Strategy for Quality Assurance, ed. Kathleen N. Lohr(Washington, DC: National Academy Press, 1990), vol. 1.

2. Mary Sajdak and Zachary B. Gerbarg, M.D., "Medical Management Overview," MedicalManagement Signature Series, Health Plan Resources, Inc., 1997,http://www.mcres.com/mcrmm01.htm (11 November 1997).

3. Academy for Healthcare Management, Network Management in Health Plans(Washington, DC: Academy for Healthcare Management, 1999), 1-13.

4. Bruce W. Clark, "Negotiating Successful Health Plan Contracts," Healthcare FinancialManagement (August 1995): 28.

5. Mark A. Schuster, M.D., Elizabeth A. McGlynn, and Robert H. Brook, M.D., "Why theQuality of U.S. Health Care Must Be Improved," National Coalition on Healthcare,October 1997, http://www.nchc.org/emerge/quality.html, 1 March 2000.


7. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd ed.(Washington, DC: Academy for Healthcare Management, 1999), 7-7.

8. Guide to Accreditation (Washington, DC: American Association of Health Plans, June1996), 83.




12. Raymond J. Fabius, M.D., A Physician Executive's Guide to Patient Management for the'90s and Beyond (Tampa, FL: American College of Physician Executives, 1995), 31.


14. Adapted from Academy for Healthcare Management, Network Management in HealthPlans (Washington, DC: Academy for Healthcare Management, ©1999), 8-15-8-17. Usedwith permission; all rights reserved.

15. Elisa Cascade, "Pharmacy Benefit Management Companies: An Update for 1995," DrugBenefit Trends 7 (2): 6-10.



18. Academy for Healthcare Management, Network Management in Health Plans,(Washington, DC: Academy for Healthcare Management, 1999), 1-28.


20. Emily Rhinehart, "You Can Pass the Buck, but Not the Responsibility," ManagedHealthcare (January 1998): 14.

21. NCQA, 1998 Surveyor Guidelines for the Accreditation of Health Plans (Washington,DC: National Committee for Quality Assurance, 1998), 374.

22. Angela Lenox, "Quality Assurance for Delegated Services," Healthplan(September/October 1996): 28.

23. Angela Lenox, "Quality Assurance for Delegated Services," Healthplan(September/October 1996): 30-31.

24. National Committee for Quality Assurance (NCQA), 1998 Surveyor Guidelines for theAccreditation of Health Plans (Washington, DC: National Committee for QualityAssurance, 1998), 373.

25. Angela Lenox, "Quality Assurance for Delegated Services," Healthplan(September/October 1996): 36.

26. Raymond J. Fabius, M.D., A Physician Executive's Guide to Patient Management for the'90s and Beyond (Tampa, FL: American College of Physician Executives, 1995), 57.

AHM Medical Management: The Relationship of Medical Management to OtherHealth Plan Functions

Objectives:

After completing The Relationship of Medical Management to Other Health Plan Functions, youshould be able to:

Explain the relationship between medical management and each of the following health plandepartments:

Network management Risk management Legal affairs Claims administration Finance Sales and marketing Understand the role of information management in medical management operations and

reporting Describe some of the technologies that health plans use to manage information

Introduction

Medical management personnel have regular interactions with many other health plandepartments, including network management, risk management, legal affairs, claimsadministration, member services, finance, and sales and marketing. Further, the health plan'sinformation management function plays a key role in the overall design and day-to-dayoperations of medical management programs. All of these other functions exchange informationwith medical management and they may provide services specifically for medical management.

In this lesson, we explore the relationship of medical management to each of these health planfunctions.

Effective management of the quality and cost of healthcare services is possible only if theproviders of those services understand and cooperate with a health plan's medical managementprograms. Therefore, medical management is very closely linked to network management.Network management includes all of the activities that a health plan conducts to design, assemble,monitor, and maintain a provider network.1

A provider network typically includes primary care providers (PCPs), specialists, hospitals andother healthcare facilities, pharmacies, and ancillary service providers, as shown in Figure 1B-1.

Network Management

To support the consistent delivery of high-quality, cost-effective care to plan members, healthplans conduct credentialing and recredentialing, and monitor the performance of providers. Ahealth plan's processes for provider selection often rely on quality, utilization, and costinformation from the various medical management programs. In fact, a health plan's contractswith its providers typically require cooperation with the health plan's utilization management(UM) and quality management (QM) programs. For example, a provider contract may describethe steps a provider is expected to follow for authorizing referrals for specialty care. Health plansthat contract with provider organizations may delegate the responsibility for conducting selectedmedical management activities to the provider organizations.

Some providers who meet a health plan's standard clinical requirements for network participationhave little experience with health plan medical management. These providers may need moretightly structured UM and QM programs to aid them in following a health plan's medicalmanagement procedures, at least until the providers have demonstrated that their practice patternsare consistent with the Medical management programs must not only result in quality care andcost-effectiveness, but must also be acceptable to providers. Provider satisfaction is important tooverall plan performance and long-term success, and provider satisfaction with a health plandepends in great part on satisfaction with the medical management programs. Collaboration withproviders on medical management can improve these programs as well as enhancing providersatisfaction.

A medical director's involvement with network management varies, depending on the structure ofthe medical management function in a particular health plan. Senior and associate medicaldirectors often participate in provider contract negotiation, the development of networkmanagement strategies, and the oversight of credentialing and other network managementactivities. Associate medical directors and senior medical directors of smaller plans may havemore involvement in day-to-day network operations, such as accompanying provider relations

representatives on visits to providers. In return, provider relations representatives support medicalmanagement functions by helping to implement new medical management programs andconveying information from providers to medical management staff.

Because medical management is closely related to network management, these two functionsmust coordinate efforts in order to avoid conflicts and achieve the most efficient use of healthplan resources. In addition, the contributions of network providers who have daily personalcontact with plan members can prove invaluable to the creation and maintenance of efficient,effective medical management programs.

Provider Compensation and Medical Management

The compensation method specified in the provider contract has a strong influence on the natureof medical management programs. The main issue for a health plan to consider aboutcompensation and medical management programs is what the compensation method rewards. Isthe compensation method based on more pay for more services? Does it include rewards for theefficient use of resources? Does the compensation system take into account the quality ofhealthcare services rendered, the maintenance of overall health status, or member satisfaction?

Fee-for-service (FFS), discounted fee-for-service, and straight salary compensation approachesgenerally do not reward providers for efficient use of resources or for maintaining health throughpreventive care or disease management. In a fee-for-service (FFS) payment system, the healthplan reimburses the health plan member or the provider an amount based on the actual amount ofmedical services delivered.5 A discounted fee-for-service (DFFS) payment system is a paymentsystem in which the health plan negotiates with the provider a percentage discount from the usualFFS charges.6 In fact, DFFS compensation may actually increase utilization if providers try tomake up for the percentage discount with a greater volume of services.

A case rate is a single fee that the health plan pays a provider for all services associated with anentire course of treatment for a condition, such as cardiac surgery or the delivery of a baby. Undera case rate system, providers have an incentive to manage cost and utilization because they standto gain or lose financially on each case based on their use of resources such as tests, treatments,specialty care, and hospital care.7

Capitation is a method of paying in advance for healthcare services on the basis of the number ofpatients who are covered for specific services over a specified period of time rather than the costor number of services that are actually provided. The per member per month (PMPM) capitationrate may be adjusted to account for age or gender.8 A capitated provider receives a set paymentper patient regardless of the actual services delivered, so capitation generally encourages UM byproviders and may give incentives for preventive care and maintenance of health status. As aresult, a health plan may have less need for utilization review (UR). However, because capitationmay influence a provider to under-treat a patient, a health plan that uses capitation must have aQM program designed to detect underutilization.

In addition, unless the PMPM capitation payment is adequate, providers may be tempted toaccept too many patients in order to increase their total monthly capitation payment. A providerwith an overload of patients may have insufficient time to deliver appropriate care and, as aresult, may omit or delay indicated services. To develop capitation rates, a health plan mustgather utilization data and then use it to make assumptions about future utilization. Accurateutilization assumptions enable the health plan to set realistic capitation rates.

A health plan may use financial incentives-such as withholds or bonuses-to influence providerbehavior and thereby achieve desired clinical and financial outcomes. For example, if incentivesreward appropriate utilization, providers will likely exercise restraint in ordering tests andprocedures. A quality basis for incentives encourages providers to strive for good clinicaloutcomes, improvement in overall health status, and high levels of patient satisfaction. Manyhealth plans have determined that a mix of UM and QM requirements is the best basis for settingfinancial incentives.

Risk Management

Risk management includes all the activities that a health plan undertakes to protect the planagainst financial loss associated with the delivery of healthcare services and to protect itsmembers against harm from medical care. The purpose of risk management is to (1) identify andevaluate actual or potential exposures to risk and (2) prevent or at least minimize any financialloss to the plan or physical harm to a member that may result from such an exposure.9

A health plan, its medical directors, and any other physician executives may be liable for anycost-management programs that have the potential to compromise the quality of care or provideincentives that could cause providers to act in a manner that is not in the best interest of themembers.10

For example, suppose that a health plan establishes inappropriate standards for the quality of careor clinical practice guidelines (CPGs) that fail to make allowances for variations in individualmembers' conditions. If a patient suffers harm as a result, the health plan may be subject tocharges of failure to fulfill its duty to act in good faith. The term duty to act in good faith refers toa health plan's legal responsibility to consider members' best interests and not act maliciously,recklessly, or purely in its own economic self-interest.11

In some situations, the courts may hold a health plan liable for negligence by the health plan'semployed or contracted providers. Negligence is failure to exercise the amount of care that areasonable person or entity would exercise under similar circumstances. Medical malpractice is atype of negligence that occurs when a patient is harmed because a provider failed to exercisereasonable care in providing medical treatment.12

Health plans can reduce the risk of negligent care through UM and QM activities designed tosupport the appropriate level and amount of care. For instance, to reduce the likelihood thatproviders may fail to diagnose breast cancer in a timely manner, a health plan may develop andimplement a CPG for the screening and diagnosis of breast abnormalities. QM programs canreduce a health plan's exposure to liability by identifying and addressing the cause(s) of poor-quality care. The lesson Quality Management provides further information on health planliability.

Health plans must also manage the risk of diminished financial performance that may result if theactual total cost of healthcare services exceeds the budgeted cost. The medical managementmeasures shown in Figure 1B-2 may help health plans avoid incurring unnecessary costs andsimultaneously improve the quality of healthcare services.

Legal Affairs

A health plan's legal advisors see that the health plan's policies, procedures, and programs formedical management are in compliance with applicable federal and state laws and regulations.They also advise the health plan on the legal aspects of implementing these policies, procedures,and programs. For example, health plan lawyers develop the language, including the sectionspertaining to clinical practice management, UM, and QM, for the contracts that a health planmakes with its providers and purchasers.

The legal affairs staff must stay abreast of new laws and regulations that affect medicalmanagement and see that any applicable changes are incorporated into the health plan's medicalpolicies and UM and QM initiatives. A health plan's lawyers may represent the organization inany legal actions concerning the delivery of care, such as lawsuits alleging negligent care orfailure to act in good faith. The legal staff also act as consultants to the UR department in theevent of an appeal of a UR decision.

Claims Administration

In most health plans, medical management programs send information to and receive informationfrom the claims administration department or the vendor providing claims administrationservices. Claims administration is the process of receiving, reviewing, adjudicating, andprocessing claims for full payment, partial payment, or denial of payment.15

Providers compensated through a capitation arrangement do not submit claims. Instead, capitatedproviders often send encounter reports to supply the health plan with information about members'

healthcare visits, diagnoses, and services performed. Alternatively, some capitated providerssubmit "no-pay" claims, that is, claims that are for information tracking only and do not involvepayment. Encounter forms and "no-pay" claims provide crucial data for the health plan'smeasurement of preventive care and provider performance and for external entities' assessment ofthe plan's quality.

The relationships between claims administration and medical policy and between claimsadministration and UR are especially important. A health plan is contractually obligated to payonly for covered services that are determined to be medically appropriate. Therefore, for eachclaim received, claims administration personnel must ascertain if the listed services (1) werecovered benefits for the member at the time the services were delivered and (2) if subject to UR,were authorized by the UR department as medically necessary for the member. The URdepartment sends regular reports on authorizations of payment (such as an authorization of areferral for specialty care or a precertification for a hospital admission) to claims administration.The UR department should also keep the claims administration department up to date on the typeof authorization (if any) required for specific services. In addition, the claims administrationdepartment and the UR program sometimes coordinate efforts on questionable claims where theservices listed differ from or exceed the original authorization for payment. These cases requireadditional clinical review to determine if payment should be authorized for the services aslisted.16

For example, does a referral for a member with congestive heart failure cover only a single visitto a cardiologist or does the referral provide for follow-up visits to adjust the patient's medicationfor the heart condition if the PCP feels that such visits are indicated?

By examining claims and encounter report information, medical management managers candetermine the number and types of healthcare services actually delivered to plan members. Thisinformation allows the health plan to understand levels of utilization for each provider. as well asfor the entire network. The evaluation of claims also helps medical management staff identifymembers who are candidates for services such as case management or home healthcare.

Member Services

Member services is the department responsible for:

Giving members information about the health plan, benefits, and network providers. Helping members with any problems. Handling member grievances and complaints. Tracking and reporting patterns of problems encountered. Enhancing the relationship between the members of the plan and the plan itself.17

Member services also monitors overall member satisfaction with care. Through its processes forassessing member satisfaction and addressing member complaints and grievances, memberservices can identify trends that may indicate problems with medical management programs.18

Figure 1B-3 lists complaints and problems tracked by member services that are of particularinterest to medical management personnel.

In addition to providing information about medical management programs to members, memberservices may directly affect utilization and member satisfaction through member education onsuch topics as:

Member Education Topics

The meaning and scope of covered benefits and applicable cost-sharing requirements. Provider listings and PCP selection. Prescription programs, including the use of formularies. The health plan's system for authorizing referrals, procedures, and hospital care. The health plan's procedures for appeals of nonauthorizations of payment. Telephone information lines to assist members with healthcare decisions. Health promotion or preventive care programs offered by the health plan. Access to emergency care.

Finance

Payment to providers for healthcare services rendered to members represents a large proportionof a health plan's total expenses. Without adequate processes to manage the costs of medical

services, actual costs for care may exceed budgeted costs, leading to diminished financialperformance for the health plan and possible failure of the health plan. Medical managementpersonnel who manage costs communicate regularly with the finance department to exchangeinformation on the expected and actual costs of care.

The finance department's staff also uses utilization information to project the costs of providinghealthcare services to a specific member population. These cost projections are factored into thecalculation of the premium rates that purchasers pay for healthcare coverage.

Sales and Marketing

Medical management programs that address quality or cost-effectiveness are important to a healthplan from a marketing perspective. Unless medical management can adequately containhealthcare utilization and costs, the health plan will be unable to offer premium rates that will beattractive to purchasers. In addition, members and purchasers alike are concerned about thequality of healthcare services, so marketing personnel often use quality measures or other medicalmanagement programs as a means of differentiating a health plan from its competition. Forexample, documentation of improved clinical outcomes or member satisfaction can be a usefulmarketing tool. Purchasers and members may favor plans that include health promotion initiativessuch as programs for weight loss or smoking cessation.

QM and UM programs are important to members and purchasers, so a health plan's medicalmanagement personnel must promptly communicate any medical management program changesto sales personnel. In many instances, sales and marketing personnel can relay purchaser andmember input on quality and utilization problems to aid medical management personnel withprogram improvements. For example, sales staff may suggest the modification of theauthorization system to allow members access network specialists without a PCP referral as longas they are willing to pay a higher copayment. The sales staff is also likely to learn of newbenefits that members would like to add to the benefit plan.

The Role of Information Management in Medical Management

Because medical management programs typically require the collection, analysis, and reportingof many different types of data, a health plan needs an accurate, efficient method for informationand data management. Information management is the combination of systems, processes, andtechnology that a health plan uses to provide the company's information users with theinformation they need to carry out their job responsibilities. Having current, accurate informationat the right time in the right format is critical to the effectiveness of medical managementprograms. Another purpose of information management is to see that only authorized parties haveaccess to the data.

Ideally, the information management approach for medical management should take into accountthe needs of each medical management program, the need for links between the programs, andthe need to exchange information with other health plan functions and external entities. Forexample, network management personnel need information about provider performance tocalculate performance-based incentives and to coach providers on performance deficiencies.Utilization reviewers need access to information about covered benefits, patient diagnoses,previous care, and proposed care to make authorization decisions. Disease management personnelneed information about medication usage and specialty referrals to help determine whichmembers may be appropriate for a particular disease management program. Pharmacists need

access to information about members' use of medications to assess drug utilization and preventdangerous drug interactions. QM program directors need information on healthcare and servicequality to include in reports to external parties such as purchasers, providers, members, state andfederal governments, regulatory agencies, and accrediting bodies.

To accommodate all of these needs and many others related to medical management, health planshave two types of information management systems: (1) systems to assist medical managementpersonnel with day-to-day operations and transactions (e.g., processing requests for authorizationof services) and (2) systems to support the analysis of accumulated data and information and toreport the results of that analysis (e.g., measuring provider performance or evaluating differentmedical management initiatives). The next section provides more information on some basicconsiderations for establishing and maintaining both types of information management systems.

Challenges in Managing Data and Information

Effectively managing data for medical management programs involves several challenges. First,the health plan must be able to manage large volumes of data from internal and external sources.A health plan generates tremendous amounts of internal data including documentation of itsbusiness operations and detailed records of the services it delivers to purchasers, providers, andplan members. Providers generate additional data in the course of treating plan members. Thehealth plan also receives external data from purchasers who maintain records on plan membersand from a wide variety of state and federal agencies.

Second, the health plan must be able to manage different types of data. Providers generate clinicaldata related to healthcare services and outcomes. Regulators and accrediting agencies provideoperational information about legal requirements and quality standards. The health plan generatescustomer satisfaction data and financial data related to revenues and expenses. The health planmust be able to understand all of these types of data and the relationships between them.

Third, health plans often experience difficulties acquiring accurate, complete data in a timelymanner, and data is often inconsistent from one source to another. Medical management activitiesfrequently rely on coded information in the claims administration database. However, for medicalmanagement purposes such as the evaluation of provider performance or specific programs, thecodes do not always provide adequate information about services rendered. Also, inconsistenciesmay arise because different providers sometimes use different diagnostic codes for similar typesof patients or different procedural codes for the same procedure. Further, providers' staffs maymake errors when inputting the diagnostic and procedural codes.

Coding is also subject to abuses such as upcoding and unbundling, usually as an attempt toincrease the total compensation under an FFS or DFFS payment system. Upcoding is a type offalse billing in which a provider submits a code for a service with a higher level of reimbursementthan the service actually performed. For example, a provider might submit the code for acomprehensive office visit, when the office visit was actually an intermediate level of service.Unbundling is submitting separate charges for the different components of a service rather thanone charge for the service as a whole. For instance, a surgeon might unbundle care for a patientwho underwent gall bladder removal by submitting three separate codes for the preoperativephysical examination, the surgical procedure, and the postoperative care, which should all beincluded in the code for the surgical procedure itself.20

Finally, the health plan must be able to manage different data formats. For example, data fromproviders and plan members is frequently recorded in the form of paper documents. Much of thedata generated by a health plan is in electronic form, but this data is often distributed in separatedatabases (such as a provider database, a member database, and a claims database) that may havedifferent organizational structures and use different software. In many cases, the approach toinformation management varies among the individual medical management programs of a healthplan. The lack of coordination and compatibility among information management processestypically results in higher costs and less efficiency for this function.

Information management for medical management can be a complex process; however, not allaspects of information management are completely or even partially automated. In manyinstances, health plan personnel manually perform some or all of the steps necessary to obtain anduse information.

The automation of information management for health plans require technical expertise and isgenerally expensive and time-consuming. In addition, the security and privacy of sensitivemedical information is of special concern for health plans, members, providers, and purchasersalike. The Department of Health and Human Services (HHS) has established federal regulationsfor the confidentiality and security of electronic medical information. Entities that maintain ortransmit patient care information electronically must be in compliance with these HHS standards.We discuss these standards further in Environmental Influences on Medical Management.

Despite the costs and complexity of establishing and maintaining automated systems, the use ofcomputerized systems for information management in health plans is growing overall. Next, wediscuss some specific approaches to the automation of information management.

Information technology

The use of information technology varies greatly among health plans. Information technologyrefers to the wide range of electronic devices and tools used to acquire, record, store, transfer, ortransform data or information. The devices and tools used by health plans and their providers formedical management purposes include:

Electronic commerce (eCommerce) Electronic data interchange (EDI) Decision support systems (DSSs) Data warehouses Electronic medical records (EMRs) Health information networks (HINs)

Electronic Commerce

In a health plan context, electronic commerce (eCommerce) refers to a health plan's use ofcomputer networks as a means to perform business transactions and to facilitate the delivery ofhealthcare services to the health plan's members. Many health plans use eCommerce tocommunicate both within the health plan and with plan members, purchasers, providers,regulators, accrediting bodies, and potential members and purchasers.

Although the automation of information exchange processes generally requires a significant up-front financial investment, in the long term, eCommerce often results in cost savings. eCommerce

also offers other advantages over manual systems. The transmission of data and informationthrough eCommerce typically speeds the information exchange process. Faster access toinformation allows health plans and providers to avoid delays in determining the appropriate careand in delivering that care to members.

The majority of health plan eCommerce occurs via the Internet, although a small number ofhealth plans have implemented proprietary computer networks for this purpose. The Internet is apublic, international collection of interconnected computer networks. The most common meansof accessing information on the Internet is the World Wide Web, also known as WWW or theWeb, which is an Internet service that links independently owned databases containing text,pictures, and multimedia elements.

The development of the Internet has provided health plans with a cost-effective means oftransmitting and obtaining information. Many health plans have their own Internet Web sites. AWeb site is a specific location on the Web that provides users access to a group of related text,graphic, and, perhaps, multimedia files. Health plans use Web sites for a variety of purposes, suchas those listed in Figure 1B-4.

Because the Internet is already established and is so far-reaching, many health plans find it to be acost-effective tool for information management. Another advantage is that many people arefamiliar with the Internet and find it easy to use. However, the Internet does have some potentialdrawbacks. No single entity has responsibility for managing the Internet or correctingmalfunctions, so concerns about network reliability persist.

In addition, the Internet is publicly available, so the potential exists for unauthorized access to theproprietary systems of a health plan. To provide a higher level of security than presently existswith the Internet, some health plans have established intranets and secured extranets. An intranetis an internal (private) computer network built on Web-based technologies and standards. Accessto the intranet is available only to members of the computer network. An extranet is similar to anintranet in that it incorporates Web-based technologies; however, the extranet links selectedresources of a health plan to external entities or individuals. The external parties (e.g., providers,members, regulatory and accrediting agencies) need a password in order to gain access to thehealth plan's information.

Electronic Data Interchange

Electronic data interchange (EDI) is the computer-to-computer transfer of data betweenorganizations using a data format agreed upon by the sending and receiving parties. EDI may beuseful for the following medical management activities:

Medical management activities:

Transmission of claims and encounter reports from providers to the health plan. Transmission of data from the claims database to various medical management

departments. Transmission of data among different health plan departments or geographic locations. Exchange of data between a health plan and regulatory or accrediting bodies. Transmission of member eligibility data from a health plan to its providers. Exchange of information between a health plan and its providers regarding requests for

authorizations of services and referrals.

Two advantages of EDI over manual data management systems are speed of data transfer andimproved data integrity. Each manual step in a process introduces the possibility of human error.For example, if a health plan receives paper-based claims or encounter reports, then the claims orencounter report processing personnel must enter the data into the health plan's system and maymake mistakes. On the other hand, if the health plan receives the data electronically and cantransfer it automatically into its system, these potential data errors can be minimized.

EDI requires a data communication link between the participating departments or organizations.In many instances, the Internet serves as the communication link. EDI differs from eCommerce inthat EDI is the transfer of data (typically in batches), while eCommerce involves back-and-forthexchanges of information concerning individual transactions, and, often, the performance of sometype of service.

Decision Support Systems

In addition to improving access to data and information, information technology may also supportproblem-specific decision-making. A decision support system (DSS) uses databases and decisionmodels to enhance the decision-making process for health plan executives, managers, clinicalstaff, and providers.22

A DSS can help providers and health plan personnel make decisions by analyzing data from adatabase and reporting the results of the analysis. For example, health plans may use a DSS toanalyze the effect of healthcare services on members' health. This information can then be used toidentify the most effective medical interventions. Another common use for decision supportsystems is to evaluate the performance of network providers in order to identify the providerswhose performance does not meet the health plan's expectations for quality or cost-effectiveness.Based on this type of analysis, the health plan can target providers for coaching on performanceimprovement. A health plan may also use a DSS to identify providers who consistently deliverhigh-quality, cost-effective care in order to recognize their superior performance and, perhaps,reward them with financial incentives or nonmonetary benefits, such as relaxed requirements forservice authorization.

Used prospectively, a DSS may help a health plan determine how it can best use its medicalmanagement resources. For example, a DSS may show that a certain type of preventive careinitiative is needed. A clinical DSS assists providers with diagnosis and/or treatment selection forpatients.

Health plans sometimes use a type of DSS called an expert system to assist with medicalmanagement decisions, although such systems are still primarily used for claims administration.An expert system is a knowledge-based computer system whose purpose is to provide expertconsultation to end-users for solving specialized and complex problems23. Expert systems applygeneral rules to data to determine the answer to specific questions. For example, an expert systemcan apply the general rules for authorizing a specific procedure (such as a mammogram) to thecharacteristics of a particular plan member to determine if that member is eligible for thatprocedure24. Advantages of this type of expert system are the ability to store and recall extensivesets of rules and consistency in applying those rules.

A health plan may also use an expert system that incorporates artificial intelligence. Artificialintelligence (AI) refers to computers that can simulate the function of a human brain, that is, thecomputers can think and learn from previous knowledge.25 An AI system may be used to detectrelationships among different data elements and then apply the knowledge of those relationshipsto new data.26 An AI system could be running within an electronic patient record system, forexample, and alert a clinician when it detects a contraindication to a planned treatment. It couldalso alert the clinician when it detected patterns in clinical data that suggested significant changesin a patient’s condition. AI systems have the capacity to learn, leading to the discovery of newphenomena and the creation of clinical knowledge. For example, a computer system can be usedto analyse large amounts of data, looking for complex patterns within it that suggest previouslyunexpected associations. AI systems are now being used in the development of predictivemodeling programs.

Decision support systems require timely access to accurate data in order to be effective. In thenext section, we discuss the role of data warehouses in providing the needed data.

Data Warehouses

All health plans have various legacy systems that have evolved over time. A legacy system is acombination of computer hardware and software that a health plan has used for a long time toperform specific tasks. Typically, legacy systems are no longer state-of-the-art, but they have notbeen replaced because they perform a necessary function and because costs of replacement maybe high. Often, unique combinations of hardware and software are used for different health planfunctions because the best system for one function is not the best approach for another function.In addition, virtually no health plan has the financial resources to replace all of their legacysystems at once, even if such large-scale replacement were desirable.

As a result of legacy systems, information is often divided among distinct, unlinked databases. Ahealth plan manager seeking organization-wide information may have to search more than onedatabase within each functional area as well as across several different functions. Multipledatabase searches not only increase the time it takes to acquire information, they also increaselabor costs. In addition, the data from the various databases may be in different, incompatibleformats. In some instances, the manager may not have ready access to all of a health plan'sdifferent databases.

To address the problems associated with multiple data management systems, many health planshave begun to use data warehouses. A data warehouse is a specific database (or set of databases)containing data from many sources that are linked by a common subject (e.g., a plan member)27.The data from the various sources is integrated through a process that transforms data capturedfrom otherwise incompatible databases and operational systems so that the data is nonrepetitiveand in a standard format.

With a data warehouse, health plan personnel are better able to prepare complete, accurate reportsbecause they can merge data from various separate sources (e.g., claims administration andutilization review). A consistent format for data also enables the comparison of data (1) acrossdifferent types of health plan products (e.g., HMO versus PPO) and (2) against data from otherhealth plans.

Data warehouses typically store large amounts of historical data, as well as current data, whichfacilitates the analysis of information over time. A data warehouse also addresses the problem ofhaving multiple databases that are not linked.

A data warehouse may contain data from both internal and external sources. Information userscan analyze the data in the warehouse through the use of query applications.

Advantages and Disadvantages of Data Warehouses. Data warehouses simplify the process ofextracting useful information from data that is gathered independently by different health planfunctions or external sources. A warehouse approach also relieves individual databases fromhaving to store large amounts of data that is not needed for daily operations. Decreasing theamount of data in an individual database typically speeds the response time of the database to aquery.

Data warehousing also facilitates data mining, which is an automated process that analyzesvariables to help detect patterns and relationships in the data. For example, data mining can revealnot only which providers have higher than average costs associated with childbirth, but may alsosuggest why those providers' costs are higher. The data mining process does this by providinganswers to questions that depend on a number of different types of data. Does the providerperform a higher than average percentage of cesarean sections? Is the provider practicing in ageographical area in which medical costs are higher than average? Is the provider serving apopulation with an unusually high number of health problems that cause difficulties before andafter pregnancy? Is the provider focusing on very difficult cases, but managing those cases well?

Several different functional areas might gather the data necessary to answer these questions.Marketing, for instance, might supply provider demographic information. Claims administrationmight supply the provider's claims costs as well as information concerning the types of medicalproblems present among the provider's patients. The data warehouse can provide a means ofstoring and accessing these types of information over time. The answers to these questions maysuggest ways to both lower costs and improve care. If the population of women that the providerserves has a high incidence of health problems that can complicate childbirth, perhaps a healtheducation program that targets the characteristics of that population would lower costs for theplan and improve members' health.

Data warehouses can help medical management personnel answer questions that rely on trendsthat are not immediately obvious. For instance, suppose that a medical management programdirector wants to know if the average age of the population covered by the health plan in a

geographic region is increasing. Some databases may be able to supply the current average age ofplan members, but may not be able to show how that average age has changed over the past fiveyears. A data warehouse that has historical data would be able to do so. Further, the datawarehouse could supply information on whether the change in average age correlates withchanges in the frequency and cost of care for cardiac disease, for example.

The principal disadvantages of data warehouses are the complexity and cost of implementingthem. Typically, the construction of a data warehouse is very time-consuming and requiressignificant technological expertise and financial resources. Even though a data warehouse maymake health plan operations more efficient and improve the quality of healthcare, the return onthe financial investment in a data warehouse may not be realized for several years.

One important source of information to support quality and cost-effectiveness of care for a healthplan's members is the data contained in medical records. Traditionally, these records have been inthe form of paper documents and were kept at the site where the care was provided. Someproviders, however, are beginning to document their patients' care in an electronic form. Anelectronic medical record (EMR), also sometimes called a computer-based patient record (CPR),is a computerized record of a patient's clinical, demographic, and administrative data.

Depending on the design of the EMR system, an EMR can be composed of a number of differenttypes and formats of data. For example, clinical data would include, but would not be limited to,the plan member's medical history, current and past medications, diagnoses of illnesses, testresults, and current treatment status. Similarly, demographic data would include the member'sname, address, age, gender, and perhaps, information about race, ethnic origin, or religion, if thistype of information is relevant. Administrative data may include plan type (HMO, PPO, etc.),plan sponsor (the purchaser), membership number, and the names of providers who haverendered treatment to the member.

While the exact types of data in an EMR vary, they all include medical information and areorganized around an individual plan member, rather than by the type of treatment or by provider.They are designed to supply information at the site of care. In contrast, many other databases anddata warehouses that health plans and providers use are designed to supply UM or QMinformation. EMRs also include some level of clinical decision support for providers. Forexample, EMR software can be designed to alert a provider to possible drug interactions in thecase of a patient receiving multiple medications.

Health Information Networks

Although an EMR system in a clinic, physician's office, or hospital has the potential to improvethe quality of healthcare at the site of care, even more advantages can be achieved if medicalrecords can be transferred across an entire network of providers. One method of transferring thisdata is for a health plan to develop a health information network (HIN), which is a computernetwork that provides access to a database of medical information. In one type of networkarrangement, a health plan's HIN, also known as a health data network (HDN), is linked to a datawarehouse that stores the very large amounts of data that reside in the medical records of anentire provider network. The HIN makes the data in the warehouse available online to a definedset of users, such as health plan physicians and pharmacists, and medical management personnel.A health plan may also use a secured extranet design or a distributed database approach for theHIN. With a distributed database approach, a database system (including either the whole

database or only the relevant portion) is located at more than one site. For example, the EMRdatabase might be available at several different hospitals and at large provider groups' locations.

Most HINs are Internet-based rather than built on proprietary computer networks. Whatever thenetwork infrastructure, the health plan typically houses a central database or data warehouse thataccepts, organizes, and stores EMR information as it is entered, and then makes EMRs availableto authorized users.

HINs have the potential to increase the quality of medical care because all the information in apatient's medical history is readily available to that patient's provider at the point of treatment. Forexample, suppose that a plan member is seriously injured in an accident and is brought to ahospital that is linked to the health plan's HIN. The HIN would allow medical personnel at thehospital access to the member's complete medical history, even if the member were unconsciousor otherwise unable to respond to questions. Thus, the hospital physicians would know whetherthe patient had been taking prescription medication, was allergic to specific drugs, or had anyother medical conditions, such as diabetes or heart disease, that might influence emergencytreatment decisions. The hospital physicians would also know the names of the member's PCPand any specialists who had treated the member, as well as the names of family members tocontact.

HIN-supported EMRs have a distinct advantage over non-networked forms of medical recordkeeping, particularly the common practice of using paper documents. With paper records, if aplan member receives care from providers at different physical locations, either the paper recordsmust be copied and faxed or carried between locations, or the providers themselves must discussthe details of the chart. Further, with paper records, the possibility exists that records may be lostor at least temporarily misplaced.

The capacity of HINs to capture a large amount of data about healthcare services and outcomes ina uniform format also affords health plans the following benefits:

Health Plan Benefits

Improved outcomes measurement. Health plans can extract outcomes trends from theHIN data warehouse using computer software designed for this purpose. This outcomesinformation can be used for developing clinical practice management parameters such asmedical policies or clinical practice guidelines.

Better measurement of provider performance. Using data partly gathered through itsHIN, a health plan can identify providers who have superior outcomes and who complywith UM and QM programs.

Increased efficiency and accuracy of information about healthcare servicesrendered to members. Most HIN systems present providers and their staffs withcomputer screens that list standard options for entering data about patient care. Ratherthan type in this data or record it on paper, the provider or staff member can simply clickon the appropriate option, which saves time and reduces the possibility for clerical error.

Reduced exposure to liability for poor care. Just as EMRs and HINs give providers ameans of documenting their work to show compliance with quality programs, HINs assisthealth plans in demonstrating that quality care is being uniformly rendered to planmembers.

Improved ability to meet reporting requirements. HINs give a health plan a vehiclefor capturing information that may be required by regulatory agencies or accreditingbodies.

Although HINs offer a number of advantages, HIN development involves significant costs andrisks for a health plan. Figure 1B-5 summarizes challenges faced by a health plan that wishes todevelop such a network. Currently, only a minority of health plans operate HINs that are capableof transferring medical records among the providers in a health plan's provider network.

Reporting Medical Management Information

In most cases, health plans need many different types of reports on medical managementactivities. Report needs vary according to the focus of the activity, the level of detail desired, andthe type of analysis that has been performed on the data. For example, case management staffmay need to examine the complete set of data about the cases they are managing, while the casemanagement program director needs a concise summary of the current case data along withnotations of trends or problems.

Medical management program directors must often examine a series of reports, each showing adifferent level of detail, in order to analyze a particular issue. The process of examining multiplelayers of increasingly detailed information and data to improve understanding of a particular issueis sometimes called drilling down.

For example, suppose that a health plan's total costs for ambulatory care are higher than expectedfor a given period. The utilization review staff may be able to determine the source or sources ofthe excess costs by drilling down through data on ambulatory care utilization by the type of care,the diagnoses or other characteristics of patients receiving that care, and the providers ordering ordelivering the care. If the source is a particular provider or a particular type of patient, the healthplan can investigate the reasons for the excessive utilization of resources and, if indicated,formulate a plan to correct the problem. Figure 1B-6 illustrates the concept of drilling down todetermine the cause of excess costs resulting from greater than expected utilization.

Even when the total results of a report are within acceptable limits, medical managementpersonnel may drill down to identify any specific areas for which actual results are noticeablydifferent from the projected results. Drill down reports are also valuable for tracking changesfrom one time period to another.

Outsourcing Information Management

The technical demands of designing, setting up, and maintaining systems and processes forinformation management can be considerable. In most regions of the country, external vendorsoffer a wide variety of information management services and products. Health plans oftenpurchase computer equipment and software programs from these vendors, especially for medicalmanagement activities that benefit from sophisticated analysis. They may hire vendors to helpthem design and establish new systems such as data warehouses or HINs.

Health plans may also choose to outsource some or all of their information management activitiesto an external vendor rather than conduct the information processes within the health plan.Outsourcing involves hiring external vendors to perform specified functions, such as data andinformation management activities. In an information management outsourcing arrangement, thehealth plan specifies its information management requirements and provides data to a vendor thatdesigns an appropriate system and conducts the information management activity on a day-to-daybasis. The vendor also creates the reports that the health plan requires.

The purchase of information management products and outsourcing arrangements are typicallylong-term commitments for a health plan. Information management outsourcing often requires asignificant financial investment, as well as complex legal and administrative arrangements.Because the information management function is so critical to a health plan's operations, anydisruption in the relationship between the health plan and the vendor may be very costly for thehealth plan. Therefore, a health plan should select a vendor that is financially stable and that has areputation in the healthcare industry for high-quality products and technical support.

Conclusion

At this point, you should have a basic understanding of the purpose of medical management, thetypical components of medical management, medical management staffing, and the relationshipof medical management to other health plan operations. In the next lesson, you will learn aboutthe impact that external forces have on a health plan's approach to medical management. OtherGovernment-Sponsored Programs explores how laws, regulations, accreditation standards, andthe expectations of purchasers, consumers, and providers affect medical management.

Endnotes


2. Academy for Healthcare Management, Network Management in Health Plans(Washington, DC: Academy for Healthcare Management, 1999), 1-3, 3-3.

3. Marianne F. Fazen, St. Anthony's Health Plan Desk Reference, 1996-1997 ed. (Reston,VA: St. Anthony Publishing, Inc., 1996), 272.









12. Barbara J. Youngberg, "Risk Management in Health Plan," in The Managed Health CareHandbook, ed. Peter R. Kongstvedt, M.D., 3rd ed. (Gaithersburg, MD: Aspen Publishers,Inc., 1996), 612.

13. Academy for Healthcare Management, Health Plans: Governance and Regulation(Washington, DC: Academy for Healthcare Management, 1999), 12-5.




17. Robert S. Eichler and Robin M. McElfatrick, "Claims and Benefit Administration," inThe Managed Health Care Handbook, ed. Peter R. Kongstvedt, M.D., 3rd ed.(Gaithersburg, MD: Aspen Publishers, Inc., 1996), 493.

18. Peter R. Kongstvedt, M.D., "Member Services and Consumer Affairs," in Essentials ofManaged Health Care, ed. Peter R. Kongstvedt, M.D., 2nd ed. (Gaithersburg, MD: AspenPublishers, Inc., 1997), 378.


20. Academy for Healthcare Management, Network Management in Health Plans(Washington, DC: Academy for Healthcare Management, 1999), 5-30. Used withpermission; all rights reserved.

21. Robert C. Nickerson, Business and Information Systems (Reading, MA: Addison-WesleyEducational Publishers, Inc., 1998), 21.

22. J. K. H. Tan, Health Management Information Systems (Vancouver, B.C.: AspenPublishers, Inc., 1995), 142.

23. J. K. H. Tan, Health Management Information Systems (Vancouver, B.C.: AspenPublishers, Inc., 1995), 50.

24. Edmund X. DeJesus, "Achieving Expert Ease," Healthcare Informatics (January 2000):55.

25. Ralph M. Stair and George W. Reynolds, Information Systems: A Managerial Approach(Cambridge, MA: Course Technology, 2000), 480.

26. "Expert Systems: Staunching the Risk Flow," Healthcare Informatics (July 1999): 22.

27. John Meyers, "Beyond Intervention: Data Warehousing and the New DiseaseManagement," Managed Healthcare (January 1998): 30.

AHM Medical Management: Environmental Influences on Medical Management

Objectives:

After completing Environmental Influences on Medical Management, you should be able to:

Describe the types of environmental factors that affect medical management of healthplans

Discuss the expectations of purchasers, providers, and plan members for medicalmanagement

Describe the major federal and state regulatory requirements that affect medicalmanagement

Describe how environmental factors influence a health plan's delegation of medicalmanagement functions

Identify the main accrediting agencies and explain the impact of accreditation on medicalmanagement

Introduction

Health plans operate within an increasingly complex environment that consists of both internaland external factors. A health plan's internal environment includes all those elements within thecompany that affect the company's business functions and over which the company has control. Ahealth plan's external environment includes all those elements that are outside the company'scontrol. Figure 1C-1 shows some of the elements that constitute a health plan's external andinternal business environments.

Environment factors have a direct impact on a health plan's medical management policies,strategies, and decision making processes. For example, consider the situation facing a healthplan that is trying to decide whether to add a disease management program to its medicalmanagement function. In order to make a decision, the health plan must not only satisfy itsmedical management goals, it must also accommodate a variety of external demands. Purchasers,providers, and health plan members all have expectations related to healthcare services and to thehealth plans that deliver those services. Competitive pressures influence how plans develop andmarket their products. Federal and state laws and regulations specify how plans must operate, thekinds of benefits they may or must offer, and even the quality standards with which they mustcomply. Accreditation organizations direct how plans measure and improve the quality of theirservices. Media coverage often determines the health plan's public image. As Figure 1C-2illustrates, the issues that affect the health plan's decision can be complex.

In this lesson, we will describe how a health plan's external environment influences its medicalmanagement decisions. We will focus our discussion on the following factors: (1) purchaser,provider, and plan member expectations; (2) legal and regulatory requirements; and (3)accreditation standards.

Medical Management and Expectations of Purchasers, Providers, and Plan Members

Purchasers, providers, and plan members all have expectations related to the healthcare servicesthey want and need and to the health plans that arrange the delivery of those services. Someexpectations are shared by all of these customer groups; others are not. All have an impact on ahealth plan's medical management decisions.

Purchaser Expectations

The major purchasers of health plan services are private employers and federal and stategovernment programs. As a group, these purchasers want to see that all health plans underconsideration:

Provide quality healthcare benefits that are accessible, yet affordable. Operate efficiently so that administrative costs are minimized. Maintain satisfactory member service patterns. Comply with applicable laws, regulations, and industry standards.

Employers, federal governments, and state governments also have their own individualexpectations.

Employers

Employers-especially large employers-are key purchasers of healthcare benefits, and their abilityto recruit and retain competent employees often depends on the type and level of healthcarebenefits they offer. Although cost is an important part of their purchase decision, employers arealso concerned with the quality of care and services the plan delivers. For example, one largeemployer is requesting that health plans comply with specified clinical goals for preventive care,such as prenatal care, mammography screenings, and child immunization rates1. Employersconsider employee satisfaction as well. No employer wants to be inundated with employeecomplaints about inadequate treatment, long wait times for appointments, lack of access toappropriate specialists or preferred providers, poor quality of provider/patient interactions, andthe share of costs they must pay.

Employers can address these concerns, in part, by evaluating and comparing quality data from allhealth plans under consideration. For HMO plans, accreditation by one of the major accreditingorganizations provides evidence that the plan meets certain quality and customer satisfactionstandards. Performance measurement programs provide additional information. These sourcesmay be less helpful in evaluating the quality of non-HMO plans because fewer non-HMO planscurrently seek accreditation or report specific performance results.

If employers are not satisfied with the quality or cost of services available through health plans,they can minimize or even eliminate the role of health plans by contracting directly withproviders or by establishing self-funded plans. Direct contracting allows employers to reduceadministrative costs and see that employees have a sufficient level of provider choice. However,it also requires employers to manage complex provider relationships. So far, the challenges of thisrole have prevented direct contracting from becoming a dominant model. Under self-fundedarrangements, employers assume the financial risk associated with providing healthcare benefits.In some cases, employers also assume responsibility for administering the program; in othercases, employers contract with health plans to provide administrative support throughadministrative services only (ASO) agreements.

In all self-funded programs, directly in the delivery and financing of healthcare benefits and havea voice in determining the type, quality, and cost of healthcare services.

Federal Government

The federal government serves as both a regulator and a purchaser of healthcare benefits. As aregulator of health plans, the federal government exerts regulatory and legislative influence overhealth plans and expects health plans to fully comply with all applicable laws and regulatoryrequirements. In addition, the federal government seeks input from health plans when draftinglegislation or developing regulations to implement laws enacted by Congress. For example, as wewill discuss later in this lesson, many health plans have participated in the federal government'sefforts to develop regulations implementing electronic data security and privacy standards asrequired by the Health Insurance Portability and Accountability Act of 1996.

As the largest purchaser of healthcare benefits in the United States, the federal government has animpact on the medical management functions of individual health plans. Through programs suchas Medicare, the Federal Employee Health Benefits Program (FEHBP), and TRICARE, thefederal government sets standards for the quality and types of benefits it expects health plans to

offer to qualified beneficiaries. Many of these standards and expectations are eventually adoptedby purchasers and consumers in the private sector as well.

In the following sections we discuss some of the federal government's expectations related toMedicare, FEHBP, and TRICARE programs. We will discuss the programs in more detail in laterassignments.

Medicare. As you recall from Healthcare Management: An Introduction, Medicare+Choiceexpanded the types of entities that are allowed to offer managed healthcare plans to Medicarebeneficiaries. During the last few years, the federal government's major quality and costinitiatives have been to encourage Medicare beneficiaries to enroll in managed healthcare plansas part of Medicare+Choice.

The federal government expects Medicare+Choice plans to:

Medicare+Choice Plans Should

Offer a variety of specialty care providers Accommodate the special access and healthcare needs of the Medicare population (e.g.,

transportation, disability coverage) Accommodate the unique utilization patterns of the Medicare population (e.g., use of

emergency departments) Provide services and plan information in a linguistically and culturally sensitive manner

In order to see that health plans satisfy these expectations, the federal government hasimplemented a variety of quality assessment and improvement initiatives. The government hasalso revised reimbursement methods for managed healthcare plans in an effort to reduce costs.However, as a result of these cost-cutting efforts, some health plans have withdrawn from theMedicare program.

On December 8, 2003, President George W. Bush signed into law the Medicare ModernizationAct of 2003 (MMA), creating short-term reforms to designed to both improve benefits and reduceout-of-pocket costs for millions of Medicare beneficiaries who are covered by health plans in theMedicare Advantage program, previously known as the Medicare+Choice programs, and to effectpayment reform to encourage more health plans to offer medicare Advantage programs.

See Editor's Note.Editor's NoteThe Medicare Modernization Act of 2003

On December 8, 2003, President George W. Bush signed into law the Medicare ModernizationAct of 2003 (MMA), taking steps to expand private sector health care choices for current andfuture generations of Medicare beneficiaries. The MMA proposes short-term and long-termreforms that build upon more than 30 years of private sector participation in Medicare.

The centerpiece of the legislation is the new voluntary prescription drug benefit that will be madeavailable to all Medicare beneficiaries in 2006. Additional changes to the M+C program include:

M+C program’s name is changed to Medicare Advantage (MA); Increased funding is provided for MA plans in 2004 and 2005;

MA regional plans are established effective 2006.

On January 16, 2004 CMS announced new county base payment rates for the MA program.Beginning March 1, 2004, all county MA base rates received an increase which plans are requiredto use for enhanced benefits. Plans may use the extra money in one of four ways:

Reduce enrollee cost sharing; Enhance benefits for enrollees; Increase access to providers; Utilize the stabilization fund.

The short-term reforms have already improved benefits and reduced out-of-pocket costs formillions of Medicare beneficiaries who are covered by health plans in the Medicare Advantageprogram, previously known as the Medicare+Choice program. These coverage improvementsbecame effective on March 1, 2004.

On June 1, 2004, beneficiaries saw additional improvements in Medicare under another importantMMA initiative, the Medicare-Endorsed Prescription Drug Discount Card Program, which willremain in effect through the end of 2005. This program gives beneficiaries the option ofpurchasing prescription drug discount cards—sponsored by private sector entities and endorsedby Medicare—which offer discounted prices on prescription drugs. Furthermore, the discountcard program is providing low-income Medicare beneficiaries with up to $600 annually inassistance, in both 2004 and 2005, to help cover their prescription drug costs.

Beginning in 2006, the MMA will provide beneficiaries with a broader range of private healthplan choices similar to those that are available to working-age Americans and federal employees.In addition to the locally-based health plans that currently cover more than 4.6 million Medicarebeneficiaries, regional PPO-style plans will be available as a permanent option under theMedicare Advantage program.

Beginning in 2006, all beneficiaries will have the option of choosing prescription drug coveragedelivered through private sector entities. This coverage will be available as a stand-alone drugbenefit or, in other cases, as part of a comprehensive benefits package offered by MedicareAdvantage health plans.

Other important provisions of the MMA address Medigap choices and specialized MedicareAdvantage plans for beneficiaries with special needs.

Public comments on the regulations are currently in review, and changes to the draft regulationsare anticipated. Final regulations are expected in the spring of 2005, and content updates will bemade after the release of the final regulations.

The Federal Employee Health Benefits Program. The Federal Employee Health BenefitsProgram (FEHBP) is a voluntary health coverage program for federal employees, retirees, andtheir dependents and survivors.3 The Office of Personnel Management (OPM) oversees theFEHBP, which offers plan members a choice among fee-for-service (FFS) plans and HMOs.Because of its size and membership, plan design requirements for the FEHBP often influenceplan design in the private sector. The OPM has generated several requirements for mandatedbenefits, including no limits on annual coverage for behavioral health benefits. Some healthcare

analysts have proposed the FEHBP as a model for a national healthcare plan. It has already beenused as a model for various quality assessment and improvement initiatives.

Tricare

TRICARE is the healthcare benefit program offered by the federal government to active andinactive military personnel and their families. It is the result of the federal government'sconscious decision to incorporate health plans into its traditional FFS program. TRICARE offerseligible members three plan options:

1. TRICARE Prime-a capitated HMO;2. TRICARE Extra-a PPO; and3. TRICARE Standard-a fee-for-service plan.4

Coordination of services between civilian and military providers is an important focus ofTRICARE because civilian providers now deliver many healthcare services to the militarypopulation.

State Governments

Like the federal government, state governments serve as both healthcare regulators andpurchasers. For example, states act as purchasers of healthcare coverage for state and localgovernment employees. Expectations for these populations parallel expectations established forfederal programs. The influence of state governments as purchasers, however, is focused on twomajor programs: Medicaid and workers' compensation. This section provides a brief descriptionof Medicaid and workers' compensation. More detailed discussions are presented later in the text.

Medicaid is a joint federal/state program designed to provide healthcare benefits to low-incomefamilies, children, and certain other groups of disabled and medically needy individuals. Thefederal government determines minimum eligibility standards, benefits, and providerreimbursement rates. It also provides funding for state programs. State governments provideadditional funding and oversee the administration of Medicaid at the state level. Currently, all butone of the states offers a health plan option to Medicaid recipients. A growing number of statesare making enrollment in health plans mandatory.

Health plans participating in state Medicaid programs are expected to accommodate the uniqueaccess needs of the Medicaid population, including locating appropriate providers at sitesconvenient to program recipients. In addition, states expect participating plans to address thespecial language, culture, education, and health/disability needs of the Medicaid population.

Workers' Compensation

Workers' compensation, often referred to as workers' comp, is a state-mandated insuranceprogram that provides benefits for medical expenses that are incurred and wages that are lost byworkers who suffer work-related injury or illness.5 Purchasers expect health plans participating inworkers' comp programs to address both of these issues.

An effort is underway in several states to combine healthcare coverage with disability incomecoverage and on-the-job accident coverage into one program, called 24-hour coverage. Wheneverhealth plan principles are applied to this combined coverage, the resulting plan is called 24-hour

health plan. The main effect of 24-hour health plan programs on a health plan's medicalmanagement function is that coverage for work-related injuries or illnesses and incomereplacement for the time period out of work are mandatory.

Provider Expectations

Providers working with health plans have three major concerns. First, providers want thehealthcare services that they deliver to meet proper medical and quality standards. In a traditionalFFS system, providers determine which services are provided and under what conditions. In ahealth plan environment, health plans may influence some of these decisions. For example, ahealth plan may establish standards for the types of tests authorized under certain circumstancesor for certain conditions.

Providers sometimes perceive that health plans make such decisions on the basis of cost ratherthan appropriateness of care and fear that this practice will have a detrimental effect on quality.Providers sometimes also perceive that nonmedical personnel are involved in making medicaldecisions and that health plans are practicing medicine without a license-a practice referred to asthe corporate practice of medicine. Health plans can alleviate these concerns, in part, byencouraging provider participation in defining what constitutes best medical practices and indeveloping clinical practice guidelines for medical services.

Second, providers want to retain a certain level of authority and autonomy in providing medicalcare. Providers feel that they, and not the health plan, should be the final authorities for medicaldecision making. Providers also want to have access to due process procedures in the event of aconflict between a provider and the health plan. Timely, well-documented, and objectiveprocedures in an appeals process are critical to allaying providers' concerns about theirparticipation in health plans.

Finally, providers want to know that health plans can provide necessary financial andadministrative support for their practices. For example, providers want health plans to establisheasy claims submission and reimbursement procedures, to provide timely payment of their fees,and to require providers to follow as few administrative procedures as possible. Ideally, providerswould welcome an integrated information system that would enable them to expeditecorrespondence and administrative record keeping. Providers want ready access to plan memberrecords, medical journals and research studies, and laboratory results. Providers also want theirhealth plan contracts to result in a steady stream of plan members and dependable income results.

Because of their growing negotiating power and their ability to articulate concerns andexpectations, providers can exert substantial influence over a health plan's medical managementfunction. For example, physicians and other providers may choose not to contract with a healthplan that does not meet their needs. A significant reduction in the number of providers in thenetwork can force a health plan to reduce the number of services it offers, which can, in turn,cause plan members and purchasers to look elsewhere for healthcare, perhaps following theproviders who have left the plan.

Plan Member Expectations

Plan members' expectations for health plans have evolved as members have become betterinformed about healthcare issues and have refined their ideas about what constitutes quality,

affordable, and accessible healthcare benefits. Today, health plan members expect health plans tooffer the following benefits and services:

Benefits and Services

Provider choice. Plan members want freedom of choice with respect to the primary careprovider (PCP) network, hospitals, specialists, and ancillary service providers, such aspharmacies, laboratory services, and behavioral health services. In some cases, planmembers desire direct access to specialty care providers without obtaining a PCP referral.

High quality care. Plan members expect providers to be competent and to deliverappropriate, quality healthcare.

High quality service. Plan members expect health plans to provide courteous and promptresponses to requests for information, quick resolution of coverage issues, and customer-service-oriented providers at all levels.

Low cost. Plan members expect plans to minimize the amount of out-of-pocket expensesmembers are required to pay for care and services.

Information on plans. Plan members expect their health plans to provide informationabout covered healthcare services, treatment options, and network providers andlocations.

Medical information. Members are becoming interested in obtaining information via theInternet, including information on illnesses, medical procedures, and chronic conditions,online health assessments, e-mail addresses of network providers, and prescription refills.

Healthcare benefit options. Members often want healthcare options that includecomplementary and alternative medicine choices (for example, chiropractic services,acupuncture, biofeedback, and therapeutic massage).

Confidentiality of medical records. Confidentiality is becoming increasingly importantas healthcare information is transmitted and stored electronically and as plan membersdemand instant access to their medical records and to information concerning variousillnesses and conditions.

Grievance and appeals processes. Members want health plans to provide explicitprocesses for resolving disputes over nonauthorization of payment for specified medicalservices or providers, and appropriate medical treatment. Health plans that fail to provideplan members with appropriate avenues of due process leave themselves potentiallyliable for breach of fiduciary duty under ERISA at the federal court level, civil lawsuitsfor negligence or medical malpractice at the state court level, and increased pressure byconsumer groups for Congress to pass a patients' bill of rights concerning healthcareservices.

Health plans are responding to increased awareness and expectations of plan members byadjusting their medical management functions to meet members' needs. In the past, health planslooked to employers and government programs as their primary market for purchasers. Recently,health plans have begun to see individual plan members as purchasers. As plan members seekmore customization in their healthcare benefits and as their employers become more willing toallow it, individual healthcare plans within a group environment become a possibility.

For example, an employer can allot a specified dollar amount for healthcare benefits for eachemployee and then allow employees to contract for their own coverage. If the cost of anemployee's selected healthcare coverage exceeds the dollar amount of the employer allotment,then the employee makes up the difference. In this way, the employee's coverage shifts from a"defined benefit" (i.e., employer contribution depends on the number and type of benefits

included in the plan) to a "defined contribution" (i.e., employer contributes a specified dollaramount and employee contributes any additional dollar amounts to pay for healthcare coverage).

Other trends in meeting plan member expectations include: (1) a shift in marketing efforts towardwomen, who utilize healthcare services more frequently than men and who often make thehealthcare decisions in a family; (2) more emphasis on long-term, chronically disabling illnessesin a population that is growing older; and (3) an increased awareness of the language, cultural,and economic barriers that affect healthcare in a culturally diverse population.

Legal and Regulatory Requirements That Affect Medical Management

Purchasers, providers, and plan members influence the perceived need for laws and regulations tosupport the quality of medical care available through health plans. Over the years, public interestin healthcare has increased dramatically. Consumers, many of whom have been enrolled in healthplan programs without choice and are unfamiliar with the system, have expressed concern overthe quality of healthcare services available to them. Because of the human interest appeal ofhealthcare issues, media coverage of health plans have also grown. As a result, a number of lawsand regulations designed to support quality medical care have been enacted at both the federaland state levels. Many of these laws and regulations have a direct impact on medicalmanagement.

To see that their interests are properly represented and that legislators are adequately educatedabout health plan principles and practices, health plans must be aware of and participate in thelegislative process. Health plans must also comply with all applicable federal and state regulatoryrequirements.

In the following sections, we will look first at laws and regulations that apply at the federal leveland then at state requirements and case law requirements. Keep in mind that federal and stategovernments often share jurisdiction over health plans and that regulatory requirements mayoverlap, or even conflict.

Federal Laws and Regulations that Affect Medical Management

A variety of federal laws and regulations affect medical management. Those laws related toemployee benefits, health insurance, budget reconciliation, and patient protection, are especiallyimportant.

Employee Retirement Income Security Act of 1974

Employee health benefit plans, except those maintained by government employers, are currentlysubject to regulation under a federal law called the Employee Retirement Income Security Act(ERISA) of 1974, which is designed to maintain the proper funding and administrativemanagement of pension and employee welfare benefit plans.6 The Act includes a preemptionprovision which states that ERISA takes precedence over any state laws that regulate employeewelfare benefit plans.

ERISA has important implications for medical management, especially in cases in which anemployee raises questions of noncoverage of benefits related to medical appropriateness. Planmembers and their families who obtain healthcare benefits through employee benefit plans must

file legal challenges involving coverage issues or administration of the plan at the federal level,and ERISA is generally the governing law for such cases.

Unlike most state laws, ERISA limits damage awards in lawsuits to the cost of denied treatment;it does not allow plan members to obtain compensatory or punitive damages. For example, a planmember who brings a lawsuit for nonauthorization of payment based on the health plan's decisionthat the service was not medically necessary can recover benefits that a court of law determineswere inappropriately denied. However, the plan member cannot recover monetary amounts forpain and suffering or awards designed to deter employers or health plans from makinginappropriate decisions in the future. As a result of these ERISA provisions, it is in a health plan'sbest interest to have a case tried at the federal level.

Fast Definition

Compensatory damages are monetary amounts that the law awards as compensation for alegal wrong. In most tort cases, damages are the amount of money that will compensatethe injured party for his or her injuries.

Punitive damages are monetary amounts that are awarded to punish or make an exampleof the wrongdoer in order to dissuade others from similar behavior.

Currently, plaintiffs are challenging ERISA's preemption provision in many cases in the federalcourts. Such cases question the intent of the U. S. Congress to preempt state laws via federal lawssuch as ERISA. The judicial system has not yet defined a clear direction regarding whetherlitigation against ERISA plans is to be pursued through federal or state court. The system has alsonot defined the remedies that are available to members of managed healthcare plans covered byemployee benefit plans subject to ERISA regulation. Some recent court decisions on ERISApreemption, however, indicate that ERISA may not provide health plans with automaticprotection from damages, especially in cases dealing with the quality of care arranged by theplan.

Also, federal legislators are considering changing ERISA, particularly its preemption clause. Iflegislation is passed to eliminate the ERISA preemption, then plan members may sue health plansand group purchasers in state court for remedies that include compensatory and punitive damages.

Health Insurance Portability and Accountability Act

The Health Insurance Portability and Accountability Act (HIPAA) of 1996, which increases thecontinuity and portability of healthcare coverage in the group and individual health care markets,specifies that a group health plan may not deny coverage or discriminate against individuals onthe basis of their health status.7

HIPAA provides additional patient protections through the following standards:

HIPAA's patient protections through amendments and standards.8

Provisions for long-term care coverage, which define insurance contracts that containlong-term care coverage as accident and health plans and specify that premiums paid andbenefits received are medical care expenses that are excluded from the insured's grossincome for tax purposes.

Standards for privacy of individually identifiable health information, which prohibithealthcare organizations from releasing identifiable patient health information forpurposes other than medical treatment, payment, quality assurance, or utilization review,without the patient's consent. Standards apply only to electronically transmittedinformation, and regulation is, in some cases, superseded by pre-existing state and federallaws.

Standards for electronic data security, which define the security measures health careorganizations must take to protect the confidentiality of electronically stored andtransmitted patient information. Measures endorsed by HIPAA regulations include accesscontrols, callback procedures to verify the identify of users, passwords, authenticationprocedures to verify the identity of entities using the system, automatic logoffs afterperiods of inactivity, and recording audit trails.

HIPAA provisions and standards affect both the benefits health plans provide to their membersand the ways in which those benefits are administered. For example, health plans are required toinform plan members about HIPAA provisions and to issue certificates of creditable coverage toall plan members. Plans may not delegate this responsibility to a third party administrator. Healthplans must also establish special open enrollment periods for individuals who lose other healthcoverage or who become eligible for coverage as dependents. In addition, health plans mustdevelop information systems that support electronic claims processing and comply withconfidentiality and information security standards.

Complying with HIPAA mandates requires not only planning, but additional allocation ofresources, especially in the area of information management. Some health plans worry thatHIPAA requirements will create administrative nightmares and make the collection of qualitydata expensive or even impossible. Noncompliance, however, is likely to result in serioussanctions. Violators face the possibility of civil penalties of up to $25,000 and criminal penaltiesof up to $250,000 and up to 10 years in prison per violation.

Balanced Budget Act of 1997

The Balanced Budget Act (BBA) of 1997 facilitated the enrollment of beneficiaries ofgovernment-sponsored health programs in health plans and allocated funding for health insurancefor uninsured children.

The BBA established the Medicare+Choice program, the social health maintenance organization(SHMO) program, and the Programs of All-Inclusive Care for the Elderly (PACE). Each programhas specified coverage, solvency, and organizational requirements that directly affect a healthplan's medical management function. The BBA also requires health plans to develop qualityimprovement programs in areas such as healthcare outcomes, utilization review, and coordinationof care. The Balanced Budget Refinement Act (BBRA) of 1999 modifies some of therequirements and implementation schedules established in the BBA for these programs. Theimpact of the BBA on Medicare and Medicaid programs is discussed in more detail in the lessonsMedicare and Medicaid.

Federal Agency Requirements

Health plans are also subject to a variety of requirements established by regulatory agencies. Thefollowing sections highlight the impact that several key federal agencies have on medicalmanagement. A more complete discussion of these programs is included in later assignments.

Department of Health and Human Services

The Department of Health and Human Services (HHS) oversees many government healthcareprograms. In addition to Medicare and Medicaid, HHS has authority over Programs of All-Inclusive Care for the Elderly (PACE), a joint federal-state program designed to provide personsaged 55 or older who require a nursing-facility level of care with an alternative to institutionalcare, and the State Children's Health Insurance Program (SCHIP), a federal-state programdesigned to enable states to initiate and expand child health assistance to uninsured, low-incomechildren by providing initial and matching funding over time. The Centers for Medicare andMedicaid Services (CMS), a division of HHS, is responsible for administering these programs.

One important goal of CMS' administration of the Medicare and Medicaid programs is to supportthe delivery of quality healthcare services to eligible beneficiaries. Toward this goal, CMSrequires Medicare health plans to document improvements in clinical procedures and to collectand report on quality measures for comparison purposes. CMS has developed a quality initiativecalled the Quality Assessment Performance Improvement that is designed to strengthen healthplans' efforts to protect and improve the health and satisfaction of Medicare and Medicaidenrollees. Compliance with QAPI is mandatory for Medicare+Choice plans. For Medicaid, QAPIstandards serve as a model that states can use at their discretion to develop quality requirementsfor Medicaid health plans. QAPI standards cover the following broad domains:

Quality assessment and performance improvement Enrollee rights Health services management

In addition, CMS establishes delegation guidelines with which health plans that serve a Medicarepopulation must comply. The CMS requirements for delegation oversight are similar to those oftwo prominent accrediting agencies, NCQA and URAC, which we discuss later in this lesson. Ingeneral, delegated functions are held to the same CMS standards as the functions actuallyperformed by the health plan, and CMS will hold the health plan accountable for any deficienciesin the delegate's performance. CMS is also directly involved in the development of standards forelectronic medical record (EMR) transactions as they relate to the Medicare and Medicaidprograms.

The healthcare needs of medically underserved populations are also addressed through suchprograms as the National Health Service Corps, Federally Qualified Health Centers, and theIndian Health Service. These programs are administered by the Health Resources and ServicesAdministration (HRSA) division of HHS. Decisions of agencies such as the CMS and HRSAdirectly affect health plans that serve these populations.

Department of Defense

The Department of Defense (DOD) oversees all military healthcare programs, which are amongthe largest in the United States. In addition, the DOD frequently establishes minimum benefit andadministrative requirements that health plans must meet if they want to serve the military market.The DOD's decisions regarding quality, access, and program choice directly influence how ahealth plan designs and implements its medical management activities. The evolution ofhealthcare benefit programs for active and retired military personnel and their dependents fromthe Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), which was anindemnity-based plan, to TRICARE, which offers an indemnity plan but also a PPO plan and an

HMO plan, has also affected medical management. We discuss healthcare benefits programs forthe military in Other Government Programs.

Office of Personnel Management

The Office of Personnel Management (OPM) conducts human resources functions on behalf offederal government employees. One of its major functions is to oversee the Federal EmployeesHealthcare Benefits Program (FEHBP), which is the largest group healthcare plan in the nation.Healthcare benefits under the FEHBP are generally broader than those of most employer-sponsored group health plans.

Coverage decisions established for the FEHBP often set a precedent for coverage in the privatesector as well. For example, as a result of an executive order issued by the president, health plansthat serve federal employees must be in compliance with the Consumer Bill of Rights andResponsibilities recommended by the Advisory Commission on Consumer Protection and Qualityin the Health Care Industry. This directive is likely to have a significant effect on medicalmanagement in both FEHBP plans and private sector plans.

Federal Trade Commission

The Federal Trade Commission (FTC), along with the Department of Justice, enforces federalantitrust statutes. These statutes have a direct effect on health plans' provider contractingactivities. For example, in contracting with providers, a health plan must avoid creating tyingarrangements, which require a provider to purchase the health plan's healthcare benefits in orderfor the provider to participate in the health plan's network. Health plans must also guard againstengaging in horizontal group boycotts, in which two or more competing health plans decide toexclude a particular provider because the provider also contracts with another health plan.

Department of Justice

In addition to its involvement in antitrust matters in conjunction with the FTC, the Department ofJustice (DOJ) also oversees fraud and abuse matters as they relate to medical management.Because the costs associated with fraud and abuse can be extremely high, health plans activelyfocus on reducing the occurrence of fraud and abuse of healthcare benefits.

Health plans have noted two medical management conditions in particular that may signalpotential fraud and abuse: (1) purposeful underutilization of medically necessary healthcareservices in health plans that capitate their providers, and (2) purposeful overutilization of, andinappropriate billings for, services in plans that pay their providers on an FFS basis. Althoughutilization management of healthcare services helps reduce a health plan's medical service costs,underutilization of medically necessary services is detrimental to members' health and will likelylead to higher costs over the long term.

A number of other federal agencies also influence medical management. For example, the Officeof the Inspector General (OIG) is often involved along with the Department of Justice in dealingwith fraud and abuse issues. The Federal Drug Administration (FDA) and National Institute ofHealth (NIH) are important contributors to the development of medical policy. The Office ofMinority Health, a division of HHS, has proposed standards addressing the development ofculturally and linguistically appropriate services.

State Laws and Regulations

State governments typically regulate health plans through the state department of insuranceand/or department of health. Like federal laws and regulations, state laws and regulations and therequirements of specific organizations have a significant impact on a health plan's medicalmanagement programs. For example, many states have laws that require health plans to:

Laws Require Health Plans to:

Arrange for adequate access to healthcare providers and facilities Have specific quality management programs and take appropriate action to improve

quality deficiencies Follow specified guidelines, procedures, and registration requirements for utilization

review Report specified utilization and grievance information Provide plan members with adequate information about covered benefits, how to obtain

those benefits, and how to pursue grievances Have formal grievance processes in place for members and providers

In the following sections, we describe some of the areas in which state laws and regulations havethe greatest impact on medical management.

Benefit/Provider Mandates

One way in which state governments impact medical management is through mandated benefitlaws. Mandated benefit laws are state laws or federal laws that require health plans to arrange forthe financing and delivery of particular benefits, such as coverage for a stay in a hospital for aspecified length of time.10 The Newborns' and Mothers' Health Protection Act (NMHPA) is anexample of a federal law that mandates benefits. State laws have been enacted that require healthplans to provide for benefits including

Direct member access to certain specialists, such as OB/GYNs, dermatologists, or doctorsof chiropractic, without first going through a primary care provider

Coverage for emergency department visits, even if a subsequent diagnosis determinesthat the condition was not an emergency, if the presenting symptoms that caused a planmember to go to the emergency department appeared to be an emergency, such as chestpains

Hospice and home health benefits Mental health and chemical dependency services (behavioral healthcare) Benefits for specialized services such as post-mastectomy reconstructive surgery,

transplants, temporomandibular joint treatment, and infertility treatment

These mandates not only require that the benefits be covered, they also imply that particular typesof providers such as behavioral healthcare professionals must be included in the network.

In some cases, federal and state mandated benefit laws conflict with a health plan's goals formanaging the costs of delivering healthcare services. For example, mandated length-of-stay lawsfor maternity and mastectomy patients increase the costs of providing those healthcare benefitsand may not actually be medically beneficial in all cases.

Access to Quality Care and Service

Many of the state laws related to the quality of healthcare services are based on model lawsdeveloped by the National Association of Insurance Commissioners (NAIC), an organization ofstate insurance commissioners established to encourage uniformity in insurance regulation. In1996, the NAIC introduced a series of Health Plan Accountability Models. The following NAICModels specifically address the issue of quality in health plans:

Health Care Professional Credentialing Verification Model Act: specifies therequirements health plans must satisfy to see that network providers meet minimumstandards of professional qualification

Quality Assessment and Improvement Model Act: requires health plans to establishand report on systems for assessing the quality of care and services

Network Adequacy and Accessibility Model Act: specifies standards health plans mustmeet in developing and managing provider networks

Health Carrier Grievance Procedure Model Act: requires health plans to establishwritten procedures for handling member grievances

The NAIC has also developed model laws on health information privacy and state licensure. Statelaws and regulations based on these model acts apply to all health plans operating in those states.

Delegation

State governments and regulatory agencies have developed a variety of laws and regulations thatapply to the use of delegation by health plans. These regulations and laws help determine whichactivities, if any, a health plan may delegate and the nature of the delegation arrangement. Forexample, more than half the states have laws-based in whole or in part on the NAIC's HMOModel Act-requiring HMOs to include a description of their contractual arrangements fordelegation in their written quality improvement program. As we discuss later in this lesson, healthplans that seek accreditation must also meet the delegation-related standards of the relevantaccrediting agency. Because health plans are accountable for all delegated activities, regardless ofthe terms of the agreement for delegation, a high level of review and monitoring by the healthplan is required for all delegated activities.

Some states have more specific requirements for the delegation of medical management functionsby health plans. For instance, in Alabama, credentialing activities may be delegated only toentities that have been approved by the state for this purpose. Fourteen states require health plansto maintain oversight of delegated utilization review activities.11 Because state laws on delegationvary, a health plan must monitor the requirements of each state in which the health plan operatesand adjust its delegation programs accordingly.

Patient Protection

Patient protection has become an important issue at the state as well as the federal level. Figure1C-6 summarizes some of the major issues addressed by recent state legislative and regulatoryefforts.

Proposed patient protection bills also include provisions for the use of an external review board toserve as a second medical opinion or, in cases of claims denials or nonauthorization of paymentfor treatment, as an arbitration review panel. Most health plans currently require plan members to

exhaust internal review processes offered by the health plan before seeking an independentreview.

Federal law already grants Medicare patients automatic access-at no cost to the patient-to anexternal review board for appeals of decisions by a health plan. Many states are now requiringexternal review board appeals for health plan denials as well. Self-funded ERISA plans aretypically exempt from state requirements; however, if patient protection legislation passes at thefederal level, self-funded plans will also be required to provide recourse to an external reviewboard.

Coverage for Underserved and Unserved Populations

Underserved or unserved populations pose a significant challenge for both federal and stategovernments. These underserved and unserved populations (for example, rural residents whohave limited access to healthcare services, the unemployed, the uninsurable, minor children,recent immigrants) are least likely to obtain routine, affordable, accessible, consistent healthcarecoverage. As a result, these populations are the most likely to overutilize hospital emergencydepartments for urgent care or other non-emergencies. Such care is expensive and not necessarilythe best quality in terms of continuity of care.

Historically, federal or state legislation, such as Medicare, Medicaid, or SCHIP, has driven therequirement for at least minimum healthcare coverage to underserved populations. Because of thelegislative thrust, mandated benefits and a minimum level of benefits are usually required if ahealth plan expects to serve these populations. Also, because of language or economic barriers,members of these populations tend to have unique access needs. Many health plans that servethese populations have translators available or bilingual providers and staff for specified ethnicgroups. They also make transportation arrangements and incur other expenses to see that theseplan members understand their benefits and observe the appropriate procedures for obtaining careand appealing denials related to these benefits. All these additional customer-service itemsincrease a health plan's administrative expenses but are necessary to support compliance andaffordable, accessible healthcare for plan members.

Case Law

The laws outlined in the previous sections were developed and passed as federal and statestatutory laws. Case law also influences medical management. Case law, also called commonlaw, is a body of law that consists of federal and state court decisions.13 Monitoring case law iscritical because the outcome of a court case may clarify ambiguous sections of a particularstatute. Court decisions may also establish precedents that must be followed if a health plan is tocomply with the law. For example, the outcome of specific court cases under consideration invarious state courts may determine whether plan members can directly sue their health plans inthose states. Insight 1C-1 describes some of these cases.

Health Plan Liability and Medical Management Activities

As a result of federal and state regulation of health plans and other laws and regulations thataffect the daily operations of service businesses, health plans have legal obligations to planmembers and providers. These legal obligations often impact medical management activities.

Plans that violate these obligations can be held directly liable for any harm that results from theiractions. This would be the case if a court ruled that a health plan had made an inappropriateutilization management or provider credentialing decision and that decision had resulted in harm.

Plans may also be held accountable for the actions of other parties through vicarious liability.Vicarious liability is a kind of liability that arises when one party is held responsible for theactions of another party because of the existence of a special relationship between those twoparties.14 A claim for vicarious liability may arise in connection with a health plan's delegation ofcertain medical management activities.

For example, suppose that a health plan contracts with a utilization review organization (URO)for utilization review services and that URO improperly recommends denial of payment forservices to a plan member. The health plan can be directly liable if the health plan failed toadequately investigate the quality of the URO's services and the qualifications of its personnelprior to establishing the delegation arrangement or to provide proper oversight of the delegatedactivities.15 The health plan may also be liable for the URO's actions under state law if the UROis determined to be an agent-that is, the authorized representative-of the health plan or if the UROis determined to be an apparent, or ostensible, agent of the health plan.

Under the legal doctrine of apparent agency, also called ostensible agency, a health plan may beliable for the actions of a delegate if the following three conditions are true:

Health plan may be liable for actions of a delegate if

1. The health plan fails in some way to establish that the delegate is not the health plan'sagent.

2. A plan member perceives the delegate as an agent.3. In relying on this perception, the member suffers physical or financial harm.

To avoid the appearance that the delegate is an agent of the health plan, any documents that referto the delegation arrangement, including marketing materials and written agreements between thehealth plan and the delegate, should specify that the delegate is an independent contractor and notan agent.16

Vicarious liability may also arise in connection with medical malpractice committed by a planphysician or other healthcare provider against a plan member if the health plan is deemed liablebecause of the contractual relationship between the health plan or plan and the provider.

One way that health plans can protect themselves from the prospect of litigation based on theliabilities discussed above is to structure utilization review, case management, and diseasemanagement programs so that the cost of treatment has no bearing on what is consideredmedically appropriate. In subsequent lessons, we discuss Utilization Review, Case Managementand Disease Management.

Impact of Accreditation on Medical Management

Accreditation organizations independently evaluate the quality of a health plan's services. Theinformation provided by the accreditation process is intended to help purchasers and possiblyconsumers make well-informed decisions when choosing and contracting with a health plan.However, the process itself presents challenges for health plans.

Participation in the accreditation process is voluntary, and health plans are responsible forgathering and submitting the data needed for accreditation purposes. For most plans, the processof gathering accreditation information is both time consuming and expensive. For example, thedecentralized structure of some managed healthcare plans makes it necessary to collect data fromseparate physical locations including administrative offices, physician offices, labs, and hospitals.In many cases, the costs of obtaining the information technology needed to amass extensiveperformance data can be prohibitive.

In addition, despite the value of accreditation ratings for the comparison of quality among healthplans, few purchasers and fewer consumers review the results of accreditation in makingdecisions to purchase or enroll in a specified health plan. Instead, purchasers tend to make healthplan choices on the basis of cost, which is easier to measure than quality. Plan members often rateplan quality on the basis of whether a particular provider is in the plan's network and whether aspecified healthcare benefit is covered.

As a result, many health plans elect not to participate in the accreditation process. However, asquality standards and accreditation results increasingly focus on evidence-based medicine-forexample, positive outcomes realized from disease management programs-as an indicator ofquality, purchasers and plan members may rely more on the reported results of the accreditationprocess. As purchaser demand for comparative quality data increases, more health plans-particularly plans that serve the large employer market-may find it necessary, despite the costs, toparticipate in the accreditation process.

Accreditation Organizations

Accreditation is typically conducted by independent, not-for-profit organizations, which are notaffiliated with federal or state governments. The following sections introduce several keyaccreditation organizations in the health plan industry. These organizations and their standardsand guidelines are discussed in more detail in lesson Quality Management.

National Committee for Quality Assurance

The National Committee for Quality Assurance (NCQA), an independent, not-for-profitorganization, serves as the primary accrediting agency for most HMOs and similar health plans,managed behavioral healthcare organizations (MBHOs), credentials verification organizations(CVOs), and physician organizations. NCQA's accreditation is a rigorous and comprehensiveevaluation process through which the quality of all key systems and processes that make up thehealth plan are assessed. Accreditation and certification results are available through NCQA'sWeb site. NCQA also has developed the Health Plan Employer Data and Information Set(HEDIS), which is used as a factor in the accreditation process as we discuss later in this lesson.

National Committee for Quality Assurance

NCQA reports health plans' accreditation results publicly using the following five categories, allof which have a direct impact on a health plan's medical management functions:

Access and service Qualified providers Staying healthy Getting better Living with illness17

The NCQA also surveys the systems and processes of health plans against the following sixcategories:

Quality improvement Utilization management Credentialing Member rights Preventive health Medical records

Results in these categories are not publicly reported.

CVOs are evaluated on the basis of such categories as malpractice insurance, liability claimshistory, and sanctions concerning Medicare, Medicaid, and the appropriate medical board.

American Accreditation HealthCare Commission/URAC

The American Accreditation HealthCare Commission/URAC (URAC) is an accrediting agencythat promotes consistent standards in the application of utilization procedures and providernetwork standards. URAC's standards focus on five key areas:

Network management Utilization management Quality management Credentialing Member participation and protection18

URAC has also developed accreditation programs for case management programs, CVOs, healthplan telephone call centers, and workers' compensation services.

Accreditation Standards for Delegation

NCQA and URAC all consider a health plan's management of delegated activities whenevaluating a health plan for accreditation. These three agencies have established specificstandards for the oversight of delegated activities. Although all three accrediting agencies'standards have the same intent-to see that the delegated activities are performed in accordancewith the delegating health plan's standards-the specific requirements of their standards aresomewhat different. For example, URAC place no restrictions on the types of functions that canbe delegated. NCQA allows health plans to delegate authority for almost all functions, butrequires that the health plan itself conduct all delegation oversight activities rather than delegatingthe responsibility for oversight to another entity.21

Although health plans that seek accreditation typically design their delegation oversight programaccording to the standards of the relevant accrediting agency, most programs include provisionsrelated to accountability and documentation.

Accountability

Accountability is the process by which one party is required to justify its actions and policies toanother party. When a health plan delegates authority for a function, it transfers the power toconduct the function on a day-to-day basis, but not the ultimate accountability for the function.Although the delegate assumes the authority to plan and carry out the function within specifiedparameters, the health plan retains the responsibility for making sure that the delegate acts inaccordance with the health plan's standards and those of NCQA or URAC. If the delegate'sperformance fails to meet these standards, the health plan is responsible for developing correctiveaction requirements to guide the delegate in making a plan to remedy the deficiencies. The healthplan is also accountable for maintaining coordination and continuity between the delegatedfunctions and the functions that are conducted by the health plan.

Documentation

All three accrediting agencies require documentation showing that the health plan is conductingappropriate oversight of the delegated function. Such oversight typically includes regular reportsfrom the delegate to the health plan and formal site visits and audits by the health plan on anannual basis or more frequently. In addition, both URAC and NCQA require writtendocumentation of the agreement between the health plan and the delegated entity.

In some cases, accreditation standards for delegation oversight are reduced if the delegate hasalready been certified or accredited by the health plan's accrediting agency. For example, if thedelegating health plan adheres to NCQA standards and the delegate is an NCQA-accreditedhealth plan or MBHO or an NCQA-certified CVO or physician organization, the delegatinghealth plan's oversight obligations are reduced. Although NCQA still requires an appropriatewritten agreement between the health plan and the delegate, the health plan is not obliged toconduct a formal, annual oversight review of the accredited entity on any elements for which thedelegate has been certified.23 Similarly, if a health plan accredited by URAC delegates activitiesto a URAC-certified CVO or utilization management organization, URAC does not require thehealth plan to perform annual oversight reviews of elements already certified for that delegate.

Additional Quality Initiatives

Besides the quality measures from accreditation organizations discussed in the previous sections,various other attempts to measure quality have been developed. The following sections discussseveral of these additional quality initiatives.

Health Plan Employer Data and Information Set

NCQA developed the Health Plan Employer Data and Information Set (HEDIS), which is aperformance measurement tool designed to help healthcare purchasers and consumers comparethe quality offered by different health plans.23 Since 1999, NCQA has integrated HEDISmeasures into its accreditation standards, and CMS now requires Medicare plans to reportNCQA-audited data on HEDIS performance measures.

Health Plan Employer Data and Information Set

HEDIS measures comprise eight domains as listed below. Note that not all of these domains areconsidered in the accreditation process.

Effectiveness of care (e.g., cancer screening, childhood immunizations) Access/availability of care (e.g., prenatal care, adults' and children's access to preventive

and primary care services) Satisfaction with the experience of care (e.g., plan member satisfaction) Health plan stability (e.g., financial strength, provider and plan member turnover) Use of services (e.g., hospital utilization, mental health utilization) Cost of care (e.g., premium rate trends) Informed healthcare choices (e.g., language translation services, information provided

during enrollment, plan member education services) Health plan descriptive information (e.g., board-certification of physicians, case

management, quality improvement)

The National Forum for Health Care Quality Measurement and Reporting

The National Forum for Health Care Quality Measurement and Reporting, also called theQuality Forum, is a not-for-profit organization that was established to develop and implement anational strategy for quality measurement and reporting. The Quality Forum develops standardsfor measuring healthcare service quality. Although initially established as a result of apresidential advisory commission recommendation, the Quality Forum's funding is obtained fromthe private sector. A secondary objective of developing quality standards is for the benefit ofproviders, who can use standard measures of quality to improve their performance. Thepresidential advisory commission originally proposed the following categories for the QualityForum:

Objectives for the Quality Forum25

Identify core sets of quality measures for standardized reporting by all sectors of thehealthcare industry

Establish a framework and capacity for quality measurement and reporting Support the focused development of quality measures that enhance and improve the

ability to evaluate and improve care

Make recommendations regarding an agenda for research and development needed toadvance quality measurement and reporting

See that comparative information on healthcare quality is valid, reliable, comprehensible,and widely available in the public domain

Agency for Healthcare Research and Quality (AHRQ)

The Agency for Healthcare Research and Quality (AHRQ), formerly the Agency for Health CarePolicy and Research (AHCPR), is an organization that performs research functions for HHS. In1999, Congress changed the focus of the agency from medical treatment research and thecollection of health statistics to research on healthcare delivery and quality measurement andimprovement. This new focus, along with an increased budget, expands the agency's impact onimproving healthcare quality.

One of AHRQ's major contributions to healthcare quality is the Consumer Assessment of HealthPlans Survey (CAHPS™), which gathers comparative data on healthcare service quality acrosspopulations. CAHPS measures consumer satisfaction with specified aspects of health planservices, including access to care and the relationship between consumers and their physicians.Specific questions address consumer experiences with treatments for chronic conditions or withMedicare or Medicaid managed plans26. NCQA and AHRQ recently merged CAHPS with theHEDIS Member Satisfaction Survey.

Conclusion

As you can see, medical management goes far beyond a health plan's internal considerationsregarding the quality and cost of healthcare services. It is a complex process that requires healthplans to understand the needs and expectations of its purchasers, providers, and plan members aswell as the requirements of various legislative, regulatory, and accrediting bodies. In order todevelop successful medical management programs, health plans must understand the dynamics ofthe environment in which they operate and consider how the environment affects the delivery ofhealthcare services.

Endnotes

1. Margaret Ann Cross, "Employers Starting to Hold HMOs Accountable for Quality,"Health Plan (May 1999): 42A.

2. Nicholas L. Desoutter and Kenneth Huggins, eds., LOMA's Glossary of Insurance Terms,3rd edition (Atlanta, GA: LOMA, 1997)

3. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2ndedition (Washington, DC: Academy for Healthcare Management, 1999), 11-29.



6. Academy for Healthcare Management, Network Management in Health Plans(Washington, DC: Academy for Healthcare Management, 1999), 1-19-1-21.


8. W. Reece Hirsch, "Call the Lawyers: Making Web Sites HIPAA-Compliant,"healthcarebusiness (January/February 2000): 58.

9. Muriel L. Crawford, Life and Health Insurance Law (Boston, MA: Irwin/McGraw-Hill,1998), 61.

10. Academy for Healthcare Management, Health Plans: Governance and Regulation(Washington, DC: Academy for Healthcare Management, 1999), 9-2-9-3.

11. Academy for Healthcare Management, Health Plan Finance and Risk Management(Washington, DC: Academy for Healthcare Management, 1999), 3-8.

12. American Accreditation HealthCare Commission/Utilization Review AccreditationCommission (URAC), Survey of State Utilization Laws and Regulations, 1999 ed.(Washington, DC: American Accreditation HealthCare Commission/Utilization ReviewAccreditation Commission, 1998), 7.



15. Cynthia Conner, et al., "Basis for Liability," in Health Plan Law Manual (Gaithersburg,MD: Aspen Publishers, 1999), 2: 4.

16. Cynthia Conner, et al., "Utilization Management," in Health Plan Law Manual(Gaithersburg, MD: Aspen Publishers, 1999), 1: 6-7.

17. Academy for Healthcare Management, Network Management in Health Plan(Washington, DC: Academy for Healthcare Management, 1999), 1-28-1-29.








25. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2ndedition (Washington, DC: Academy for Healthcare Management, 1999), 8-14. Used withpermission; all rights reserved.

26. "Quality Forum Planning Committee Schedules Meeting," 4 May 1999,http://www.uhfync.org/intro/qfpc.htm (11 May 1999).

27. Agency for Healthcare Research and Quality, "Consumer Assessment of Health Plans(CAHPS™): Fact Sheet," http:www.ahcpr.gov/qual/cahpfact.htm (15 June 1999).

AHM Medical Management: Clinical Practice

Objectives:

After completing lesson Clinical Practice Management, you should be able to:

Describe the components of a health plan's coverage policy List several types of services that health plans typically limit or exclude Describe the types of coverage issues typically addressed by medical policy Explain the importance of technology assessment as it relates to medical policy Explain the role of clinical practice guidelines

Introduction

In The Role of Medical Management in a Health Plan, we began our discussion of medicalmanagement by presenting quality and cost-effectiveness as the two main objectives of themedical management process. You also learned about the primary methods for achieving theseimportant objectives and the influence of various environmental factors on a health plan's medicalmanagement decisions.

Now, in Clinical Practice Management, we will turn our medical management focus to thedelivery of healthcare and, within that context, more specifically to the development andimplementation of parameters for the delivery of healthcare services to a health plan's members-aprocess known as clinical practice management. Clinical practice parameters include:

Clinical Practice Parameters include:

1. A health plan's medical policies concerning the appropriate use of medical services

2. Clinical practice guidelines (CPGs) used by healthcare practitioners when delivering clinicalservices and also used by health plans to develop medical policy

Figure 2A-1 provides additional information on the roles of these two types of parameters.

In this lesson, we examine medical policy, its relationship to a health plan's overall coveragepolicy, and the role of technology assessment in medical policy development. We also explore theuse of clinical practice guidelines and how such guidelines are developed and implemented. Inaddition, we discuss risk management as it relates to clinical practice management.

Please note that medical policy content sometimes overlaps with the content of CPGs. Forexample, a health plan's medical policy on hysterectomies might indicate specific clinical criteria,such as the size of the uterus, symptoms, and/or failure of conservative therapy, that must bepresent to support the appropriateness of the hysterectomy. Similar clinical criteria might bespecified in clinical practice guidelines.

It is also important to note that the use of terminology varies in the health plan industry. In thiscourse, we use the term coverage policy to refer to all the rules and processes that a health plandevelops and implements in conjunction with its purchaser contracts to determine coveredhealthcare services and supplies. This definition broadly includes both clinical and nonclinicalissues. Some health plans use the term medical policy in this broader sense; others use medicalpolicy, as we do in this lesson, to more narrowly refer to a subset of coverage policy. Medicalpolicy, in this narrower sense, refers to the rules and processes health plans apply when makingcoverage determinations that require an interpretation of the contract's medical necessity andappropriateness provision and experimental/investigational provision. Regardless of terminology,however, virtually all health plans use the types of policies and guidelines described in thislesson.

Medical Policy and Other Components of Coverage Policy

A health plan finances and arranges the delivery of healthcare according to the terms of a contractissued to the purchaser. In this section, we examine how health plans develop and use policies tohelp support the consistency of activities related to the financing and delivery of healthcare with(1) the terms of the purchaser's contract and (2) available evidence-based medical information.

As Figure 2A-2 illustrates, there are three general categories of coverage policy: (1) medicalpolicy, (2) benefits administration policy, and (3) administrative policies governing processes andprocedures used in conjunction with coverage decisions.

Medical Policy

As we noted earlier, medical policy is a type of coverage policy used to determine the medicalnecessity and appropriateness of services. Medical policies rely as much as possible on the use ofevidence-based medicine, which typically comes from peer-reviewed medical literature reportingthe results of clinical trials of medications, tests, procedures, treatments, and devices. For a newtreatment or test to be included as an appropriate intervention in the health plan's medical policy,the studies must show an improved outcome resulting from the treatment or test underconsideration. However, because many currently accepted healthcare services do not have theevidence necessary to meet this standard, many health plans also rely on current communitystandards and expert provider opinion when determining medical policy.

Medical policies typically address a specific test (such as bone densitometry tests forosteoporosis) or treatment (such as chiropractic) and the situations in which that test or treatmentis considered medically necessary and appropriate. In some cases, a medical policy focuses on aspecific medical condition (such as urinary incontinence) and identifies applicable tests ortreatments considered medically necessary and appropriate for that condition. Medical policiesalso describe situations in which the test or treatment is typically not considered medicallynecessary and appropriate and, therefore, will not be covered. Other elements often included in amedical policy are billing and coding information for providers, definitions of key medical terms,references, and dates for policy implementation and updates

In addition to using medical policies for coverage decisions, health plans distribute their medicalpolicies to providers to help them determine whether a treatment approach is appropriate for aparticular patient's situation. Some health plans have begun making their medical policiesavailable to the public. For instance, BlueCross BlueShield of North Carolina was one of the firsthealth plans to provide access to its medical policies on its Web site. Figure 2A-3 shows one suchmedical policy.

Corporate Medical Policy

Growth Hormone

File Name: Growth HormonePolicy Number: DRU4080Origination: 8/1996Last Review: 12/1999Next Review: 12/2001

Description of Procedure or Service

Growth hormone (GH), also called somatotropin, is a hormone produced during sleep by thepituitary gland. When the gland fails to produce enough of the hormone, a child is short in statureand has bone growth problems. Occasionally, the gland is damaged by radiation, trauma, ordisease, in which case the result is the same: the child fails to achieve a normal height. Growthhormone treatment is indicated for children who fail to grow because they have a growthhormone deficiency. The growth hormone covered by this policy is an artificially producedversion of the natural hormone, which must be injected under the skin either daily or severaltimes a week. GH has been marketed under the following names: Humatrope®, Nutropin®,somatrem®, Protropin®, Serostim®, and Saizen®.

Policy

BCBSNC will provide coverage for growth hormone (GH) when it is determined to be medicallynecessary because the medical criteria and guidelines shown below are met.

Benefits Application

Please refer to certificate for eligibility of benefit. See Professional Services. This drug is priorapproved for PCP only.

When Growth Hormone (GH) Is Covered

The following conditions are FDA-approved labeled indications for growth hormone(GH) therapy. (See Policy Guideline section for specific requirements.) For each of theseclinical situations, GH is considered medically necessary:

o Children who have growth failure, defined as having fallen 2 standard deviationsoff his/her predicted growth curve (as defined under Policy Guidelines) due toinad- equate secretion of normal endogenous growth hormone

o Children with chronic renal insufficiency before renal transplant

o Children with Turner's syndrome, i.e., a 45, XO genotypeo Adults with congenital or acquired GH deficiency (e.g., pituitary dwarfism)o Patients with AIDS wastingo Turner's Syndrome

In addition, recombinant human GH therapy is medically necessary for the followingFDA off-label use:

o Promotion of wound healing in burn patients

When Growth Hormone Is Not Covered

The use of GH is contraindicated in children with active malignancies- FDA off-label applications for human growth hormone therapy considered

investigational are not covered. They include the following:o Non-GH deficient short stature, except for Turner's Syndromeo Constitutional delay (lower than expected height percentiles compared with their

target height percentiles) and delayed skeletal maturation when growth velocitiesand rate of bone age advancement are normal. (Height is measured in percentilesof average height; for example, people in the 25th percentile are shorter than 75%of the general population.)

o Therapy for geriatric patientso Anabolic therapy, except for AIDS, provided to counteract acute or chronic

catabolic illness (e.g., surgery outcom~s, trauma, cancer, chronic hemodialysis)producing catabolic (protein wasting) changes in both adult and pediatricpatients

o Anabolic therapy to enhance body mass or strength for professional, recreational,or social reasons

o Glucocorticoid-induced growth failureo Intrauterine growth retardationo Short status after renal transplantationo Short stature due to Down, Noonan's, or Prader-Willi syndromes

Diagnostic tests that are considered investigational are not covered. These include:o 24-hour continuous monitoring of growth hormone levelso Serum levels of insulin-like growth factors (IGF) or insulin-like growth factor

binding protein (IGFBP)

Policy Guidelines

All claims for growth hormone (GH) will be subject to medical review. The following guidelines should be followed in use of the growth hormone:

o In use for children and adults with proven growth hormone deficiency, proof isdefined as an abnormal response of less than 10ng/ml to two provocative

stimulation tests (e.g., L-dopa, clonidine, glucagon, propranolol, arginine, orinsulin challenge test). Both responses must be abnormal.

o Chronic renal insufficiency is defined as a serum creatinine of less than 30 mg/dlor a creatinine clearance between 5 and 75 ml/min per 1.73 m2.

o AIDS wasting, defined as greater than 10% of baseline weight loss that cannot beexplained by a concurrent illness other than HIV infection. Patients treated withGH must simultaneously be treated with antiviral agents. Therapy is continueduntil this definition is no longer met.

o GH therapy for burn patients should be limited to those patients with third-degreeburns.

o In children, GH therapy is typically discontinued when the growth velocity is lessthan 2 cm per year, when epiphyseal fusion has occurred, or when the heightreaches the 5th percentile of adult height. In patients with chronic renal failureundergoing renal transplantation, GH is discontinued at the time of transplant.

Billing/Coding/Physician Documentation Information

BCBSNC may request medical records for determination of medical necessity. When medicalrecords are requested, letters of support and/or explanation are often useful, but are not sufficientdocumenta- tion unless all specific information needed to make a medical necessity determinationis included.

Policy Key Words

Human growth hormone, growth hormone, GH, GHD, Humatrope, Nutropin, Somatrem,Somatotropin, Protropin

Medical Term Definitions

Epiphysealthe end of a long bone, usually wider than the shaft and comprised primarily of cartilage

Pituitary glandgland in the head responsible for producing the growth hormone (somatotropin)

Scientific Background and Reference Sources

1995 AMA Dry Information2/96 TEC BulletinLawson Wilkins Ped. End. Soc., Guidelines for the use of growth hormone in children with shortstature, The journal of Pediatrics, 1995; 127:857-67.11/97 BCBSA Medical Policy Reference Manual

1999 USPDI1999 AHFS Dry Information3/99 BCBSNC Corporate Pharmacist3/99 Independent Consultant Review12/99 Medical policy Advisory croup

Policy Implementation Update Information

8/96 Original policy issued

3/99 Revised, Included approved adult indications. Changed policy guidelines for adults toinclude one provocative stimulation test instead of two.

5/99 Reformatted; description of service changed and medical term definiti.ons added.12/99 Medical Policy Advisory Group

Medical policy is not an authorization, certification, explanation of benefits or a contract, Benefitsand eligibility are determined before medical guidelines and payment guidelines are applied..Benefits are d~termined by the group contract and subscriber certificate that is in effect at thetime services are rendered. This document is solely provided for informational purposes only andis based on research of current medical literature and review of common medical practices in thetreatment and diagnosis of disease. Medical practices and knowledge are constantly changing andBCBSNC reserves the right to review and revise its medical policies periodically.

Benefits Administration Policy

Often, coverage decisions do not require clinical interpretation of medical necessity orappropriateness or a determination as to whether a particular service is experimental orinvestigational. Decisions such as these are guided by a health plan's benefits administrationpolicy. A health plan's benefits administration policy evaluates clinical services against specificbenefits language rather than against scientific evidence.

In some cases, benefits administration policy does provide clinical input to see that services areappropriate, but the purpose of this information is to facilitate coverage decisions by interpretingthe contract language and not to evaluate medical evidence. For example, when health planpersonnel consider coverage of durable medical equipment, they might consult the applicablebenefits administration policy to determine if a particular type of medical equipment is coveredby the contract. The benefits administration policy might provide a list of equipment to indicatethat certain "basic" models are covered, but specific "deluxe" models are not. Benefitsadministration policy may also include

Benefits Administration Policy may include:

Information used to determine dependent eligibility, continuation of coverage, orcoordination of benefits with other benefit plans

A database of current procedural terminology (CPT) codes and the usual, customary, andreasonable (UCR) fees for each code

A list of services for which the member must obtain preauthorization from a primary careprovider (PCP), such as services from specialists

Fast Definition Durable medical equipment refers to healthcare equipment that is designed for repeated

use rather than disposal after a single use or after use by one patient, such as homehospital beds, wheel chairs, and oxygen equipment.

A current procedural terminology (CPT) code is a five-digit number that identifies eachmedical service or procedure included in a classification system established by theAmerican Medical Association.

A usual, customary, and reasonable (UCR) fee is the amount that physicians within aparticular geographic region commonly charge for a particular medical service.

Administration Policy

In addition to medical policies and benefits administration policies, both of which address what iscovered, health plans maintain policies that provide guidance on how to administer the processesfor making coverage determinations. These administrative policies outline processes andprocedures for the development, application, and revision of medical and benefits administrationpolicies, including a reconsideration and appeal process for providers and members to resolvedisputes with the health plan. Administrative policies are often based on specific regulatoryrequirements or, in the case of health plans that obtain private accreditation, specific accreditationstandards.

Administrative policies govern day-to-day implementation of medical and benefits administrationpolicies. For instance, administrative policies specify timeliness requirements for review ofmedical necessity, such as 20 days from the date of the complaint for reviewing medical necessityquestions on non-life-threatening conditions. Administrative policies also document whichmedical management activities may be delegated to providers or other entities and the degree ofoversight needed to monitor such delegated services.

A health plan's administrative policy on appeals contains the guidelines to be followed whenhandling member and provider complaints and disputes, which can pertain to a wide variety ofissues ranging from questions of medical necessity to the courtesy of health plan personnel. Wediscuss the member appeals process in more detail in the lesson, Utilization Review.

Figure 2A-4 summarizes the characteristics of the three types of coverage policy.

Purpose and Scope of Medical and Benefits Administration Policies

Health plans use medical and benefits administration policies to improve the likelihood that

Members receive medically necessary and appropriate care within the framework of thecontract and are protected from unnecessary and unproven services

Coverage decisions are consistent with the purchaser's contract Coverage decisions are legally defensible and in compliance with all applicable

regulatory requirements

While benefits administration policy is generally established by health plans in collaboration withpurchasers, medical policy is established in accordance with evidence-based medicine and inputfrom relevant expert providers, with little, if any, input from purchasers. Both must be inaccordance with applicable state and federal laws.

Contract provisions and benefits administration policies vary from one health plan to another. Forexample, different health plans may have different positions on covering certain types of caresuch as behavioral healthcare, rehabilitative care, and reproductive therapy. A health plan mayalso have different contract provisions and benefits administration policies for its differentpurchasers.

A number of factors help a health plan determine whether to cover a particular service. Suchfactors include (1) state mandates, (2) safety and effectiveness, (3) cost-effectiveness, and (4) thepreferences of purchasers and members.

Benefits administration policy usually addresses the entire continuum of care, including

Preventive services, such as wellness programs, prenatal care, immunizations, routineexaminations, and disease screening

Primary care Services from healthcare specialists

Mental/behavioral healthcare Acute care, such as inpatient hospital care and emergency care Inpatient care at other types of healthcare facilities, such as skilled nursing facilities Prescription drugs Vision care, dental care, and other ancillary healthcare services, if applicable Follow-up care, such as rehabilitation and home healthcare

Medical policies, on the other hand, are confined to an evaluation of whether specific services,procedures, medical devices, or drugs are medically necessary and appropriate and neitherexperimental nor investigational.

Considerations for Medical Necessity and Appropriateness

Health plans must consider a number of factors when determining if services are medicallynecessary and appropriate. For example, defining medically necessary and appropriate servicesstrictly according to evidence-based medicine effectively eliminates coverage for some treatmentsthat have not undergone rigorous clinical studies but that may be effective treatments nonetheless.The lack of studies in some cases is because the procedure is so widely used with good effect thatto design an experiment with a control group (i.e., patients who do not receive the treatmentunder study) would result in individuals in the control group being denied treatment that commonmedical knowledge considers safe and effective.

Experimental services are services that have not been tested for safety and effectiveness or arebeing tested outside standard clinical trials. Investigational services are services that are beingtested in humans for safety and effectiveness in accordance with standard clinical trials and forwhich conclusive results are not yet available.1 The two terms are sometimes used in conjunction(experimental/investigational services) to refer to interventions for which the safety andeffectiveness have not been established.

Sometimes, patients are willing to try new or unproven treatments for medical conditions thathave not responded to conventional treatment. In addition, the medical and scientific communitiesmay embrace new medical technologies before research has been completed. Because of thesefactors, most contracts exclude experimental and investigational procedures. In addition, medicalpolicies indicate which procedures are considered experimental or investigational for specificconditions.

Typically, health plans rely on peer-reviewed medical studies and opinions from nationallyrecognized medical experts to develop policies concerning services that are consideredexperimental or investigational. Also, health plans often use an internal review process thatincludes network providers. Some health plans have a team dedicated to evaluating new medicaltechnology.

Proving the effectiveness of a new medical technology may require a research period of severalyears or more. The wait sometimes frustrates patients who are anxious for a cure, while alsocreating difficulties for health plans seeking to apply medical necessity and appropriatenessprovisions based on a requirement that the treatment meet an evidence-based standard of proof.

A prominent example of a controversial experimental treatment is the use of autologous bonemarrow transplants (ABMT) for various medical conditions. Although clinical research hasproven bone marrow transplantation effective in some diseases, for other conditions, the evidence

on the benefits and drawbacks of this approach is inconclusive. When evidence-based medicaldata is not sufficient to guide clinical decisions, as is the case with emerging technologies, avariety of factors (some not medically related) can influence what is considered an appropriatecourse of treatment. As Insight 2A-12 illustrates, the widespread use of a particular medicaltreatment, consumer demand, public opinion, and government mandates all have the potential toaffect a health plan's medical policy.

Once a particular drug has received approval from the Food and Drug Administration (FDA), it isno longer considered experimental or investigational. However, even after the FDA approves adrug, questions of medical appropriateness may arise if that drug is prescribed for off-label use.Off-label use refers to a situation in which a healthcare practitioner prescribes a drug for clinicalindications other than those stated in the labeling approved by the FDA. For example, using adrug to treat prostate cancer when the FDA originally approved the drug to treat lung cancer is anoff-label use. The FDA's long-standing policy has been not to interfere with off-label uses, citinga reluctance to interfere with the practice of medicine.3

Insight 2A-1. ABMT and Late-Stage Breast Cancer.

The procedure known as autologous bone marrow transplant (ABMT) has been proven effectivein treating certain types of cancer, such as leukemia and lymphoma. However, clinical sciencehas not yet demonstrated that this painful, expensive, and high-risk procedure is successful ineither curing or prolonging the life expectancy of late stage breast cancer patients. In the case ofbreast cancer, several factors combined to delay the process of evaluating the effectiveness ofABMT.

For new procedures, such as ABMT, evidence-based data is often obtained through clinicaltrials. In clinical trials, patients are randomly assigned to either (1) a group that receives thetreatment being studied or (2) a control group that receives conventional therapy. Patients do notknow which group they are assigned to, so they cannot be sure that they are receiving thetreatment that is being studied.

At the time ABMT first started receiving attention as a potential treatment for late stage breastcancer, many patients were unable to obtain coverage because their health plans excluded ABMTas an investigational procedure. In addition, many patients were unable to enroll in ABMT trialsbecause their health plans typically did not provide coverage for clinical trials. However, evenwhen breast cancer patients did have access to clinical trials, they were reluctant to participatein the ABMT trials because they did not want to take the chance of being given the conventionaltherapy.

Various factors combined to convince breast cancer patients that ABMT was their last best hope.A number of physicians recommended it and soon the media began to run stories that touted it asa promising new procedure. Public pressure quickly mounted for health plans to cover ABMTand, in response, government programs and a few states mandated coverage. In addition, somepatients filed lawsuits to force health plans to provide coverage. Consequently, health plans werecompelled to treat ABMT as a medically appropriate procedure for breast cancer even thoughrecent clinical studies have shown that it is no more effective than less risky conventionalprocedures.

In part to avoid problems like those that surrounded the use of ABMT and breast cancer, agrowing number of health plans now provide coverage for clinical trials. Also, America's Health

Insurance Plans (AHIP)and the National Institutes of Health (NIH) have entered into anagreement intended to make clinical trials available to more health plan subscribers and theirfamilies. AHIP encourages its member plans to cover the costs associated with NIH-sponsoredclinical trials, provided the cost does not substantially exceed the amounts that would have beenincurred for the conventional course of treatment on an in-network basis.

Impact of the Purchaser Contract on Coverage Policies

As we saw in The Role of Medical Management in a Health Plan, an essential provision in thecontract between the health plan and the purchaser is the coverage requirement that healthcareservices be medically necessary and appropriate to support the (1) safety, (2) clinicaleffectiveness, and (3) cost-effectiveness of care. Medical policies guide a health plan's personnelin making these types of decisions.

Because medical policy and benefits administration policy are closely linked to the purchaser'scontract, it is important to understand how the contract works. Figure 2A-5 describes somecommon provisions contained in the contract between a health plan and a purchaser.

Determining whether a particular service, medical device, or drug is covered under the contractcan be a complicated process. Medical and benefits administration policies expand upon coverageprovisions in the contract and provide guidance for decision-making. For example, a health planmay rely on such policies to determine whether the custodial care exclusion in the contractapplies to a particular service. The gradations of services between skilled care (which is typicallycovered) and custodial care (which is typically excluded) are often subject to dispute. Benefitsadministration policies can help health plan personnel consistently evaluate if specific servicesare actually covered according to the purchaser's contract.

As Insight 2A-2 explains, it is impractical to specifically address all the criteria for all coveragedecisions in a contract. Consequently, health plans rely upon medical and benefits administrationpolicies to provide the additional information that is sometimes needed to make coveragedeterminations. These policies are typically approved, documented, organized, and madeavailable in manuals, a collection of memos, an electronic database, or a combination of theseformats.

If the contract contradicts a specific medical or benefits administration policy, then the contract,which is a legally binding document, takes precedence. Similarly, if a medical or benefitsadministration policy addresses a benefit or exclusion that is not included in the contract, then themedical or benefits administration policy does not apply. The contract takes precedence in allsituations, except when it fails to reflect applicable state or federal requirements. Ideally, all suchrequirements are incorporated into the contract, medical policy, and benefits administrationpolicy; but if not, then regulatory requirements govern.

Insight 2A-2. The Need for Medical and Benefits Administration Policies.

Theoretically, a health plan could include in its contract every piece of information that is used tomake coverage decisions. However, health plans maintain information in medical and benefitsadministration policies outside the contract for several reasons.

First, if all the information included in medical and benefits administration policies (see Figure2A-3 for an example of just one uncomplicated medical policy) were included in the contract, thesheer volume and complexity would be overwhelming.

Second, the contracts would require constant amendments to keep pace with the extremelydynamic, rapidly changing healthcare environment.

Third, medical and benefits administration policies provide decision-making guidelines, ratherthan legally binding contract provisions, thus allowing the health plan to make exceptions basedon individual circumstances. If all these policies were included in the contract, there would belittle contractual leeway for exceptions.

Impact of the Purchaser Contract on Coverage Policies

Health plans that have different product lines need to specify in their medical and benefitsadministration policies any variations in covered benefits across product lines. For example, aparticular healthcare service may be a covered service under the health plan's point of service(POS) contract, but may be excluded under its HMO contract. Or coverage for physical therapymay be unlimited under a health plan's HMO contract, but may be limited to a certain number ofdays under its PPO contract. In making coverage determinations, health plan personnel must beaware of these types of product differences. Medicare health plans must cover all servicesallowed by the Medicare program and, therefore, health plans must note where Medicare differsfrom their coverage for their commercial products. Furthermore, health plans must be careful tosee that their contracts, medical policies, and benefits administration policies are consistent intheir definitions of medical necessity and appropriateness across product lines.

Health plans sometimes provide extra-contractual coverage, also called administrative coverage,when they wish to authorize a particular service or supply that, although not covered by thecontract, might provide a significant benefit to a member. In this situation, the health plan's

administrative policy establishes the procedure for evaluating the value of noncovered services,while the plan's utilization review program is used to guide the health plan in choosing the propercourse of action in each particular case.

Health plans usually implement administrative coverage when they believe that the additionalexpenditure for the noncovered service will be offset by lower long-term costs of care for amember. For example, suppose that a plan member with severe arthritis has difficulty getting inand out of the bathtub and needs handrails installed to assist with this activity. Even if the benefitcontract does not cover the cost of the rails and installation, the health plan may decide toauthorize payment for the rails and installation to reduce the likelihood of the member falling andpossibly experiencing a serious injury. In addition, the coverage of benefits outside the contractmay serve to improve the quality of life for the member.

A certain amount of risk is involved in providing administrative coverage because it may set aprecedent for the health plan to pay benefits for other noncovered services in the future. Oneapproach that health plans take to reduce this risk is to include an alternative care provision intheir contracts. An alternative care provision is a contractual provision or a rider that states that,at the discretion of the health plan, noncovered services are considered to be covered, providedthey are medically appropriate and comparable in cost to the applicable covered services.Similarly, a health plan may prepare a letter, as needed, to document that services are beingcovered on an exception basis. Both the health plan and the member sign this letter, which is not apart of the contract, to indicate their understanding and agreement.

The health plan should be aware of any applicable laws or regulations regarding care alternatives.For example, in Washington, if a patient who meets the criteria for inpatient hospital carerequests care in another setting (e.g., in a skilled nursing facility or in the patient's home), thehealth plan must cover the care in the alternative setting.

Quality-of-Life Considerations for Medical and Benefits Administration Policies

One issue that health plans have to contend with is coverage determinations related to care thatmay be classified as quality-of-life services. Typically, quality-of-life services are not associatedwith a specific disease or injury, but with diminished function, such as infertility or impotence.Sometimes, however, the line between disease and function is blurred. Usually, the contract orbenefits administration policy states whether or not coverage is provided for treatments for hairloss, impotence, infertility, weight management, memory loss, birth control, and incontinence.Further, the benefits administration policy might state which therapies for quality-of-life issuesare covered, and the medical policy might list the clinical circumstances under which a specificquality-of-life therapy is covered. For quality-of-life services, some health plans apply uniqueauthorization systems or contract provisions, such as a case-by-case review of need or specificbenefit limits.

Monitoring Medical and Benefits Administration Policies

Because of rapid changes in healthcare technology and the regulatory environment, a health planmust closely monitor and modify its medical and benefits administration policies. If a health planfails to keep its medical and benefits administration policies current, then functions such asquality management (QM), utilization management (UM), and claims administration mightbecome inconsistent with each other, as well as with the contract, current medical evidence,current medical practice, and legal and regulatory requirements. Health plans that have lengthy

policy resources may review part of the policy each year, with a goal of routinely reviewing allthese resources every two to three years.

In addition to conducting ongoing or periodic reviews of its medical and benefits administrationpolicies, a health plan performs reviews and makes modifications on an as-needed basis. Forexample, whenever an existing medical policy no longer reflects current medical practice, themedical policy needs to be revised. Factors that could prompt a review of medical policy include

New scientific evidence Significant changes in medical practice Matters of safety for plan members or providers New legal or regulatory agency requirements for the delivery of medical services Changes in accrediting agency standards Medical services that are new from a technological standpoint (for example, a new

magnetic resonance imaging scan) Medical services that are new from a procedural standpoint (for example, a new surgical

technique)

Health plans must incorporate newly mandated benefits and other laws and regulations into theirmedical and benefits administration policy resources on a timely basis, which often presents achallenge, especially when trying to comply with the multitude of state requirements. In addition,health plans that seek accreditation must have medical and benefits administration policies thatmeet applicable accreditation standards. For example, the National Committee for QualityAssurance (NCQA) uses Health Plan Employer Data Information Set (HEDIS) measures, such aspreventive care measures pertaining to childhood immunizations, flu shots for older adults, andbreast cancer screenings, to evaluate a health plan's effectiveness of care.

One critical aspect of maintaining current, appropriate medical policies is technology assessment,as we will discuss in the next section.

Medical Policy Development

Technological advances in medicine have contributed to the U.S. population's longevity and itsquality of life. Many providers, purchasers, and consumers tend to assume that new medicaltechnology means more effective medical care. Often, however, the effectiveness and safety of anew treatment or procedure has not been established at the time of its introduction, as we saw inInsight 2A-1. Further, advances in medical technology have also contributed to the increasedcosts of healthcare. Careful development of medical policies is necessary to address concernsabout safety, effectiveness, and cost-effectiveness.

To make informed decisions about the safety and effectiveness of medical technologies, healthplans rely on technology assessment, a process that evaluates the clinical aspects of new medicalprocedures, devices, drugs, and tests (as well as new applications of existing medical technology)to determine which approaches should be incorporated into the plan's medical policy. Technologyassessment may also be applied to older tests and treatments that scientific evidence suggests maybe obsolete or to nontraditional approaches to healthcare, such as acupuncture or herbal remedies,that are becoming increasingly popular. The use of technology assessment for evaluatingcurrently accepted practices is sometimes controversial since many of these practices are basedon accumulated experience without formal scientific evidence.

Technology assessment provides the scientific rationale for covering or not covering a serviceand for the medical policy section that specifies when the service is appropriate and when it isnot. Examples of technology assessment include evaluations of

Tests, such as a new prostate-specific antigen (PSA) test, for screening prostate cancer Treatments, such as bone marrow transplants for various types of cancer or other diseases

such as sickle cell anemia Devices, such as coronary artery stents and lasers for various applications Procedures, such as minimally invasive (laparoscopic) heart surgery

Evaluation of New Treatments

The medical policy development process varies by health plan. Health plans may conducttechnology assessment on a national, regional, or (in the case of small plans) local level.Typically, technology assessment is conducted internally by a health plan, although many healthplans obtain safety and effectiveness information from other organizations to accelerate theassessment process. Several external organizations offer technology assessment services. Healthplans also collectively pool resources needed for high level assessments. In all cases, the finalassessment decisions are made by the health plan.

In many health plans, either the quality management committee or the medical advisorycommittee oversees medical policy development for new procedures, devices, and tests. Otherhealth plans have committees specifically dedicated to the oversight of this activity. Thepharmacy and therapeutics (P&T) committee usually oversees the evaluation of new drugs.

A health plan needs to see that its medical policy development follows a logical progression tothe accept-reject decision and that technology assessment is neither too narrowly focused nor tooinclusive. If a health plan's technology assessment is too strict, it will reject technologies that areeffective medical services. On the other hand, less stringent assessment may result in waste ofhealth plan resources on services that are not effective or that may endanger plan members.

Medical Policy Development

Although each health plan tailors medical policy development according to its own goals,resources, and limitations, the process generally includes the following four steps:

1. Identification and research of promising new technologies2. Clinical review of the research findings and the proposed medical policy3. Operational review of the proposed policy's impact on the health plan4. The decision to accept or reject a proposed policy

Identification and Research of New Technologies

The purpose of the first step is to gather information on a new technology and draft a proposedmedical policy. The technology evaluation staff in a health plan monitor new developments andgather evidence regarding the most promising technologies. Staff members may learn about newtechnologies from a variety of external sources, such as medical literature, general media reportson healthcare issues, providers, members, purchasers, and pharmaceutical and devicemanufacturers' sales representatives. Internal sources (e.g., medical directors, provider relationsrepresentatives, and sales representatives) may also provide leads about new medical approaches.

To gather information about the safety and effectiveness of new technology, staff membersreview information from a variety of research sources, including:

Published information in peer-reviewed medical journals Position statements and technology assessments from specialty medical societies Policies of federal health agencies such as the FDA, the Centers for Medicare and

Medicaid Services (CMS), and the Agency for Healthcare Research and Quality (AHRQ) Opinions of experts not affiliated with the health plan, often physicians from academic

medical centers

The staff may also consult external resources that specialize in medical technology assessment.Figure 2A-6 briefly describes several professional organizations whose recommendations mayinfluence a health plan's medical policy development. Many of these and other organizationsprovide Web site access to information on technology assessment. Consulting these resources isnot a one-time event. Health plans need to monitor the safety and effectiveness of medicaltechnology and obtain access to independent reviews of experimental or unproven technology onan ongoing basis.

The staff members then prepare an evaluation report, which summarizes their findings on safety,effectiveness, and any problems with the technology, and draft a proposed medical policy. Thestaff report may also include information on the costs of the technology and any specialconsiderations for implementation. Typically, the next step in the assessment process is a clinicalreview of the proposed policy and evaluation report.

Clinical Review

In some health plans, an internal review panel, composed of a health plan's medical directors andother physician employees, reviews a proposed medical policy and makes recommendations onwhether to accept, modify, or reject the policy. In other health plans, a standing committee thataddresses clinical issues, such as the medical advisory committee (for new devices, procedures, ortreatments) or the pharmacy and therapeutics committee (for new medications) performs theclinical review. Recall from The Role of Medical Management in a Health Plan that suchstanding committees typically incorporate community providers as well as health plan personnel.Regardless of the panel structure, the focus of the clinical review is on the impact of the medicalpolicy on clinical outcomes.

A health plan may develop its own clinical review criteria for assessing technology, or it may useexisting criteria, such as the assessment criteria developed by the Technology AssessmentCommittee of the Institute for Clinical Systems Integration (ICSI), which is presented in Figure2A-7.

The clinical review often occurs prior to the operational review, although some health plansperform the two types of review simultaneously. In some cases, a single multidisciplinary panelperforms both types of review.

Operational Review

The operational review panel may include representatives from finance, claims administration,legal affairs, member services, marketing, quality management, and network management. Thispanel analyzes the expected impact of a proposed medical policy on financial outcomes, memberand provider satisfaction, and operating efficiency.

The financial analysis considers both the cost-effectiveness of a new technology compared toexisting interventions and the potential cost impact of a medical policy on health plan premiumsand provider reimbursement. Since premiums are based on actuarial forecasts of the cost of care,a new technology that substantially impacts healthcare delivery costs must be taken intoconsideration when premium rates are developed. In addition, if a health plan pays providers on acapitated basis, the financial impact of a new technology might impact provider reimbursementarrangements. For example, if covering an expensive new technology places an undue burden oncertain providers because of the equipment required, the health plan might decide to adjust thecapitation rate to take into account the increased cost of care. Unfortunately, data for in-depthfinancial analysis is often lacking, especially early in the life of a new technology.

The operational review panel determines whether the plan's existing delivery system of networkproviders and facilities can deliver the care described in the proposed policy. The panel alsoconsiders the capabilities of the health plan's medical management and claims administrationprocesses to accommodate the proposed policy as it is written. For example, does the currentclaims coding system cover the technology? If not, how should providers code it? Anotherconsideration for this panel is any impact that the proposed policy may have on the health plan'scompliance with laws, regulations, or accrediting standards.

The Accept-Reject Decision

Following the clinical and operational reviews, the health plan makes a decision on whether toadopt a proposed medical policy. Depending on the structure of the health plan and its medicalpolicy development process, the committee overseeing the development process (e.g., the medicaladvisory committee), a higher level committee (e.g., the quality management committee), or theboard of directors may make the actual decision. If a higher level committee or the board ofdirectors makes the final decision, then the committee overseeing medical policy developmenttypically plays an advisory role and submits its recommendations.

The accept-reject decision often depends on how a new technology compares to currently usedinterventions. Generally, when compared to an existing technology, a new approach may berejected because of

Inferior safety or effectiveness Few or no clinical advantages Higher costs coupled with no significant clinical advantages Insufficient information about benefits and/or drawbacks

If a proposed policy is accepted, then the new medical policy is distributed to the various healthplan departments affected by the change (e.g., utilization management, quality management,claims administration, and marketing) and to network providers

Clinical Practice Guidelines

Recall from The Role of Medical Management in a Health Plan that a clinical practice guidelineis a clinical practice management tool intended to guide providers in the delivery of care toindividual patients. Through CPGs, health plans encourage providers to follow standards of careand, thus, deliver consistent, efficient, and high-quality healthcare.

The documents and resources that we refer to as clinical practice guidelines in this course are alsoknown as clinical guidelines, practice guidelines, practice parameters, practice policies, or clinicalcriteria. Regardless of what they are called, however, these documents and resources are intendedto state, clearly and systematically, the appropriate care for a specific type of patient in specifiedclinical circumstances, providing a framework for care while also allowing for patient-specificvariations, based on physician judgment.

In addition to providing guidelines to healthcare practitioners, CPGs have a number of other uses.They are frequently integrated into medical policies to guide health plan decision-making aboutmedically appropriate services, and they often form the basis for health plan activities intended toinfluence the quality of care delivered to plan members. CPGs are an integral part of QM and UMprograms, such as disease management. In some health plans, CPGs serve as the basis forevaluating whether providers are practicing in accordance with accepted standards. Some healthplans even include CPGs in their member education programs. Finally, CPGs enable health plansthat seek accreditation to satisfy applicable criteria for quality management of medical servicedelivery. For example, NCQA states that a health plan has a responsibility to adopt or developCPGs for acute and chronic care services that are relevant to the member population.13

CPGs usually take the form of guidelines that are intended to provide healthcare practitionerswith an outline of the accepted standard of care based on a summary of the current medicalevidence. Many of a health plan's CPGs focus on the prevention or early detection of a particularcondition. For example, to help detect breast cancer, CPGs might recommend a single baselinemammogram for women ages 35 through 39, followed by one mammogram every one to twoyears for women ages 40 through 49, and one mammogram every year for women ages 50through 69.

CPGs may outline the course of care in sequential order for a given condition. They are oftenpresented in a clinically detailed, step-by-step plan for delivering care. For example, in the case ofa patient with suspected congestive heart failure, the CPGs might initially indicate that anelectrocardiogram (EKG), specified blood tests, and a chest X-ray be done, followed by treatmentwith oxygen and diuretics as indicated by the tests.

CPGs indicate the approach that can generally be expected to work best with respect to aparticular medical condition. A health plan establishes CPGs to achieve the best possible outcomein the most cost-effective way by increasing consistency of care for routine, uncomplicated cases.With this objective in mind, some health plans audit and track compliance with CPGs. However,a health plan needs to temper this standardization of medical procedures with the flexibility toaccommodate the needs of different plan members. CPGs are guidelines, not strict policies, andare intended to be flexible. The only requirement for a provider to vary from the guideline is thedocumentation of a sound clinical reason for the variation.

In addition, a health plan's CPGs must be regularly reviewed and updated to reflect medicaladvances and changes in the legal and regulatory environment. Insight 2A-4 shows the essentialcharacteristics of an effective CPG, according to AHRQ.

A health plan's covered services must also be consistent with the CPGs that it uses. For example,if a health plan's benefits administration policy indicates that positron emission tests for coronaryartery disease are not covered, then the CPGs for coronary artery disease should generally notinclude this test as a recommended option.

Often, the first step in developing CPGs occurs when the health plan identifies an area in whichnew or modified CPGs are needed. The sources of information about the need for new CPGs ormodifications include medical literature, network providers, health plan medical directors or othermedical staff, and provider relations representatives.

The health plan then decides whether to develop their own CPGs or adopt existing guidelines.Many health plans adopt existing, nationally valid CPGs to reduce the likelihood that providerswill be overburdened by a variety of CPGs from different health plans pertaining to the samecondition. Figure 2A-8 lists various sources that health plans may use when developing CPGs.Many health plans also solicit network providers' input into the development or selection process.

Once the appropriate CPGs have been developed or identified, the health plan's medical policydirector submits the recommendations to the appropriate health plan committee (typically themedical advisory committee or quality management committee) for review. The committee inturn may present its CPG recommendations to the health plan's senior management or board ofdirectors for approval.

Implementation Strategies for CPGs

It is essential for health plans to bridge the gap between developing CPGs and making sure thatCPGs are put into practice. Successful implementation is accomplished by attempting some or allof the following measures:

Establishing guideline credibility by incorporating information from resources thatproviders know and respect

Involving local providers in the development process and allowing some customizationof the guidelines according to the medical practice conventions in the area

Recruiting opinion leaders that the providers trust to assist with dissemination of CPGs Measuring and reporting improvements in outcomes that result from the use of CPGs Introducing CPGs gradually into the provider community, with the initial focus on

clinical conditions that providers consider most important or encounter most frequently Presenting CPGs as decision support tools (recommendations) rather than requirements

Dividing lengthy guidelines into interrelated modules to facilitate usage Making CPGs available in an interactive computerized format Providing preprinted patient education information and flowsheets that are consistent

with CPGs for common health problems Keeping guidelines current with changes to generally accepted medical practices Working with other health plans in the region, state, or locality to develop guidelines that

are consistent across health plans and relevant to the needs of the member population Giving members health education guidelines that are based on and consistent with current

CPGs to help members understand their conditions, comply with recommendedtreatment, and ask their providers appropriate questions

For clinical practice management, risk management focuses on developing and implementingclinically sound and clearly presented policies and guidelines that comply with all applicableregulatory requirements. As we have seen, health plans strive for clinical practice parameters thatare scientifically sound. Rigorous examination of the available scientific evidence when assessingnew medical technology or developing CPGs demonstrates due diligence and good faith on thepart of the health plan.

Furthermore, the involvement of network providers and other healthcare experts in clinicalpractice management activities increases the likelihood that the plan's policies will reflect bothcurrent standards of medical practice and any special considerations for particular memberpopulations. Well-crafted benefits administration and medical policies, which form the basis of ahealth plan's UM programs and claims administration, help demonstrate that decisions are madein good faith, thereby reducing the risk of litigation.

In addition to scientific trends, health plans continuously monitor new legislation and courtdecisions that might affect clinical practice management. They then incorporate relevant changesinto their policies and programs.

Also, health plans should see that all documentation of covered services-such as marketingbrochures, contracts with purchasers, certificates of coverage, and contracts with providers-areconsistent and accurate. These documents must all present the same benefits, exclusions, andlimitations as described in the plan's benefits administration and medical policies. Thesedocuments must be

Reviewed and updated on a regular basis Readily available during the course of member or provider appeals In compliance with all applicable state and federal regulations such as benefit mandates

and process requirements

Finally, it is essential for health plans to inform members and providers of their right to appealcoverage decisions. A consistently administered appeals process can resolve disputes in a fair,open, and timely manner and reduce the likelihood that a court will decide that a plan has beennegligent or operating in bad faith.

AHM Medical Management: Quality Management

Objectives

After completing the lesson Quality Management you should be able to:

Describe the major steps in the quality management process Describe the role of outcomes in quality management Identify the characteristics, uses, and sources of quality standards Describe the differences between traditional healthcare and population-based healthcare Describe how quality management relates to risk management and information

management

Introduction

When managed healthcare first appeared, it offered a way to control the spiraling costs ofhealthcare and to improve access to healthcare services. While these goals remain important, theyare no longer the only factors consumers and purchasers consider when they make healthcaredecisions. Quality has also become an important consideration.

Much of the impetus for this shift toward a quality perspective comes from employers whosecommitment to quality management and continuous quality improvement is often reflected in therequirements and expectations they set for health insurers and health plans. A recent poll of morethan 200 benefits managers in large companies indicated that the majority of employers (56percent) view quality as an important issue in selecting a health plan.1 Consumers are alsoconcerned with quality. A Wall Street Journal/NBC News poll taken in 1998 reported that 23percent of consumers felt that quality was the most important issue in healthcare, up from only 8percent in 1993.2

In this lesson, we will describe the concept of quality and present some of the tools health plansuse to measure, monitor, and improve the quality of their services. We will also describe theimpact of quality management on current and future health plan operations.

Defining Quality

Developing a single definition of quality healthcare that will be acceptable to patients, providers,purchasers, and health plan administrators is nearly impossible. Each of these groups tends todefine quality in terms of individual needs and expectations, and because their perspectives aredifferent, their definitions of quality are also different. The following dimensions, however, areessential to quality services:

Accessibility: services are available when and where they are needed Effectiveness: services produce expected healthcare outcomes Efficiency: services result in the best care for a given cost or the lowest cost for a given

level of care Acceptability: services satisfy needs and expectations

Health plans generally focus on two types of quality: the quality of the health plan'sadministrative services and the quality of the healthcare services the health plan makes availableto its members. Administrative services encompass all of the nonclinical services a health plan

delivers to plan members, providers, purchasers, and employees. Healthcare services are clinicalservices that affect the health of plan members.

Administrative Quality

HMOs typically provide their customers with a full range of administrative services, includingmedical management, assistance with PCP selection, enrollment processing and distribution ofidentification cards, claims processing, member services, and systems and operational support.Health plans that offer a PPO or clinical management on a contract basis provide more limitedservices. Because the most visible of a health plan's administrative services are customer servicesdelivered to plan members by the health plan and its providers, our discussion will focus on thisaspect of administrative quality.

As you recall from The Role of Medical Management in a Health Plan, service quality refers tothe success of a health plan and its providers in meeting the nonclinical needs of plan members.In assessing service quality, the health plan is concerned with the following issues:

The attitude, competence, availability, and efficiency of the member services staff The speed and accuracy with which claims, if any, are processed and benefits are paid The ease with which members can obtain information and resolve problems The availability of appropriate and understandable educational materials

Service quality is important at the provider level as well. Office staff are responsible forscheduling appointments, processing referrals, obtaining authorizations, and maintaining patientfiles. Physicians provide treatment information and address patients' concerns. The followingconsiderations are important in assessing the quality of customer services delivered by providers:

The ease with which patients can schedule appointments and obtain referrals The amount of time patients must wait at the office before being seen by a physician The attitude, competence, and efficiency of the office staff The manner in which the clinician handles patients' concerns, answers questions, and

explains clinical findings and treatment options

Health plans measure service quality primarily through member feedback gathered from customersatisfaction surveys and member complaints and grievances. Data regarding after-hoursavailability, telephone wait times, the percentage of calls that are abandoned before they areanswered, the percentage of calls that are resolved on the spot, the number of contacts per day,and the length of time needed to complete each contact provide additional service qualitymeasures.

Health plans are also concerned with the quality of services, such as processing authorizationrequests and providing education and training on plan policies and procedures, that they offer totheir providers.

Healthcare Quality

Plan members receive a variety of healthcare, or clinical services, as illustrated in Figure 3A-1. Aplan's primary prevention efforts are designed to keep plan members healthy. Screening services,such as mammography and cholesterol testing, allow physicians to detect disease conditionsbefore they result in acute episodes. Acute care, post-acute care, chronic care, and long-term care

focus on treating patients who are sick, helping them live with their illness, and preventing futureacute episodes. Palliative care focuses on delivering care and support to patients who are dying.

Plan members receive healthcare services from a variety of providers, including physicians,nurses, therapists, medical groups, or other healthcare professionals in hospitals, nursing homes,and other healthcare facilities. Quality is an important aspect of care at each of these points in thedelivery system.

Health plans generally assess healthcare quality in terms of the structure, process, and outcomemeasures proposed by Dr. Avedis Donabedian.3 Although most of the measures currently used toassess healthcare quality are structure and process measures, an increasing number of health plansare beginning to focus their attention on outcome measures. We will describe these measures inmore detail in the lesson, Quality Assessment.

What Quality is Not

Perhaps as important as the definition of quality, is an understanding of what quality is not. Forexample, quality is not equated with quantity. Excessive, unnecessary, or inappropriate serviceshave been shown to affect quality adversely by exposing patients to unnecessary risks. Forexample, a 1997 study of patients admitted to a large teaching hospital reported that 17.7 percentexperienced at least one adverse event. The longer patients remained hospitalized, the higher theirchances were of experiencing adverse events.4 Quality services are appropriate, medically

necessary, and provided in the most efficient manner, using available resources. (We will discussthe issue of patient safety in more detail later in this lesson.)

Quality is not an intangible attribute. From a patient perspective, quality often depends on patientgoals and expectations, which are very personal and differ according to age, gender,race/ethnicity, and health status. Healthcare, however, is also a system defined by structures,processes, and outcomes, all of which have quantifiable, measurable elements. Analyzing thoseelements and comparing them to established standards or to similar elements in otherorganizations provides an indication of the quality of a health plan's services.

Quality is not expensive over the long term. Delivering quality services does generate costs-notjust for preventive services, but for training personnel, expanding networks, increasing benefits,monitoring performance, upgrading information systems, and improving care. Over the shortterm, these costs can be very high. Quality, however, is a long-term investment designed toproduce long-term results.

Critics of the cost-effectiveness of providing quality care argue that maintaining healthypopulations through disease prevention and other quality initiatives costs more than it saves. Asproof, they compare the costs of providing preventive services such as immunizations andmammograms to large numbers of healthy patients with the costs of treating diseases that occurnaturally. For example, one commentator, analyzing data from a health plan's study of the effectsof infant immunization against pneumonia, asserted that the $197,600 it would have cost the planto treat 38 non-immunized control-group infants who contracted pneumonia was far less than theestimated $950,000 it cost to immunize the 19,000 infants in the study group.5

To a certain extent, such assertions have merit. Concluding that quality is not worth these costs,however, ignores equally important facts. Assuming a one-to-one relationship and comparingshort-term costs with short-term savings, as the critic in our example does, can producemisleading results. A more accurate picture develops when the costs of providing quality care arecompared with the costs of not providing quality care.

Treatment costs are the short-term results of lower-quality care. The long-term costs of notproviding quality care result from internal failures such as waste, duplication, and mistakes, andfrom external failures such as malpractice and liability actions. To assert that "a few runawaybreast-cancer cases are a lot cheaper than 100,000 mammograms for healthy women"6 appearsdangerously short-sighted.

Quality is not the responsibility of a single employee or department. Quality is achieved when theorganization provides policies, procedures, tools, and methods for making changes proactivelyand when every individual within the organization recognizes improvement opportunities andaccepts responsibility for putting quality-based policies, procedures, and tools to use whenproviding services to plan members.

History of Quality Management

The use of quality as a management tool began in the 1950s when W. Edward Deming showedJapanese manufacturers how they could use quality improvement to reduce process variabilityand improve productivity. Quality management (QM) was introduced into healthcare in the 1960swhen Congress amended the Social Security Act to create Medicare and Medicaid. Althoughthese amendments were designed primarily to increase access to healthcare services, they also

established mechanisms to monitor the quality of care that beneficiaries receive. By the 1980s,QM had become an integral part of managed healthcare. The terms used to describe the qualityefforts of healthcare organizations vary and include such labels as total quality management(TQM), total quality improvement (TQI), performance management, and continuous qualityimprovement (CQI).

In simple terms, QM is a process designed to coordinate and facilitate a health plan's efforts todefine, measure, monitor, and improve quality. Although QM is a continuous process consistingof interrelated activities, for the purposes of our discussion, QM activities are divided into twobroad categories: quality assessment activities and quality improvement activities. In thefollowing sections, we will provide a brief description of QA and QI activities. A more detaileddiscussion is presented in the lessons, Quality Assessment and Quality Improvement.

Quality Assessment

Quality assessment (QA), which is also referred to as quality assurance, encompasses a healthplan's efforts to define and measure quality. It includes the following activities:

Developing quality goals and objectives based on key customers, services, and processes Establishing quality standards and indicators Collecting and analyzing performance data relevant to standards Reporting performance results to interested parties

QA has been an important issue in healthcare since the mid-nineteenth century when practitionersbegan to notice a positive correlation between improvements in patient care and decreases inmortality rates. By the early twentieth century, research studies had documented a similarcorrelation between physician education and the quality of patient care. These studies generated aseries of medical education reforms, including the use of education, licensing, and certification ascriteria for "qualifying" physicians and educational institutions.

In the 1950's, the focus of QA expanded from assessing structures to evaluating the processesinvolved in healthcare delivery. Studies conducted during this period looked at the processes andprocedures used during patient examinations and follow-ups, the level of ambulatory care givenby physicians, and the performance of physicians in acute care facilities compared topredetermined criteria. These studies concluded that deficiencies in patient care existed across thehealthcare industry and that quality could be assessed only through continuous monitoring andimprovement.

Quality Improvement

Whereas QA focuses on identifying areas in which the quality of a health plan's performancevaries from established standards, quality improvement (QI) involves planning and implementingactions to reduce that variance. Because improved care produces improved results for planmembers, QI represents a shift in focus from structures and processes to outcomes. Becauseimprovements must be generated from within the organization, QI also represents a shift from theexternal evaluations provided by accrediting organizations and government agencies to a systemof self-measurement by the health plan. The combination of quality assessment and qualityimprovement constitutes the quality management process, as illustrated in Figure 3A-2.

Although QM programs vary according to the specific needs of the health plan, successfulprograms typically exhibit the following characteristics:

Management commitment and leadership. Successful QM programs are built into ahealth plan's strategic framework and are supported by company leaders at all levels.Management does not simply give lip service to these programs; it is actively involved inseeing quality initiatives through to completion.

A company-wide vision. In order to succeed, a QM program must be visible, achievable,and accepted by the entire organization. It must be openly communicated in the healthplan's vision, mission statement, and goals and accepted by employees throughout theorganization.

A competent, knowledgeable, and motivated workforce. Management should identifythe organization's educational needs and should meet those needs through formal andinformal training and education. Like the quality improvements they are designed tosupport, training and education should be part of a continuous process.

A system of measurement and feedback. Decision making in a quality environmentdemands a continuous flow of data related to quality issues. Quality measures must beapplied regularly and consistently, and the results must be communicated back throughthe organization in clear, actionable terms.

A focus on customer satisfaction. The goal of QM is to maximize both the quality of theservices a health plan provides to its members and the plan members' perceptions of thatquality. To achieve that goal, the health plan must pay attention to what its customersneed, what they expect, and what they think they get. Ultimately, it is customersatisfaction that determines the quality of a health plan's services.

Continuous improvement. Quality is not achieved through one-time, "quick fix" efforts.Successful QM programs remain flexible to allow for adjustments and improvements asthe environment changes.

The Role of Outcomes in Quality Management

Although the public typically associates healthcare outcomes with specific clinical interventionsand results, health plans are concerned with all the outcomes associated with healthcareprocesses. These outcomes can be divided into three categories: organizational outcomes,provider outcomes, and customer/patient outcomes.

Organizational outcomes are based on system-wide clinical and financial data such as mortalityrates, hospital length-of-stay averages, drug and laboratory use, and operational efficiencies.Provider outcomes focus on clinical procedures, utilization rates, and performance of individualphysicians and other healthcare professionals. Customer/patient outcomes provide informationabout patient satisfaction, functional status, quality of life, emotional well-being, and compliance.Each of these types of outcomes has both quality and cost components. Quality managementattempts to maximize the quality of all these outcomes through outcomes research and outcomesmanagement.

Outcomes Research

Outcomes research has been defined as the "scientific study of the outcomes (results) for patientsreceiving different treatments for a single disease or illness." 7 In other words, outcomes researchexamines the effect on outcomes of a specific treatment for a given condition, usually comparedeither to no treatment or to an alternative treatment. Although outcomes research is built on the

same model as traditional clinical research-that is, the relationship between diagnoses,interventions, and outcomes-it serves a very different purpose. Whereas clinical research focuseson the efficacy of treatment, outcomes research is intended to determine which interventions aremost effective.

Treatment efficacy refers to the strength of a particular treatment under ideal conditions, such asthose found in controlled clinical trials. Because diseases and treatments are examined inisolation, free from external influences, efficacy provides an absolute measure of results.Treatment effectiveness refers to the strength of a particular treatment under average conditionssuch as those found "in the field" of clinical medicine. Effectiveness is a relative measure thattakes into account changes in both health status and quality of life. Health status is the degree towhich a patient is able to function physically, emotionally, and socially, with or withoutassistance from the healthcare system. Quality of life is a patient's perception of and satisfactionwith his or her functional ability.

The difference between treatment efficacy and treatment effectiveness can be illustrated bylooking at the findings reported by clinical research and outcomes research on a procedure suchas surgical hip replacement. Clinical research, in this example, would focus on the degree ofimprovement in range of motion achieved by the procedure. Outcomes research would assessboth the degree of improvement in mobility and the patient's perceptions of the physical,emotional, and social benefits associated with that improvement.

The goal of outcomes research is to measure the quality of medical care by collecting andanalyzing outcomes data. Outcomes research can take a variety of forms, including patient-basedstudies, records-based studies, and process assessments. Patient-based studies rely on anextensive systematic analysis of health status, quality of life, and disease-specific clinicalinformation. Projects such as the Patient Outcomes Research Teams (PORTs) initiated by theAgency for HealthCare Research and Quality (AHRQ) are examples of patient-based outcomesresearch. PORTs follow a standard research methodology and are designed to provideinformation that can be used to support decision making and to develop strategies for improvingthe quality of healthcare.

Records-based studies gather information from existing clinical, financial, and administrativedatabases. Records-based studies are more widely used than are patient-based studies becausethey are typically easier, faster, and less expensive to design and conduct. Process assessments,which focus on how a treatment is delivered rather than on which treatment is delivered, provideimportant information related to evidence-based outcomes.

Outcomes research can be a challenge for health plans because outcomes often require long-termevaluation and analysis. For example, outcomes for diabetes care are generally measured by thepresence or absence of peripheral vascular disease, heart disease, retinopathy, and stroke. Theseconditions may not appear until long after patients have left health plans. To account for suchsituations, health plans often focus on intermediate, rather than long-term, outcomes.

Outcomes management can perhaps be defined best as a systematic analysis of outcomes appliedto improving the quality of patient care and services. In other words, outcomes management takeswhat is known about the outcomes of a given condition using various treatments and developsand implements an approach to care that seeks to maximize the outcome.

Outcomes management differs from outcomes research in several ways. Perhaps the mostimportant of these differences involves goals. Whereas the goal of outcomes research is todetermine treatment effectiveness, the goal of outcomes management is to identify and implementtreatments that are cost-effective and deliver the greatest value. For outcomes management, cost-effectiveness refers to the strength, or benefit, of a treatment in achieving desired outcomes withthe least use of resources. Outcomes management, therefore, is an effort to balance quality withcost.

A second difference between outcomes research and outcomes management involves scope.Outcomes management incorporates three separate but interrelated processes:

A systematic, quantifiable evaluation of healthcare outcomes at a single point in time Repeated measurements of outcomes over time to determine causal relationships between

treatments and outcomes Implementation of programs designed to improve outcomes by reducing unintended

variations and managing resources

A final difference between outcomes research and outcomes management is the introduction ofperformance as a critical factor in the measurement and management of outcomes. Performanceevaluation is not a new concept; peer review models, for example, are widely accepted amongclinicians. Subjective reviews based on expert opinion, however, are rapidly being replaced byobjective performance measurement based on specific evidence-based criteria that cover bothquality and cost.

The same attributes that set outcomes management apart from outcomes research form the basisof the link between outcomes management and quality management. The emphasis on managingrather than simply measuring outcomes requires health plans to evaluate the combined effect ofclinical, financial, and satisfaction factors rather than the individual effects of specific variationsin treatment. The emphasis on management also introduces the concept of value, whichrepresents the relationship between quality and cost.

Quality Standards

Health plans typically rely on standards to assess the quality of the services they provide.Standards are defined by the Institute of Medicine as "authoritative statements of: (1) minimumlevels of acceptable performance or results, (2) excellent levels of performance or results, or (3)the range of acceptable performance or results." Standards represent what the healthcare systemas a whole expects in terms of resources, delivery processes and procedures, and outcomes.

Standards are an important part of a health plan's QM program because they provide a vehicle bywhich the health plan can translate quality into operational terms and measure how well thesystem's performance meets expectations. Standards also provide a means of holding everyonewithin the organization-providers, support staff, and management-accountable for providingquality services. We will discuss the development and use of standards in more detail in thelesson, Quality Improvement.

Sources of Standards

Standards can be developed internally or externally. Internal standards are developed inside thehealth plan and are based on the health plan's own historic performance levels. External

standards are based on outside information such as published industry-wide averages or bestpractices of recognized industry leaders. Health plans often use standards developed internally toassess the quality of administrative services. They rely primarily on external standards to evaluatehealthcare services.

The majority of the external standards used to evaluate managed healthcare come fromaccrediting agencies. These agencies confer accreditation status on a health plan or its componentparts following an extensive review of the health plan's operations and performance. Health plansalso use standards developed by government agencies and professional societies, published data,and aggregate data from provider networks.

In order to qualify as valid measures of health plan or health network quality, standards mustrelate to conditions that are important to the plan and its members, that can be influenced throughquality improvement initiatives, and that are under the control of the organization. Standards arealso affected by such factors as the availability of reliable data, the availability of evidenceregarding treatment improvements, and the need for risk adjustment. In this section, we willdescribe the major accrediting programs and other agencies that provide managed healthcarestandards.

Accrediting Agencies

Health plans deliver administrative and healthcare services to their customers through a complexhealthcare delivery system that includes various prepackaged health plans and various types ofproviders. A health plan can seek accreditation for its entire delivery system; for particularcomponents of the system such as specific health plans or products, provider networks, orindividual providers; or for both the system and its individual components. We introduced themajor accrediting agencies in Environmental Influences on Medical Management. In this section,we will describe these agencies and the types of quality standards they offer in more detail.

National Committee for Quality Assurance (NCQA)

The National Committee for Quality Assurance (NCQA) began accrediting HMOs in 1991 and isnow the primary source of accreditation for health plans. NCQA's original accreditation programbased accreditation decisions on an HMO's compliance with NCQA standards related to thequality of the organization's systems and processes. In 1992, NCQA developed a second set ofmeasures-the Health Plan Employer Data and Information Set (HEDIS)-which provides ameasure of an organization's actual performance in the areas of clinical quality and membersatisfaction. In 1999, NCQA began combining traditional NCQA accreditation standards andHEDIS results to form a performance-based accreditation program. The introduction of HEDISresults into the accreditation process represents a significant shift in focus from structure andprocess to outcomes.

Under Accreditation '05, organizations must undergo an on-site survey of clinical andadministrative systems and processes at least every three years. During these surveys, evaluatorsconduct a comprehensive review of written documents and medical records, interview key planpersonnel, and assess customer service practices to verify that plans comply with establishedstandards. NCQA measures performance on the following standards related directly to qualitymanagement and improvement:

Program Structure (QI 1.1-1.8)

Program Operations (QI 2.1-2.3) Health Services Contracting (QI 3.1-3.2) Availability of Practitioners (QI 4.1-4.4) Accessibility of Services (QI 5.1-5.5) Member Satisfaction (QI 6.1-6.7) Health Management Systems (QI 7.1-7.2) Clinical Practice Guidelines (QI 8.1-8.6) Continuity and Coordination of Care (QI 9.1-9.4) Clinical Measurement Activities (QI 10.1-10.3) Intervention and Follow-Up for Clinical Issues (QI 11.1-11.2) Effectiveness of the QI Program (QI 12.1-12.3) Delegation of QI Activity (QI 13.1-13.2)

Plans must also submit audited HEDIS results on selected effectiveness of care and consumersatisfaction measures.

Consumer satisfaction is measured by the CAHPS® 2.0H survey, which is a combination of theoriginal HEDIS Member Satisfaction Survey and the Agency for Healthcare Research andQuality's (formerly the Agency for Health Care Policy and Research) Consumer Assessment ofHealth Plans Survey (CAHPS). The core survey is administered separately to commercial,Medicare, and Medicaid populations. All plans participating in the Federal Employee HealthBenefits Program (FEHBP) are also required to use CAHPS. Health plans must contract with anNCQA-certified survey vendor to administer the survey according to HEDIS protocols.


The core survey questions cover specific aspects of customer service and overall measures ofconsumer experience with the plan. Customer service questions are divided into the following sixcategories:

Claims Processing (three questions) Courteous and Helpful Office Staff (two questions) Customer Service (three questions) Getting Care Quickly (four questions) Getting Needed Care (four questions) How Well Doctors Communicate (four questions)


Consumer experience questions cover four areas: (1) rating of all healthcare, (2) rating of healthplan, (3) rating of personal doctor, and (4) rating of specialist seen most often. Health plans mustsubmit results on all HEDIS Consumer Survey questions for all product lines under evaluation.8

The accreditation decision is based on the results of both the on-site survey and the HEDISmeasures. Plans can earn one of five accreditation levels.

Excellent. The plan consistently delivers outstanding care and service, and its clinicaland administrative systems far exceed NCQA standards for consumer protection andquality improvement

Commendable. The plan delivers high quality care and service and its systems forconsumer protection and quality improvement exceed NCQA standards.

Accredited. The plan delivers sound care and service, and its systems for consumerprotection and quality improvement meet NCQA standards.

Provisional. The plan meets some, but not all, of NCQA's requirements for consumerprotection and quality.

Denied. The plan's systems for consumer protection and quality improvement containserious flaws.

The public reporting framework organizes plan results into five categories based on theConsumer Information Framework created by the Foundation for Accountability (FACCT).These reporting categories include (1) access and service, (2) qualified providers, (3) stayinghealthy, (4) getting better, and (5) living with illness. NCQA publicly reports the accreditationstatus and performance results in each framework category for each of the health plan's productlines.

NCQA continually updates standards that address the increasing concern for consumer protection.For example the 2000 Accreditation New Accreditation 2000 standards include the followingrequirements

An independent, external review process for evaluating medical appeals An evaluation of appeals by a physician in the same specialty or a similar specialty

during at least one stage of the internal review process An extension of care for up to 90 days for plan members undergoing an active course of

treatment from a provider that leaves or is removed from a plan's network

The American Accreditation HealthCare Commission/Utilization Review AccreditationCommission (URAC) was originally organized to provide accreditation for stand-alone utilizationreview programs. In 1996, URAC expanded its accreditation programs to include providernetworks, HMOs, PPOs, POS products, IPAs, and other integrated delivery systems. It is nowone of two agencies that provide comprehensive accreditation for PPOs. URAC also offersaccreditation for health plans that provide workers' compensation services, credentialsverification organizations (CVOs), health plan call centers, and case management organizations.

American Accreditation HealthCare Commission/URAC

URAC offers health plans two accreditation options: health plan accreditation, which primarilytargets HMOs, and health network accreditation, which targets PPOs. Although the standardsused for these options are fundamentally the same, certain designated standards apply to healthplans only. Networks that do not meet URAC's definition of "health plan" should not addressthese standards. In addition, standards covering the scope of the credentialing program aredifferent for the health plan and health network options.

URAC's quality management standards address such areas as

QM structure, organization, and staffing (four standards) Scope of the network's QM program (three standards) QM plan (two standards) QM complaints, corrective action, and disciplinary action (four standards)

URAC does not currently include performance data as part of the accreditation process. However,standards for quality management do require health plans and health networks to engage inquality improvement projects, at least one of which must be related to clinical qualityimprovement. Plans that administer the CAHPS survey to enrollees are considered to have metURAC's requirement for one quality improvement project.

URAC classifies its standards as either "shall" standards or "should" standards. "Shall" standardsidentify issues that are essential to heath plan or health network quality and define minimumlevels of acceptable performance. "Should" standards identify desirable levels of performance.Over time, "should" standards often become "shall" standards. To receive full accreditation, ahealth plan must satisfy 100 percent of the applicable "shall" standards and 60 percent of theapplicable "should" standards.

The accreditation process consists of a "desktop" review of an organization's policies andprocedures and an on-site visit by URAC reviewers to verify compliance with the accreditationstandards. Once granted, URAC accreditation remains in effect for two years.

Joint Commission on Accreditation of Healthcare Organizations (JCAHO)

The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) began offeringaccreditation of hospitals in 1951. Since then, it has expanded its accreditation programs toinclude healthcare networks, which include health plans, integrated delivery systems, provider-sponsored organizations, specialty networks, and physician-hospital organizations. PPOs thatassume financial risk, manage benefits, and/or assume responsibility for integration of healthcareservices are also eligible for accreditation under the Standards for Health Care Networks. PPOsthat offer providers' services to insurance companies, employers, or other purchasers and that donot assume financial risk or responsibility for integrating services are eligible for accreditationunder a program designed specifically for PPOs-the Accreditation Manual for Preferred ProviderOrganizations (AMPPO).

The accreditation process for health plans and other healthcare networks consists of on-site visitsconducted every one to two years. During these on-site visits, reviewers evaluate the followingoperational components:

The health plan's central office and any network services not already accredited by theJoint Commission

All high-risk services performed by the organization A sample of low-risk services Key documents A sample of practitioners' offices

The results of the on-site surveys are measured against established performance standards andrated on a five-point scale. Standards are organized into eight functional areas that focus on theprocesses and activities of the network and its member services. Figure 3A-4 provides a briefdescription of each of these functional areas.

Accreditation is based on compliance with JCAHO standards at the network, component, andpractitioner levels. Organizations that comply with all JCAHO standards are awarded fullaccreditation status in the form of Accreditation with Commendation or Accreditation withoutType 1 Recommendations. Organizations that fail to satisfy standards in one or more specific

performance areas are granted Accreditation with Type 1 Recommendations or ConditionalAccreditation, depending on the degree of noncompliance. Networks that have successfullycompleted the first of two surveys under the Early Survey Policy-Option 1, receive ProvisionalAccreditation. Significant noncompliance or withdrawal of accreditation by either JCAHO or thenetwork results in Provisional Nonaccreditation or Not Accredited decisions.

In response to the demand for outcomes measures, JCAHO introduced the ORYX® system,which incorporates outcomes and other performance measures into the accreditation process.Performance measures for ORYX are listed according to type of care in JCAHO's IndicatorMeasurement System (IMSystem) and cover such areas as preoperative, obstetrical, andcardiovascular care; oncology; trauma; medication use; and infection control. Networks that failto meet ORYX requirements receive a Type 1 recommendation and have one month to provideproof of corrective action. Continued failure to comply with ORYX requirements results inpossible loss of accreditation.

JCAHO accredits hospitals and long-term care facilities every three years. All facilitiesundergoing accreditation must select at least two clinically focused performance measures forinclusion in the accreditation review. Facilities that wish to develop or purchase computersoftware to measure performance on these measures must obtain JCAHO approval.

The Value of Accreditation

Accrediting agencies, regulators, and most health plans believe that accreditation is a criticalelement in improving the quality of healthcare. The NCQA report "State of Health Plan Quality1999," which was compiled from HEDIS results, noted the following:

HMOs with NCQA accreditation outperformed HMO plans that had not received NCQAaccreditation on every performance measure. Scores on clinical and service measureswere from 3 percent to 16 percent higher for NCQA accredited plans.

Members of accredited plans reported higher levels of overall satisfaction with theirhealth plan and better customer service than did members of nonaccredited plans.

Plans that publicly reported data to NCQA consistently scored higher on performancemeasures than did plans that did not report data, often by as much as 10 percent.

Plans that reported data for two consecutive years improved more quickly than first-timereporters and outperformed the industry as a whole9.

Accreditation is evidence of the quality of health plans as well as the quality of healthcareservices. Plans that monitor and publicly report their performance are considered moreaccountable to the public than are plans that do not disclose performance information.

A health plan can also seek accreditation for individual parts of its delivery system, such asindividual products or provider networks. This type of focused accreditation allows the healthplan greater flexibility in positioning and selling its services. For example, enrollees tend to basetheir healthcare decisions on the services that affect them directly-the quality and availability ofprimary care physicians or specialists or the quality of hospital care available through thenetwork. Accreditation of a health plan's provider network applies more detailed standards andinvolves a more in-depth review of particular providers than does a process that evaluates anentire system.

In addition, even in plans that have achieved overall accreditation, significant quality variationscan exist among individual providers. An employer whose employees are concentrated in aparticular geographic area is likely to be far more concerned with the quality of network hospitalsand other facilities that serve that area than it is with the quality of facilities that are outside thearea.

Finally, contracting with health plans does not always involve contracting for comprehensiveservices. Self-funded groups often contract only for specified services such as prescription drugservices or behavioral healthcare. In such cases, the employer or contracting health plan is likelyto focus on the quality of the carved out services rather than on the quality of the health plan as awhole.

Accreditation, however, also presents challenges. As part of its quality management efforts, ahealth plan gathers an enormous amount of data about its services from a number of differentsources. To assess its structures and processes, the health plan gathers information about providercredentials, the locations of providers and facilities, and compliance with applicable state andfederal regulations. To assess healthcare services and outcomes, the health plan collectsinformation on key performance measures. It reviews medical records, claim forms and encounterreports, utilization reports, quality reports, customer complaints, and consumer surveys.Translating this information into the formats required for accreditation is often time consumingand costly. The effects are magnified when a single organization seeks more than one type of

accreditation. The key factor in determining the cost-effectiveness of this process is how theorganization uses the data it collects.

Although reporting data and obtaining accreditation are important from an organizationalperspective, the usefulness of accreditation to purchasers and consumers has been questioned.One study by KPMG Peat Marwick showed that only 11 percent of 1,502 employers polledconsidered NCQA accreditation important in selecting a health plan. Only 5 percent of thoseemployers considered HEDIS data important. Some small employers were not even familiar withHEDIS.10 This kind of feedback has led a number of plans-some of them very large plans withhigh ratings on past evaluations-to withdraw from accreditation programs and adopt alternativemethods of measuring quality. As Figure 3A-5 indicates, the most commonly used assessmenttool among hospitals, health plans, and physician groups is the patient satisfaction survey.

The number of plans willing to publicly report performance data has also decreased. The mainreason plans cite for not going public is the tendency among media sources to focus on belowaverage performance and to use published information to judge plans unfavorably. In spite ofthese drawbacks, however, accrediting agencies stress that reporting performance data, even if itdoes not meet expectations, is better than not reporting at all.

Additional Sources of Quality Standards

Information designed to improve the quality of healthcare and enhance consumers' ability tomake informed healthcare choices is also available through other programs. Some of theseprograms apply to a broad base of health plans and health networks. Other programs relate tospecific types of healthcare systems. This section presents a brief description of additionalsources of quality standards and measures.

Agency for Healthcare Research and Quality (AHRQ)

The Agency for Healthcare Research and Quality (AHRQ), originally known as the Agency forHealthcare Policy and Research (AHCPR), is the primary research arm of the U.S. Department ofHealth and Human Services. In addition to the CAHPS consumer surveys discussed earlier in this

lesson, AHRQ has initiated a series of projects designed to develop quality measures andimprovement strategies for medical care. These projects include the following:

Computerized Needs-Oriented Quality Measurement Evaluation System(CONQUEST): A program designed to assist health plans, practitioners, and employersidentify and compare alternative quality of care measures. The program consists of 1,200clinical performance measures related to 52 clinical conditions.

Quality Measurement Network (QMNET): A partnership between AHRQ, The JointCommission, NCQA, and FACCT that adds a technical assistance network to theCONQUEST program to help users implement quality measures.

Expanding Quality of Care Measures (Q-SPAN): A series of eight projects designed tostrengthen the science base of quality measurement as it applies to quality of care inhealth plans.

Accreditation Association for Ambulatory Health Care (AAAHC)

The Accreditation Association for Ambulatory Health Care (AAAHC) focuses primarily onaccrediting ambulatory surgery centers. It also accredits HMOs. The AAAHC uses two types ofstandards in its evaluations: core standards, which are applied to all organizations, and adjunctstandards, which are applied as appropriate. Core standards cover patient rights andresponsibilities, governance, administration, quality of care, quality management andimprovement, clinical records, professional improvement, and facilities and environment

Community Health Accreditation Program (CHAP)

The Community Health Accreditation Program (CHAP) is a specialized accreditation programthat focuses on providing accreditation for home healthcare and community healthcare programs.

Population-Based Healthcare

As a result of their efforts to measure and monitor quality, health plans have gathered enormousamounts of data about patients and treatment options. Recent advances in technology andincreases in the number of providers grouped into centralized organizations and the number ofpatients merged into population groups are likely to expand health plan's data-gatheringcapabilities even farther. Armed with this wealth of information, health plans have begun to shifttheir view from traditional, patient-based healthcare to population-based care.

The premise of population-based healthcare is that patients within a population share certaincharacteristics and that healthcare services can be designed to address those commonalities. Byanalyzing population characteristics, health plans can.

By analyzing population characteristics, health plans can:

Identify those individuals within a given patient population who are at risk for specificdisease states

Predict which individuals identified as high risks are likely to turn into high resourceusers in the future

Intervene with both at-risk and high-risk patients to implement lifestyle changes Prevent disease and dysfunction and promote wellness Establish pricing structures for their products

The assumption driving the move toward population-based healthcare is that early interventiontargeted at preventing disease will reduce the demand for healthcare services and the financialburden on providers, purchasers, and health plans of providing those services. For example, ahealth plan analyzing the individual characteristics of all patients in a population with coronaryartery disease might find that high-risk patients within the population all share a particularcharacteristic. Knowing that a correlation existed between that characteristic and the risk of futureacute episodes would allow the health plan to target its efforts toward early intervention andprevention. Reducing the number of future episodes would reduce the number of services needed,lower the cost of treating the disease, and improve the general health of health plan members.

There is clear evidence that population-based healthcare offers significant benefits. Researchstudies show that increasing numbers of deaths are attributable to environmental and behavioralfactors such as domestic violence, unsafe sexual practices, and substance abuse. Many of thesedeaths can be eliminated through prevention efforts. Improvements in the health status of thepopulation, in turn, have a positive impact on employee productivity and quality of life.

How such benefits are to be achieved is not quite so clear. Before the healthcare industry canmove forward into population-based care, it must address a number of important issues, such asconflicts of interest, organization and coordination of effort, expanded responsibility, andallocation of resources.

Conflicts of Interest

Current medical practices place a high value on the individual provider and the individual patient.Shifting this focus to the healthcare status of entire populations of patients creates immediateconflicts of interest. Providers, who were traditionally considered agents of their patients, nowserve as agents for their healthcare systems as well. In the future, they will also become agents ofthe community. As a result, providers in a population-based system may be required to balancethe immediate interests of individual patients with the future interests of the community as awhole and to balance the medical welfare of their patients with the economic welfare of theorganizations with which they contract. Health plans must balance costs with outcomes. Patientsmust balance their "rights" as individuals with their responsibilities as members of thecommunity.

So far, this conflict has proven to be a major obstacle to the development of population-basedhealthcare programs. For example, although clinical trials have demonstrated the benefits ofpreventive efforts, interventions targeted at high-risk segments of the patient population remain atlow levels in many systems. In the long term, the increased demands that have triggered currentobjections to population-based healthcare may also resolve those objections. As health plans andproviders move out into the community, they will have an opportunity to build healthcarepartnerships that can reduce the impact of health threats and destructive behaviors.

Organization and Coordination of Effort

Traditional healthcare is physician driven. Population-based healthcare combines the efforts ofphysicians-both generalists and specialists-and non-physicians. In fact, some of the mostsuccessful interventions have been applied by nurses, physicians' assistants, case managers,public health personnel, and wellness program sponsors. Population-based healthcare also reliesheavily on information technology to track population health status and to develop systems formanaging disease. Studies are being conducted to determine the proper roles of all these players.

Expanded Responsibility

Population-based healthcare is based on the needs of individuals as well as the population as awhole. In order to provide the best and most effective care for populations, physicians need tomove beyond their offices to work with schools, churches, public health departments, businesses,employers, and social welfare agencies. Health plans need to use their infrastructure and datasystems to address their entire membership, whether they see a physician regularly or not. Somephysicians may see these additional activities as a threat to their autonomy. Others will recognizethem as an opportunity to serve their patients better. In most cases, plans are not askingphysicians to handle outreach activities on their own. These are competencies that health plansbring to the table.

Allocation of Resources

One of the fundamental questions that arise from population-based healthcare is how to serveindividual patients and provide care for populations at a fixed cost. Market forces, competitivepressures, an analysis of potential health status and outcomes, and politics will all have to beconsidered in formulating an answer.

How far and how fast the healthcare industry will move toward population-based healthcareremains to be seen. Such a move requires fundamental changes in the way healthcare is definedand delivered. At present, it has generated more questions than answers. The process, however, isclearly underway.

Perhaps the most compelling evidence of the move into population-based healthcare is theincreasing number of healthcare partnerships being established between health plans and localand public health programs. These partnerships range in scope from multi-year research projectsdesigned to promote enhanced access to care and community-wide health and quality of life, totargeted efforts to improve childhood and adult immunization, control adult tobacco use, andimprove healthcare delivery to specific patient populations.

Integrating Quality into Health Plan Operations

So far in this lesson, we have focused our discussion on the tools health plans use to measure,monitor, and improve the quality of their administrative and healthcare services. QM, however, isnot an isolated function; it both depends on and contributes to other important functional areas.The relationships between QM and risk management and between QM and informationmanagement are especially strong.

Quality Management and Risk Management

As you recall from The Role of Medical Management in a Health Plan, risk management includesa health plan's efforts to identify and evaluate exposure to risk and to prevent or minimize anyharm that may result from such exposure. QM, which focuses on improving the quality of thehealth plan's services, is an important part of the risk management process.

Risk management activities serve to focus a health plan's QM programs, especially when effortsto reduce the risk of negligent care reveal inadequate or inappropriate quality standards or whenliability actions against the health plan can be traced back to a provider's failure to adhere topractice guidelines. QM has a similar impact on the context and direction of risk management

activities. For example, QM efforts to ensure that health plan members receive quality care andachieve quality outcomes often have a direct impact on cost-management programs proposed byrisk managers.

One of the most important links between risk management and QM programs is patient safety.Research studies conducted over the past 25 years have documented a disturbing rise in theincidence and consequences of medical errors, and examples of botched surgery, death ordisability caused by improper medication, and other medical errors have appeared in the media inincreasing numbers. On November 29, 1999, the Institute of Medicine (IOM) issued a reportconfirming these findings. In the report, the IOM stated that "at least 44,000 and perhaps as manyas 98,000 Americans die in hospitals each year as a result of medical errors." The IOM estimatedthe cost associated with medical errors at between $17 billion and $29 billion.11

The following factors contribute to medical errors:

The complexity of modern medicine and healthcare delivery systems. Healthcare isno longer delivered by family doctors who carry everything they need in a black bag, butrather by healthcare systems that include large numbers of professionals with a widevariety of skills and sophisticated, high-tech equipment. This complexity increasespatients' chances of obtaining satisfactory medical outcomes, but it also increasespatients' exposure to risks.

The lack of a consistent quality oversight system. Although states all have boardsresponsible for licensing various healthcare professionals, these boards tend to operateindependently and focus on a single profession. The system for regulating and accreditinghealthcare organizations and facilities is equally diverse. This lack of consistent oversightand accountability increases the potential for substandard care.

The ineffectiveness of mechanisms designed to ensure the continuing competence ofindividual practitioners. Federal law requires hospitals to notify the NationalPractitioner Data Bank (NPDB) of any disciplinary action that affects a physician'sclinical privileges for 30 days or more. Studies show that, during the first three years ofthe NPDB's operation, 75 percent of hospitals did not report any disciplinary action andthat reporting levels are still low.12 Compliance with internal incident reportingrequirements is also low. For example, research shows that as many as 95 percent ofadverse drug events go unreported. The main reasons given for the lack of incidentreports were (1) they take too much time, (2) they get people in trouble, and (3) nothinghappens.13

The reliance on individual observations in medical decisions. Studies on the errorrates of various observation-based processes report a 28 percent error rate on readings ofangiograms, a 17 percent error rate on interpretations of electrocardiograms, and a 15percent error rate on readings of chest X-rays.14

An effort to reduce the effects of these factors, the IOM recommended a series of actions to betaken by Congress and the healthcare industry. These recommendations are outlined in Figure3A-6.

In response to the IOM report, the president announced that health plans participating in theFEHBP will be required to institute quality improvement and patient safety initiatives and thatagencies administering other federal health programs, including Medicare and Medicaid, will berequired to implement strategies for reducing medical errors. Furthermore, the AHRQ announced

that it would conduct research on patient safety and medical errors and support an initiative toreduce adverse events resulting from prescription drug errors.

The interaction between quality management and risk management has generated a variety ofchanges in job responsibilities and reporting relationships. In addition, a number of functionsonce handled independently by risk management or quality management personnel are nowhandled jointly. These integrated functions include such activities as incident reporting,compliance, complaint resolution, board reporting, data management, resource management,policy development, and training. Some activities, such as incident reporting, require minimalinteraction. QM regularly reviews patient records as part of its quality assurance efforts. If thoserecords are in order, no further action is necessary. If the review uncovers an adverse eventinvolving a patient, QM personnel report the event to risk management, which then takes over toinvestigate the incident and follow through. Functions such as policy coordination and training,on the other hand, require maximum cooperation. For these functions, QM and risk managementwork together to collect information, analyze results, and develop policies and procedures thatwill affect the entire organization.

Quality Management and Information Management

As you can see from Figure 3A-7, HMOs have access to a wealth of information to supportquality initiatives, including details about the patients enrolled in their health plans, the providerswho treat them, and the services they receive. HMOs also receive a continuous flow of data fromexternal sources regarding regulatory activity, accreditation standards, best practices, andresearch studies. Gathering quality data is more difficult for PPOs and other non-HMO plans thatoften have sparse data about subscribers and limited information systems.

Turning data into usable information to improve quality can be a challenge for all health plans.Much of the data that health plans need to support QM activities is recorded on paper in the formof patient records, claim and encounter reports, customer satisfaction surveys, and managementreports. Health plans often do most of their data analysis on paper as well. The more data thehealth plan receives in paper form and the more extensive its QM efforts become, the moresluggish, labor intensive, and costly this approach becomes.

Information frameworks offer benefits to patients, providers, and health plans. Maintainingpatient records electronically helps keep important clinical information current and immediatelyaccessible to all the professionals involved in a patient's care. It also supports continuity of careby facilitating the transfer of information from provider to provider and from health plan to healthplan. Access to a patient's entire program of care is likely to enhance providers' treatment optionsand improve outcomes. Access to performance information can help health plans monitor andimprove the quality of their administrative and healthcare services.

Information frameworks involve challenges, too. A major concern facing health plans is the costof developing the information systems necessary to support frameworks. Sophisticated computer-based systems are expensive, and resources are already being stretched. Establishing information

frameworks also requires commitment and cooperation of the entire healthcare community. Thesuccess of information frameworks, therefore, will depend on the ability of health plans to findways to share responsibility for implementing the framework among all stakeholders and tobalance short-term costs against the long-term benefits of improved clinical care and service.

Conclusion

Quality is receiving more attention today than ever before, as health plans strive to ensure thattheir services satisfy the needs and expectations of their customers. As the healthcareenvironment continues to change, and consumers, purchasers, and regulators continue to demandbetter care and service, quality is likely to become even more important.

Endnotes

1. T.R. Beauregard and K. R. Winston, "Employers Shift to Quality to Evaluate andManage Their Health Plans," Health Plan Quarterly 5 (1997): 51-56.

2. A.R. Hunt, "Politicians Risk Voter Backlash This Autumn If They Ignore Call forAction," The Wall Street Journal (25 June 1998): A12.

3. A. Donabedian, "The Quality of Care: How Can It Be Assessed?" JAMA 260 (1988):1743-1748.

4. L. B. Andrews, C. Stocking, T. Krizek, L. Gottlieb, C. Krizek, T. Vargish, et al., "AnAlternative Strategy for Studying Adverse Events in Medical Care," Lancet (1997): 309-313.

5. J.D. Kleinke, "HMOs: The Law and Economics," Barrons (13 December 1999): 70.

6. J.D. Kleinke, "HMOs: The Law and Economics," Barrons (13 December 1999): 70.

7. P. M. Ellwood, "Outcomes Management: A Technology of Patient Experience," NewEngland Journal of Medicine, 318 (1988): 1549-1556.

8. Accreditation '99: Standards for the Accreditation of Health Plans (Washington, DC:National Committee for Quality Assurance, 1998), 14.

9. Joint Commission on Accreditation of Healthcare Organizations, 1998-2000 Standardsfor Health Care Networks: Health Plans, Integrated Delivery Networks, ProviderSponsored Organizations (Oakbrook, IL: Joint Commission on Accreditation ofHealthcare Organizations, 1998).

10. National Committee for Quality Assurance, "State of Health Plan Quality," MedicalBenefits (30 July 1999), 3.

11. KPMG Peat Marwick, "The State of Health Care in America 1998," Business and Health,(1998): 18.

12. Institute of Medicine, "To Err Is Human: Building a Safer Health System,"http://www.iom.edu.

13. Lucian L. Leape, MD, David S. Swankin, JD, and Mark R. Yessian, PhD, "AConversation on Medical Injury," Public Health Reports 114 (July/August 1999): 309.



16. "NCQA Releases a Road Map for Information Systems," The Genesis Report/McxI (May1997): 1-7.

AHM Medical Management: Quality Assessment

Objectives

After completing the lesson Quality Assessment, you should be able to:

Describe the major components of a quality assessment program Describe the methods health plans use to identify and prioritize key services and

processes Identify the types of standards and indicators used in performance measurement Identify the three main types of performance measures and describe their advantages and

disadvantages Explain the importance of case mix/severity adjustment Describe the types and sources of data needed to measure performance Describe the use of plan and provider report cards Identify some of the major issues and barriers in performance measurement

Introduction

In the lesson Quality Management, we introduced the concept of quality and described howefforts to address healthcare quality can be divided into quality assessment activities and qualityimprovement activities. We also described the relationship between quality and performance. Inthis lesson, we will examine the major components of performance-based quality assessmentprograms.

In the lesson Quality Management, we introduced the concept of quality and described howefforts to address healthcare quality can be divided into quality assessment activities and qualityimprovement activities. We also described the relationship between quality and performance. Inthis lesson, we will examine the major components of performance-based quality assessmentprograms.

Developing a Performance Assessment Plan

In order to assess the quality of their administrative and healthcare services, health plans need tohave a clear understanding of the following performance components:

The customers who are most affected by healthcare processes and outcomes The range of services that the health plan offers to its customers The critical processes involved in delivering those services The standards of performance the health plan expects to meet

The relationships between these components are illustrated in Figure 3B-1.

Identifying the Customer Base

A health plan's customer base consists of all the organization's network providers and othermedical professionals, employees, plan members and their families, accrediting agencies andregulators, and third party payors such as employers, insurance carriers, and governmentpurchasers. Because it is directly impacted by the performance of its providers and staff, thehealth plan itself is also a major customer.

From a medical management perspective, the health plan's primary customers can be divided intothree main groups: patients and families who receive healthcare services, providers who deliverhealthcare services, and employers and other third party payors who purchase healthcare services.These are the groups most affected by healthcare processes and outcomes.

Once the health plan has defined its customer base, it can identify the major services it providesand the key processes that underlie those services. For example, one of the primary services ahealth plan offers to patients and their families is the system of care that we introduced in thelesson Quality Management. At each of the entry points into this system, patients receive avariety of specialized services. Patients receive primary care, for example, in the form of

Preventive services, such as annual physical examinations and childhood immunizations,designed to keep people healthy

Screening services, such as mammography and prostate screening, to detect disease early Treatment of routine illnesses or injuries

Additional services are provided to other customer groups.

Identifying the Health Plan's Range of Services

Health plans gather information from all their providers in all care settings to produce aninventory of organizational services. From this inventory, the health plan can identify servicesthat are provided routinely, services that are provided as needed or by request, and services thatare provided in emergency situations.

In order to provide a base for performance measurement and improvement, a health plangenerates a list of the processes associated with the services it offers. It then eliminates from thelist any duplicate or less important processes. The remaining key processes must then beprioritized for each customer group.

From a performance perspective, the processes that health plans measure can be divided into fourbroad categories: high-risk processes, high-volume processes, problem-prone processes, andhigh-cost processes.

High-risk processes are activities that expose patients to the risk of adverse outcomes. High-riskprocesses most often involve medical interventions or treatment plans for acute illnesses or casemanagement processes for complex conditions. High-volume processes are processes that areperformed frequently or that affect large numbers of people. Administrative processes such asscheduling appointments or billing patients are examples of high-volume processes. Problem-prone processes are processes that have produced problems for clients or the health plan in thepast. Non-coverage of benefits and liability issues often fall into this category. High-costprocesses are activities that require large financial expenditures or significant human, physical, ortechnological resources. Activities that involve the use of very expensive equipment are obviousexamples of high-cost processes. Relatively inexpensive processes, if performed in high volumeor if associated with serious problems, can also qualify as high-cost processes.

These four categories are not mutually exclusive, and it is not uncommon for a single process tofit into more than one category. For example, medication administration is often a high-risk, high-volume, and problem-prone process. If medication is administered incorrectly, the process alsobecomes a high-cost process.

Once the health plan has categorized key processes, it can prioritize them in terms of theirimportance. Processes that fit into all four categories are considered critical processes. These arethe organization's top priority from a performance perspective. Extremely important processesare those activities that fit into three of the four categories. Processes that fit into two categories

are classified as very important processes; those that fit into a single category are labeledimportant processes.

Categories can also be prioritized according to their importance. High-risk processes are typicallyranked highest because of the harm they can cause to plan members and to the organization.Following high-risk processes are high-volume processes, problem-prone processes, and high-cost processes.

The frequency with which processes are measured depends on both the importance of the processand on the health plan's need for performance information. Processes that are in a steady state-forexample, preventive screenings-may need only annual or semiannual measurement. Newprocesses that the health plan implements to improve quality may need to be monitored on aquarterly or even monthly basis. Processes, such as telephone wait-time, that require regularfeedback for internal reports may demand weekly or even daily measurement.

Prioritized lists of key processes are submitted to management. Management then organizes theselists into a composite profile of critical performance activities. The composite profile serves asthe basis for the development of performance standards and indicators. It also serves as thestarting point for the health plan's performance measurement program.

Developing Quality Standards

The kinds of standards a health plan uses depend on the nature of the services being evaluatedand on the intended use of the information that the health plan obtains from its evaluation.Quality standards come in a variety of formats. They can be expressed as statements, algorithms,formulas, case management plans, or critical paths. They can be presented in the form of lists ofsteps, flow charts, or decision trees. They also serve a variety of purposes. Figure 3B-2 describessome of the more commonly used types of quality standards.

Benchmarks describe what a health plan has achieved on a given service dimension relative to thebest performance that has been achieved on that same service dimension by another entity.Benchmarks can be internal, competitive, or generic. Internal benchmarks are based on theperformance of individuals or units within the health plan, such as individual practitioners withina given specialty or different hospitals in the plan's provider network; competitive benchmarksare based on the performance of the organization's best external competitor; generic benchmarksare based on the performance of leading organizations in other industries. By comparing itsperformance on a given service dimension to a benchmark, the health plan can identify relativestrengths and weaknesses, track performance over time, or evaluate the success of qualityimprovement initiatives. Benchmarks also provide a strong incentive for individuals and workgroups to improve their performance.

Developing Quality Standards

Prescriptive standards, accreditation standards, and standards of care describe the levels ofperformance an organization should achieve on a given performance dimension. Most often, thesestandards define minimum levels of performance associated with various degrees of excellence.Performance that falls below the minimum acceptable level may trigger further investigation andmay lead to changes in the health plan's structures or processes.

The standards that health plans use in performance-based quality assessment programs serve thefollowing purposes:

To help individuals, departments, and provider groups adhere to generally acceptedpractices.

To eliminate ambiguity by providing specific definitions and specific measurementparameters for concepts such as "quality" or "quality of life."

To replace subjective comparisons based on "norms" with comparisons based onobjective criteria or benchmarks. For example, a procedure that meets established criteriafor that procedure and produces expected outcomes is considered appropriate andacceptable even if it does not use the latest technology.

To provide organizational stability by expressing shared values. To create consistent approaches that are necessary to implement organizational change.

Developing Quality Indicators

Each of the quality standards adopted by the health plan is associated with quality indicators,which are factual statements of existing conditions that are used to measure the variance betweenactual performance and the expected performance expressed in a standard. For example, a healthplan might set as a standard that physicians participating in the plan's network should be boardcertified. An indicator of the plan's performance on this standard would be the percentage ofnetwork providers who are board certified.

Performance indicators help the health plan quantify performance in terms of structures,processes, and outcomes. We will describe these performance categories later in this lesson.Health plans also develop indicators related to specific aspects of performance. For example,health plans use specialized indicators to measure performance related to sentinel events. Sentinelevents are events that lead to serious, undesirable, and often avoidable outcomes such as traumaor death. Because the outcomes of sentinel events are severe, they typically trigger immediateindividual case review. The use of sentinel event indicators, however, is limited, because sentinelevents represent performance extremes rather than normal conditions.

Aggregate data indicators are specialized performance indicators that are used to measureoutcomes related to groups of cases rather than individual cases. The variables measured byaggregate data indicators can be either discrete or continuous. Discrete variable indicators, oryes/no indicators, limit measurement results to specified options, such as "greater than" or "lessthan" a defined quantity. For example, a discrete variable indicator might measure whetherlaboratory results were available in more than or fewer than two days. These indicators are usedto show whether a plan has or has not met a standard. Continuous variable indicators produceresults that fit within a specified range, such as the length of time to schedule an appointment, orthe number of patients referred to a specialist. Results are typically presented as a mean oraverage.

In order to provide a true measure of quality, indicators should exhibit the followingcharacteristics:

Relevance. A strong, demonstrated relationship should exist between the indicator andthe standard it is designed to represent. An indicator designed to measure clinicalperformance, for example, should be important to clinical outcomes and should triggeraction if the results fall below the standard.

Validity. The data collected by the indicator should accurately represent the servicedimension being measured.

Reliability. The information collected by the indicator should be reproducible. Thehealth plan analyzing information from multiple sources across the organization shouldreach uniform conclusions.

Clarity. The indicator should be expressed in clear, unambiguous terms in order to avoidmisinterpretation.

Feasibility. The health plan should be able to collect and analyze information required byan indicator and make necessary changes to structures, processes, or outcomes usingavailable human, technological, and financial resources.

Insight 3B-1 provides an example of how health plans use quality indicators to measure planperformance. This example describes the quality indicator, the method and results of datacollection, comparisons of current plan performance with internal and external standards, andimprovement initiatives.

Measuring Performance

Assessing the quality of healthcare and administrative services requires health plans to ask threeimportant questions: (1) How are we doing? (2) How do we know? and (3) Can we fix problemswe identify? Performance measurement can help health plans answer all of these questions.Performance measurement can also provide information the health plan needs to improve itsservices and effectively allocate resources. Outside the organization, performance measurement

provides members, purchasers, regulators, and the media with objective reports about how well aplan is meeting expectations.

Designing a Performance Measurement System

Establishing a performance measurement system requires a health plan to make decisionsregarding the following factors:

Purpose of the measurement Entity, or service unit, being measured Proposed user of the information Quality dimension being measured

The value of performance measurement depends on how well the health plan addresses each ofthese factors.

The Purpose of Performance Measurement

Performance measurement systems can be designed to address one of the following three primarypurposes: Performance measurement systems can be designed to address one of the followingthree primary purposes:

To measure the current status or result of administrative or clinical treatmentprocesses. This purpose, which forms the basis of quality assessment programs, istypically the easiest to implement because it requires a single measurement taken at aspecified time and because it requires no comparisons across time or providers.

To measure changes in outcomes caused by modifications in administrative orclinical treatment processes. This purpose requires two measures, one before a servicechange is implemented and one at the end of a specified interval after implementation.All factors, other than the specific service change, that might affect outcomes mustremain constant during the interval. The results of these measures can be used asevidence of quality improvement. Although this purpose requires more complicatedmeasures, the process is still relatively simple because measurement and comparison ofresults remains in-house.

To compare the quality of service or care a health plan delivers with the quality ofservice or care delivered by other entities. This purpose is the most difficult to achievebecause outcomes are only partially controlled by the health plan and its providers andbecause differences between plans and member bases can affect outcomes independentlyof quality of care.

A fourth purpose of performance measurement, which is part of the first two purposes describedhere, is to stimulate interest in and support for specific service changes targeted at specific diseasestates or patient populations.

The purpose a health plan chooses to address determines the type of data that are collected andthe way those data are collected, analyzed, and reported. Purpose also affects the usefulness of thedata because the methods used to achieve one purpose do not necessarily work for other purposes.For example, data collected to describe current performance levels (purpose #1) are not sufficientto describe performance improvements that result from modifications in treatment processes(purpose #2).

The Entity or Service Unit Being Measured

Performance measurements can be designed to address the level of service provided by the healthplan as a whole or the service provided by specific components of the system, such as individualphysicians, nurses, hospitals, and ancillary care providers. Organizational performance is usuallymeasured in terms of service and includes such factors as satisfaction, utilization, access,coverage, and cost. Specific measures can address fundamentals of performance such asefficiency and cost, or they can examine more complex elements such as the organization's abilityto implement appropriate changes in a timely fashion, to communicate changes effectively, and tomotivate employees and providers to adopt and support new programs.

At the provider level, performance is measured in terms of clinical care and member service.Clinical care measures can describe single episodes of care, such as hospital length of stay orprocedure-based success rates. Alternatively, clinical care measures can describe a continuum ofcare beginning with preventive interventions for patients known to be at risk and includingutilization rates, patient recovery and outcomes following in-patient care, ongoing managementof chronic diseases, and patient perceptions. Service measures include patient satisfaction,accuracy of medical records, and access.

As in the case of purpose, measures designed to assess the performance of one entity are notapplicable to other entities. Measures used to evaluate the administrative services of theorganization, for example, are not appropriate for assessing the clinical performance of a healthplan's providers.

Proposed Users of Performance Information

The potential audiences for performance information include providers, patients, employers,payors, accreditation agencies, professional societies, government regulators, and the health planitself. Each of these groups has its own orientation and its own interest in performanceinformation. Figure 3B-3 lists some of the most commonly used performance measurementsystems, along with their sponsors, their target audiences, and their chief characteristics.

Performance Dimension Being Measured

As we mentioned earlier, quality is typically assessed through a composite of structures,processes, and outcomes. In developing a performance measurement system, the health plan mustdecide which of these service dimensions can and should be measured. Many of the same criteriathat health plans use to identify key services and processes can be used to select performancedimensions. For example, in evaluating the performance of its providers, a health plan shouldfocus on those processes and procedures that satisfy the following criteria: Health plans shouldfocus on those processes and procedures that satisfy the following criteria:

Performance measurement should focus on conditions and clinical procedures thathave a significant impact on mortality or morbidity, member and providersatisfaction, and cost. Illnesses related to leading causes of death clearly satisfy thiscriterion. Conditions that have the potential to create significant changes in patientfunctioning are also candidates. Consumer perceptions must also be considered. Forexample, women typically worry more about breast cancer than they do about heartdisease, even though heart disease poses a greater risk of death to women than doesbreast cancer. Even self-limiting conditions may be appropriate for evaluation if currenttreatment patterns are likely to lead to long-term consequences. For example, usingantibiotics to treat common colds has already begun to result in bacterial resistance.

An empirically established link should exist between the processes being measuredand outcomes. For example, the number of patients with inoperable cancer who developmetastases within six months of diagnosis may be an important outcome measure, but itis not a performance measure because it is not the direct result of a process of care. Onthe other hand, the percentage of patients diagnosed with late-stage breast cancer couldbe used as an indicator of the success (or failure) of a health plan's mammographyscreening program.

Outcomes should be amenable to improvement based on modifications in theunderlying processes. Even when an outcome is linked to a specific process, acause/effect relationship is not always possible to establish. Not all positive results can bedirectly attributed to appropriate treatment. Nor do poor outcomes always result frompoor care. A direct connection between given processes and results allows the health planto improve outcomes by improving either the services it offers or the way those servicesare delivered. In other words, the health plan can improve outcomes by doing the rightthings or by doing things right. Reversing the process and showing a connection betweendesirable outcomes and specific procedures helps demonstrate that actions are availableto improve outcomes.

Performance measurement should address areas over which the health plan or itsproviders have control. In some cases, health outcomes are affected by external factors,such as age, gender, low income, geographic location, other existing diseases, orbehaviors such as smoking, alcohol/drug use, nutrition, exercise, customer perceptions,and compliance, which neither the health plan nor the provider can control. Neither thequality of the services offered to patients nor the quality of a provider's performance canbe measured accurately if outcomes are affected by uncontrollable conditions. Thesecases require a balance between the healthcare system's responsibility to provideintervention and the patient's personal responsibility to accept that intervention and makechanges.

Performance measurement should focus on those areas in which current qualitylevels are variable or substandard. Focusing on performance areas in which variancefrom standards is greatest helps the health plan identify those areas most in need ofimprovement and the extent of possible improvement. Priority should be given to thoseareas with substantial potential for improvement. Focusing on variable or substandardperformance areas also helps identify measures that consumers and purchasers can use todifferentiate among health plans.

Selecting Performance Measures

Once the health plan has determined the purpose and scope of its performance measurementprogram, it can select the measures it will use to evaluate performance. Performance measuresinclude structure measures, process measures, and outcome measures. Each of these types hasdistinct uses and advantages.

Structure Measures

Structure measures evaluate the resources available within the organization-its facilities,equipment, personnel, policies and procedures, and finances. The earliest, and still the mostwidely used, structure measures relate to physician education and training. Reports published inthe early 1900s indicated a correlation between physician education and the quality of patientcare. These reports generated a series of medical education reforms, including the use ofeducation, licensing, and certification as criteria for "qualifying" physicians and educationalinstitutions. They also led to the establishment of JCAHO, which produced the first published listof accreditation standards for hospitals, and to NCQA, which includes accreditation standardsrelated to physician credentialing and quality improvement programs in its health planaccreditation program.

The main advantage of structure measures is that they are easy to identify and report. However,critics argue that structure measures are of limited value. Structure measures indicate whether anorganization is capable of providing quality care, based on expert opinion, but they do notindicate whether the organization is actually providing quality care. In addition, the links betweenstructures and healthcare outcomes are often more intuitive than evidence-based.

Process Measures

Process measures evaluate the services provided to or for patients at any of the points in thehealthcare delivery system. Because of the importance of preventive care to health plans and thepublic, health plans focus on those processes that relate to services known to be associated withimproved outcomes, such as disease prevention and early intervention. A complete assessment ofhealthcare services also considers the care provided to plan members who are sick. To facilitatethe delivery of quality healthcare, health plans measure such processes as providers' adherence tospecified treatment protocols.

Process measures offer certain advantages over structure measures in evaluating performance.Unlike structures, processes are often linked directly to healthcare outcomes. In such cases,changes in the process will lead to changes in the outcome. In addition, process measures areuseful in identifying problems that result from inappropriate care. These problems can beclassified into the following three categories:

Three classifications of problems

Underuse of services, which occurs when a provider fails to provide a healthcare servicethat would have produced a favorable outcome. Failure to provide necessary childhoodimmunizations is an example of underuse of services.

Overuse of services, which involves the provision of unnecessary care or care thatexposes the patient to unnecessary risks or side effects. Examples of overuse includeprescribing antibiotics for viral infections such as colds or performing unnecessaryprocedures.

Inappropriate use of services, which occurs when a patient receives the wrong treatmentor fails to receive the full benefit of treatment because of preventable complications.Drug interactions or poorly performed surgical procedures are evidence of the misuse ofservices.

Process measures are also useful in providing information that will lead to improvements inmedical practice.

However, evidence-based links between processes and outcomes do not exist in all situations. Forexample, while there is evidence that regular cholesterol screening benefits younger patients,there is no clear evidence to support such screening for patients over age 75. In addition, processmeasures are designed to address commonly occurring conditions; they are not designed to trackthe treatment of patients with rare manifestations of disease. Without sufficient evidence of theefficacy or effectiveness of treatment, the health plan cannot establish a process measure to assessthe quality of the treatment or the provider's performance.

Outcome Measures

Health plans use outcome measures to evaluate the results of care and the effectiveness of theorganization. Clinical outcomes can be divided into two broad categories: health outcomes andperceived outcomes. Health outcomes gauge the extent to which healthcare services improvepatients' clinical and functional status.

Health outcomes related to a patient's clinical status are typically assessed through objective datasuch as numeric measurements or through provider analysis based on a physical examination.

Health outcomes can be used to evaluate

Specific treatment programs-such as the survival rate of patients who receive coronaryangioplasty

Specific disease states-such as the incidence of wheezing episodes in asthmatics Specific treatment settings-such as the number of patients contracting infections in the

hospital, the readmission rates for specified diseases, or the number of deaths during orafter elective surgery

Health outcomes related to functional status are typically assessed through subjective dataprovided by patients, such as the information reported on health status questionnaires. They areused to evaluate the patient's ability to perform such tasks as eating, getting around without help,working, or looking after the household.

Perceived outcomes are a patient's conclusions about his or her own health status and quality oflife. Most often, patients express perceived outcomes by comparing how they feel after treatmentto how they felt before treatment. This emphasis on patient perceptions is a departure fromtraditional methods of evaluating performance in which quality was defined by the professionalswho delivered the services. Today, patients are taking greater responsibility for healthcaredecisions, and they are playing an important part in defining quality.

The value of outcome measures comes from their ability to demonstrate improved health status ingiven populations over time. For example, health plans often use outcome measures, such as thefunctional status of patients following elective surgery, the mortality rate following coronaryartery bypass graft surgery, or improvements in birth weight and gestational age at delivery, toprovide quantifiable evidence of the effectiveness of specific medical programs.

On the other hand, outcome measures are not appropriate for all situations. As we mentionedearlier, outcomes are valid measures of performance only if they can be linked to structures or

processes and only if they are sensitive to modifications in those structures or processes. Outcomemeasures are also not feasible in all situations. The length of time necessary to documentoutcomes is often long-as much as 10 to 20 years for the survival rates following diagnosis ortreatment of slow-growing tumors such as prostate cancers and 20 to 30 years for complicationsfrom diabetes. Such delays between process and outcome may be too long to provide meaningfulfeedback on care delivery. Figure 3B-4 summarizes the advantages and disadvantages of each ofthese types of performance measures.

Criteria for Selecting Performance Measures

Whether a health plan bases performance evaluations on structure measures, process measures, oroutcome measures depends in part on how the organization defines the purpose of itsperformance measurement system, the entities it will evaluate, and the performance dimensions itwill address. This choice also depends on the scientific soundness of the measures. Scientificsoundness refers to the likelihood that a performance measure "will produce consistent and

credible results when implemented."1 The following criteria are often used to determine thescientific soundness of performance measures.

Reliability. Performance measures must gather the same kind of information and lead to the sameconclusions each time they are applied. To achieve this consistency and to allow comparison ofresults, measurement systems must standardize data collection and analysis.

Validity. The data collected by the measure should accurately represent the performance beingmeasured. This is especially important when using outcomes as a measure of performance.Evaluation of a provider's performance, for example, should be based only on outcomes that canbe traced directly to the provider's actions.

Precision of specifications. The value of performance measures depends on how explicitly thetarget population for a procedure is identified and the data collection and analysis methods arestated. Measures such as those included in the HEDIS 3.0 program are extremely precise. Forexample, the HEDIS mammography measure explicitly defines the target population as womenage 52 to 69 who have been continuously enrolled in a health plan for a minimum of two yearsand defines published diagnostic and procedural codes as the source of measurement data. Thesespecifications increase the likelihood that plans applying the measure are addressing the properpatient base, have had enough time to provide the indicated care, and are using standarddefinitions of the procedure. Such precision is necessary to make the results of performancemeasures comparable across provider groups and health plans.

Adaptability. Performance measures must be flexible enough to allow for some modification toaccount for different patient preferences, clinical indications, care settings, resource bases, andpopulations. For example, an indicator for the use of amniocentesis for pregnant women age 35and older might need to be modified if the number of women in a particular plan who decline thetest because of patient preference is high enough to affect comparisons among health plans.Including inappropriate factors in performance measures may affect the comparability andconsistency of the results.

Adequacy of risk adjustment. Performance measures that are used for quality comparisonsoften require modifications to account for differences in medical risk. Such modifications aretypically made through case mix/severity adjustment. Case mix/severity adjustment, also referredto as risk adjustment, is the statistical adjustment of outcome measures to account for differencesin the severity of illness or the presence of other medical conditions. Knowing that one PCP'sutilization rates are consistently higher than another PCP's rates is of little value unless it is alsoknown that the first physician's patients suffer from a number of chronic conditions such asasthma or diabetes, whereas the second physician has a typically healthy patient base.

Case mix/severity adjustment is especially important in evaluating specialists' performance. Aspecialist's patient base is not only fundamentally different than the general population, but his orher training and expertise may also be different from those of other physicians in the samespecialty. For example, a perinatologist who treats very high-risk patients or performscomplicated surgical procedures is likely to have very different practice patterns and utilizationrates than does a general obstetrician.

Case mix/severity adjustment provides a way of standardizing patient populations so that thehealth plan can compare providers to similar providers delivering similar services to similarpatients. Case mix/severity adjustment also reduces the number of outliers within the provider

network. In the context of performance measurement, outliers are those providers who usemedical resources at a much higher or lower rate or in a manner noticeably different than most ofthe other providers in the same network and specialty.

One approach health plans can take to equalize patient populations is to remove "unusual" cases.For example, HEDIS measures frequently attempt to standardize populations by excludingpatients with contraindications to a particular treatment. Another approach health plans can takeis stratification. Stratification eliminates variation within a patient population by dividing thepopulation into groups that are at a similar level of risk.

Interpretability of results. The amount of information gathered by performance measuresinfluences the way that information can be reported and used. Measures that gather informationfrom a large patient base are often useful in identifying statistically significant differences inperformance. Measures taken from small patient bases may be more helpful in uncoveringpractical differences. The type of information gathered by performance measures also affectsinterpretability. Measures that gather information from a variety of sources such as outcomesresearch, medical records, and customer satisfaction surveys typically produce both clinicallydetailed and general information. This information can be selectively presented to a variety ofaudiences. Measures that produce only one type of information are useful to a much narroweraudience.

One approach health plans can take to equalize patient populations is to remove "unusual" cases.For example, HEDIS measures frequently attempt to standardize populations by excludingpatients with contraindications to a particular treatment. Another approach health plans can takeis stratification. Stratification eliminates variation within a patient population by dividing thepopulation into groups that are at a similar level of risk.

Financial Data

Most of the financial data used to evaluate performance comes from claims and encounterreports. Each encounter between a plan member and a provider generates a claim that describes(1) the condition under investigation, (2) the healthcare professional or facility providingtreatment, and (3) the treatment provided. Because conditions and treatments are coded, usingstandard diagnostic and procedural coding systems, claims and encounter reports also provide thehealth plan with detailed information about the type and number of services and suppliesassociated with a particular procedure and their costs. Health plans can analyze claims data toproduce information about the performance of individual providers, groups of providers, or thesystem as a whole.

Another important source of financial data is hospital reports. These reports provide informationabout the costs of in-patient services exclusive of physician fees. Hospital reports describeservices in terms of specific diagnoses or procedures and can be designed to provide health plansand providers with detailed information about resource utilization and practice patterns. A healthplan's administrative records provide additional utilization and cost data.

Clinical data create an in-depth view of the clinical status and functional status outcomesassociated with particular healthcare processes. Measuring health outcomes requires gatheringboth disease-specific data and data related to general health and functional status.

Patient medical records are the most widely used source of disease-specific clinical information.Medical records that are accurate and complete contain a wealth of information about a patient'smedical history, demographic and behavioral characteristics, past and present medical conditions,treatment history, compliance patterns, and outcomes. Data from individual patient records can beused to assess a provider's performance during an episode of care or over a continuum of care.Aggregate data from all of a provider's individual patient records provide the basis for measuringthe provider's performance in treating specific conditions and for assessing the provider's overallpractice patterns.

Unfortunately, not all medical records are complete or legible, and extracting relevantperformance information can be time consuming and expensive. The need to protect patientprivacy and preserve the confidentiality of medical information is an additional burden. Severaldevelopments have led to improvements in medical record keeping. For example, CMS requiresthat providers and health plans provide clear, complete documentation for Medicarereimbursement. Technological advances such as electronic medical records (EMR) and electronicdata interchange (EDI) are also influencing the way providers generate and maintain medicalrecords.

Additional disease-specific data are available through outcomes research studies sponsored byacademic institutions and professional organizations. These studies provide comprehensive,detailed information about specific conditions, such as asthma or diabetes, and specificprocedures, such as total hip replacement or coronary artery bypass surgery. The data generatedby research studies can be used as a foundation for developing measurement tools that maybecome standards. Their usefulness to particular health plans or individual providers, however, islimited. Because research study results are based only on study participants, they may not becomparable to a health plan's patient population or a provider's overall practice patterns.

In order to gather data about functional status, it is necessary to go directly to patients. Thecurrent "gold standards" for collecting data related to general health and functional status are theSF-36 and the HSQ-39 (Health Status Questionnaire) surveys. These short patient surveys consistof approximately three dozen questions that measure the patient's perceived health status along acontinuum from physical health to mental health. The core questions in the SF-36 and HSQ-39surveys are designed to address the following eight measures of a patient's perceived healthstatus: Eight Measure of patient's perceived health status:

Physical functioning: a measure of the impact of health status on the patient's physicalactivity

Role limitations related to physical health problems: a measure of the impact of healthstatus on the patient's work or daily living activities

Bodily pain: a measure of the amount or intensity of pain the patient experiences General health: a measure of the patient's perception of current health and future health

outlook Vitality: a measure of the patient's level of energy Social functioning: a measure of the impact of health status on the patient's social

activities Role limitations related to mental or emotional health problems: a measure of the

impact of mental or emotional problems on the patient's functional status Mental health: a measure of the patient's general mental and emotional health

Patients score each measure on a numerical scale.

The eight measures in the SF-36 and HSQ-39 are further divided into three major healthdimensions: (1) general health status; (2) functional health status (including physical functioning,role limitations, and bodily pain); and (3) well-being (including energy/fatigue and mentalhealth). Additional questions in the HSQ-39 address perceived changes in the patient's health andrisk of depression. A copy of the SF-36 Health Survey is included in Appendix 3B-1.

Customer Satisfaction Data

Customer satisfaction data describe how a health plan's customers view the way their health plandelivers services. Although most people equate customer satisfaction with member satisfaction, ahealth plan's customers also include providers, payors such as employers or government agencieswho purchase the health plan's services, and insurance carriers who often underwrite thoseservices. This broad customer base exerts considerable influence over the health plan's policies,strategies, operations, and investment decisions. Customers even influence the health plan'sproduct offerings. A 1998 study by KPMG Peat Marwick and Northwestern University reportedthat "90 percent of organizations have expanded the number and types of services they offer, dueto consumer preferences."2 It is not surprising, therefore, that customer satisfaction has become acritical element of performance measurement.

Customer satisfaction data provide information about members' overall satisfaction with theirhealth plan and their satisfaction with such key factors as access, quality of care and service, andplan administration

Access. Access typically refers to the ease with which plan members can obtain care. At the planlevel, access is measured by the availability of primary care and specialty care physicians, theability to change physicians, access to emergency services, location of doctors' offices, lag timesbetween appointment scheduling and actual appointments, and level of physician choice. At theprovider level, access is measured by office wait times before seeing a physician, ability to obtainreferrals, availability of after-hours service, and whether the physicians return calls. Access isaffected by the size and composition of the plan network and by the plan's benefit package.

Quality of care and service. Quality of care and service is difficult to assess from a patientperspective because patients typically lack the technical expertise necessary to evaluate thequality of particular clinical interventions. Patients can, however, evaluate the quality of theirrelationships with health plans and providers. At the plan level, customers evaluate the treatmentthey receive from customer service personnel. At the provider level, they evaluate the treatmentthey receive from physicians and their office staff. Communicating clearly and openly withpatients, addressing patients' individual needs and concerns, and providing information that isaccurate, understandable, and actionable are critical to building quality relationships.

Plan administration. Plan administration includes core operational and service components suchas claims processing and billing; the availability of information about eligibility, coverage, andthe cost of care; the time spent doing paperwork; and customer service. The importance of eachof these factors depends on the specific type of customer. For example, access to providers isimportant to members and payors, but is not applicable to providers. Quality of care and service,on the other hand, is critical to members and providers but is often less important to payors.

The bulk of customer satisfaction data is gathered from patients through feedback mechanisms,such as member satisfaction surveys. Surveys can be administered by phone or through the mailand can be administered at the point of service, at the end of a specified interval followingservice, or periodically throughout the year. Surveys can be used to gather performance dataabout individual providers or about the health plan as a whole.

Health plans regularly administer customer satisfaction surveys as part of their qualitymanagement programs. Surveys are also administered by third party reporting agencies in aneffort to provide customers with information they can use to evaluate and select health plans. Oneof the most widely used third party consumer satisfaction surveys is the Consumer Assessment ofHealth Plans Survey (CAHPS), which we described briefly in earlier lessons. CAHPS is designedto solicit information from consumers about their experiences with health plans. The CAHPSprogram provides survey administrators with questionnaires, directions for conducting surveysand producing reports, and sample formats for reporting survey results. In addition, CAHPSprovides instructions for setting up a computerized system for comparing plans that can beaccessed through the Internet or intranet links.

CAHPS gathers detailed information about access, quality of care, and plan administration fromthe general patient population and from specific target populations such as patients with chronicconditions or disabilities, Medicare and Medicaid beneficiaries, and children. CAHPS reportscompare the costs and benefits of various health plans and display those results in easy-to-understand formats.

CAHPS surveys can be administered independently or in conjunction with other data collectioninstruments. For example, CMS routinely administers CAHPS questionnaires to Medicare andMedicaid beneficiaries. As noted in the lesson Quality Management, NCQA uses the CAHPS2.0H survey as part of its health plan acccreditation program. CAHPS results are also publishedin NCQA's Quality Compass, which is a database of comparative information on accreditationstatus and results on key HEDIS measures.

Customer satisfaction surveys provide health plans with information about which services workbest and which services are most important to their customers. This information is critical to ahealth plan's performance improvement efforts. By improving satisfaction scores from "neutral"or "satisfied" to "very satisfied," the health plan can build customer loyalty and improveretention. Customer satisfaction, however, is only half of the picture. Health plans must alsogather information about what causes customer dissatisfaction.

Health plans can gather information about customer dissatisfaction by examining customercomplaints. Health plans' tracking systems record each member complaint and assign it to acategory. Complaints generally fall into one of the following categories:

Problems with referrals and authorizations (e.g., the plan takes too long to authorizeservice or process referrals)

Problems with doctor/patient relationships (e.g., doctors rush visits, do not provideadequate explanation of condition/treatment, do not communicate well)

Problems with prescription drug coverage (e.g., prescriptions are difficult to obtain,certain drugs are not included in the plan formulary)

Problems with emergency department procedures (e.g., patients do not understand whatconstitutes an emergency, patients do not understand procedures for obtaining emergencycare)

Problems with member services (e.g., customer service representatives are unresponsiveor poorly trained)

Problems with claims (e.g., services are not covered, the plan denies payment, the planpays only part of the expenses incurred)

Complaints can be tracked and reported by category and by individual provider, giving the healthplan a summary of overall problem areas and provider-specific problems.

According to the above list, plan administration has the greatest potential for creating customerdissatisfaction. Because it is an area over which the health plan has maximum control, planadministration also has the greatest potential for improving satisfaction and building loyalty. Byincreasing the value of its services, the health plan can turn satisfied customers into loyalcustomers who will re-enroll in the plan and recommend it to others.

Data Analysis

Analysis of the financial, clinical, and customer satisfaction data that health plans collect duringperformance measurement provides a snapshot of the health plan's current level of performance.By comparing actual performance to standards, health plans can obtain information about thequality of their performance. A close match between actual and expected levels of performanceindicates quality. Variance between actual and expected levels of performance that falls outsideacceptable limits indicates areas that need improvement.

Reporting Performance Information

The final step in performance measurement is reporting results. Performance reports can take avariety of forms, depending on the focus of the measurement, the methods used to collect andanalyze data, and the intended users of the information.

Performance reports serve two purposes. Internally, performance reports are used to improve thequality of healthcare processes and outcomes by pointing out a health plan's strengths andweaknesses. They are a critical part of the health plan's strategic planning, financial planning,network and medical management, and quality management efforts. They are also a valuable toolfor encouraging existing providers to focus on quality improvement and for recruiting newproviders.

Externally, performance reports are designed to address the issue of accountability. By comparingone plan, provider group, or delivery system to another, performance reports can identifydifferences in performance and areas where changes are necessary. Health plan customers can usethis comparative information to make informed healthcare decisions.

Reporting Performance Information

The emphasis on external accountability has increased dramatically in recent years. Whereasperformance reports were initially distributed to a limited audience of health plan managers andproviders, they are now available to nearly all health plan customers. Written reports are oftenmailed directly to consumers and distributed to employer groups, provider groups, and brokers.Health plans and reporting agencies also report performance information on the Internet. Forexample, CMS allows Medicare beneficiaries to access comparative information about plan costs,premiums, and types of services via an interactive Web site called "Medicare Compare." Several

state-sponsored performance reports are available over the Internet with links to NCQA. ThePacific Business Group on Health's "Health Scope" site provides detailed online informationabout health plan and physician group performance as well as information on how to selectprimary care physicians and how to understand and use plan formularies.

Report Cards

Increased demands for performance information have led reporting agencies and health plans toexpand reports to include rankings as well as comparisons of health plans. These ranking systemsare referred to as report cards, which are structured reports designed to provide consumers,employers, and payors with plan-based and provider-based performance ratings that they can useto make informed healthcare decisions.

Health Plan Report Cards

Health plan report cards are currently available from a number of sources including majorperiodicals (Newsweek, U.S. News & World Report, and Consumer Reports), nonprofit consumeradvocacy groups (Consumer Checkbook), accrediting agencies (NCQA Quality Compass), andemployers. These report cards have a national focus and provide ratings for a variety of healthplans. Other report cards such as the California Cooperative HEDIS Reporting Initiative focus onspecific types of health plans operating within a single state or region. Figure 3B-6 summarizesfive of these major report cards.

Additional report cards are available from America's Health Insurance Plans (AHIP), with linksto NCQA and CMS, and from J. D. Power & Associates. These report card results are reported tomedia as well as to employers, making them widely available to the general public. NCQA andthe Foundation for Accountability (FACCT), which is a major source of quality and performancemeasures, are also developing report card systems. NCQA's Health Plan Report Card has been

produced on a monthly basis since February 2000. FACCT report cards are expected to beavailable by 2002.

To date, health plan report cards have focused primarily on HMOs, even though non-HMO planssuch as PPOs have higher enrollment. This situation is likely to continue until new methods ofcollecting, analyzing, and reporting non-HMO performance information are developed.

Content

HMO report cards typically contain three types of information: measures, indices, and ratings.Measures consist of raw performance data such as member satisfaction scores or rates forpreventive interventions such as mammography screening or childhood immunization. Indicesare composites of several measures into a single descriptor. For example, U.S. News & WorldReport combines HEDIS performance measures from NCQA's Quality Compass into four generalcategories: prevention, access to care (adults), access to care (children), and physicians'credentials. Ratings rank plans according to the results of specific measures or indices. Ratingscan be expressed as scores or as normative values such as "excellent," "very good," "good," and"satisfactory."

Report cards may also include information such as the plan's accreditation status andorganizational structure (for profit, not-for-profit). This information is not included in planratings. Non-HMO report cards tend to be more limited in scope and content, relying primarily oncustomer satisfaction data drawn from internally generated member surveys. Appendix 3B-2 atthe end of this reading includes sample ratings from each of the five major report cards.

Types of performance measurement systems used to assess the quality of health plans' healthcareand administrative services include the following:

Indicator Measurement System (IMSystem) Computerized Needs-Oriented Quality Measurement Evaluation System (CONQUEST) FACCT Quality Compass

Data Sources

Most HMO report cards are based on data collected for HEDIS 3.0, a set of approximately 60performance measures developed by NCQA. HEDIS measures are not applicable to non-HMOplans. Core HEDIS measures relate to access and availability of care, effectiveness of care, andcustomer satisfaction. Effectiveness of care measures include

Adolescent immunization status Check-ups following delivery Follow-ups after hospitalization for mental illness Flu shots for the elderly

Customer satisfaction measures include

Speed of care Communication with physicians Ease of finding a personal physician or nurse

Claims processing Overall experience with the health plan

HEDIS 2000 incorporates five new disease-specific measures-controlling high blood pressure,appropriate medications for asthma, emergency room visits for asthma, chlamydia screening, andmenopause counseling-not included in HEDIS 3.0. Future measures will address how well planshelp heart attack patients control cholesterol and how well they monitor diabetes patients. Thefocus of these new measures is to assess how plans care for their sickest members.

A number of report cards also use performance measures available from FACCT. Unlike NCQA,FACCT does not currently collect or report performance data; instead, it provides users withpatient-centered outcomes-oriented measures that can be used to collect and evaluateperformance data. FACCT measures take a population-based approach that examines broadpatterns of care rather than individual episodes of care. This approach allows reporting agenciesto measure how the health plan serves all of its members and how it serves people with specificillnesses. In addition, FACCT measures are multidimensional and assess patient perceptions ofcare, functional status, and outcomes as well as clinical performance. FACCT measures also relyheavily on patient-reported data such as information reported on the SF-36 patient questionnaire.

FACCT measures are developed according to the following criteria:

Prevalence of condition in the population Cost of providing care Opportunity for improving care Ability of condition to engage consumers' interest Ability of accountable parties to affect outcomes Likelihood of revealing differences between health plans

Original FACCT measurement sets assessed performance related to treatment of breast cancer,diabetes, major depressive disorders, and health risks, as well as consumer satisfaction withhealth plans. Measurement sets endorsed or under development by FACCT address asthma,arthritis, heart disease, alcohol use, pediatric care, HIV/AIDS, and care at end of life.

Provider Report Cards

The same pressures that led to the creation of health plan report cards have also led to thedevelopment of provider report cards. The performance measures used to construct these reportcards are very much like those used for health plan report cards. However, the data derived fromthose measures are related to physicians and healthcare facilities rather than health plans.

Provider report cards are being produced by a variety of organizations. Some of these report cardsare sponsored by state agencies or advocacy groups. For example, several state healthdepartments currently report patient death rates for physicians and hospitals on specific types ofsurgery as well as patient satisfaction, cost, and outcomes data on specific types of care. Thesereport cards provide information about the "number of cases handled, rates of complications andmortality, length of stay, and the average payment for treatment. Hospitals get one to three starsdepending on whether their performance is better, the same, or worse than expected or thenational average."3

Health plans are also producing provider report cards that evaluate physician groups on the basisof customer satisfaction and treatment of specific diseases. Customer satisfaction report cards ratephysician groups on quality of care, access to care, and satisfaction with the medical group.Disease-specific report cards rate groups on quality of care, quality of services, and outcomes.Report cards rate individual groups' performance as "excellent," "very good," or "good," relativeto others in a region. Insight 3B-2 describes some of the specific measures one health plan uses toevaluate provider groups. Figure 3B-7 shows a portion of a sample provider report card.

Provider report cards focus on provider groups rather than on physician practices or individualphysicians, and even these have met with some resistance. Physicians often oppose report cardson the grounds that the information included is incomplete or misleading, especially with regardto case mix. Health plans often object on the grounds that the cost of establishing informationsystems that can collect, analyze, and transmit physician data in standardized format outweighstheir potential benefits. In spite of current skepticism, the future seems to point to more reportcards at more levels. Patients, who are generally more concerned with the quality andperformance of providers than they are with the performance of health plans, are likely to drivethis trend.

Issues and Barriers in Performance Measurement

In theory, performance measurement offers health plans and providers a way of improvinghealthcare services by giving them the information they need to do a better job. Performancemeasurement also offers health plan customers the information they need to make betterhealthcare choices. In practice, performance measurement has not yet lived up to expectations.This gap between theory and practice can be traced to a number of factors.

Data Collection and Analysis

As we have seen, performance measurement often emphasizes outcomes as a way of quantifyingperformance and establishing comparisons. The actual usefulness of outcomes measures,however, is often limited by such factors as data availability and inconsistency.

Availability of Valid, Reliable Data

Financial outcomes are relatively easy to support because financial and administrative data arewidely available. Data to support clinical outcomes and satisfaction outcomes are more difficultto find. Historical data is often not available at all.

Part of this difficulty stems from a lack of reliable measures. For example, fluctuations inmortality rates and length of stay, which are commonly used as indicators of clinicalperformance, cannot always be traced to specific actions of health plans or providers.

Availability of Sufficient Data

The amount of information available also affects its value. In order to make an informed decisionabout health plans and providers, customers need information about a wide range of options.Although published performance reports make every effort to supply sufficient data, their effortsare often negated by lack of plan or provider cooperation. Currently, only HMOs are reportingperformance data. Without comparable information from non-HMO plans and FFS systems, it isimpossible to generate a complete assessment of performance. Moreover, an increasing numberof HMO plans that originally reported data to accrediting programs or other reporting agencieshave either stopped reporting data or refused to allow their data to be published.

Inconsistent Methodology

Developing performance measures that allow customers to compare "apples to apples" requires alevel of standardization in data collection and analysis that does not yet exist. A quick look atsome of the major measurement systems reveals almost as many definitions, time periods,sampling methods, and reporting formats as there are sponsors. Even geographical location canaffect the quality of measurement systems. Small differences in any of these areas can producelarge differences in results, and plans that receive high ratings from one system may receive lowratings from another.

Inconsistencies even occur within individual measurement systems. For example, the author ofU.S. News & World Report's 1998 HMO report card admitted that "because this year'smethodology has changed in many ways, scores and ratings cannot be compared with lastyear's."4 Even when changes, such as the inclusion of new HEDIS measures, are the result ofdevelopmental advances, they affect consumers' ability to compare performance over time.

The nature of performance data also creates inconsistencies. Performance is rarely measured on asingle dimension such as clinical health status or customer satisfaction. Instead, it is a compositeof administrative, clinical, financial, and patient data. In order to obtain an accurate picture ofperformance, health plans must find the best mix of these data types. Health plans must also findways to quantify attributes, such as quality of life, functional status, and satisfaction, that areprimarily subjective.

Reporting

The value of performance information often depends on the way it is reported and theorganization that reports it. As with data collection and analysis, data reporting is influenced by avariety of external and internal factors.

Scope

The value of performance information to customers depends on its breadth as well as its depth. Aprovider's performance during a single episode of care for a single patient, for example, is not asmeaningful to consumers as the provider's performance across a continuum of care or across anentire patient population. Similarly, a health plan's performance seen in isolation is not asmeaningful to purchasers or plan members as the plan's performance compared to benchmarkperformance. For example, given the established link between the use of beta-blockers and deathsfrom heart attacks, a 50 percent rate of administering beta-blockers following heart attack wouldprobably raise some questions about a plan's performance. Information linking the plan's rate withbenchmark rates would most likely provide a much stronger indication of the quality of careprovided by the plan.

In some cases, performance itself is too narrow to provide value to consumers. The use of beta-blockers in our example is a process measure; survival rates following heart attacks is an outcomemeasure. From a plan perspective, the process is an important indicator of quality. The data areeasy to obtain and the correlation between process and outcome is relatively strong. From amember perspective, the outcome is what is important.

Potential Reporting Bias

Both health plans and provider groups have expressed concerns that performance reportsproduced by the media tend to focus on performance shortcomings in order to discredit themanaged healthcare industry. Differences in the samples and survey methods can also introducebias. For example, a customer satisfaction survey that offers three positive answer categories andonly one negative category is likely to produce high customer satisfaction ratings.

Misleading Results

Another serious concern that plans and providers express about performance reports is that theinformation is misleading. For example, a poor rating on a particular performance dimension mayindicate poor performance or it may simply indicate poor data submission. Poor data submission,in turn, may indicate a lack of willingness on the part of the health plan or provider group, or itmay indicate a lack of systems capability. Unless the report clearly explains the conditions thataffect study results, consumers are forced to interpret findings on their own.

Protecting Patient Privacy

The confidentiality of medical information is a critical issue for most consumers. As health plansand reporting agencies continue to drill down for detailed information, the need to protectindividual patients increases.

Cost

All attempts to improve performance require investments in time and resources. For example,developing accurate measures of a plan's clinical performance requires collecting detailed clinicaldata. Many health plans' information systems cannot provide the necessary detail without massiveupgrades. Those systems that are capable of collecting detailed information at the plan level mustalso be able to link different databases, perform calculations, and analyze results. The moresophisticated the measures, the higher the cost. Estimates of the cost of collecting and reportingHEDIS 3.0 data range from $20,000 to $700,000 per measure.5

Overcoming Performance Obstacles

Although the barriers to performance measurement mentioned above are significant, they are byno means insurmountable. Accrediting agencies have made great strides toward standardizing themeasures and indicators that health plans use to collect and analyze performance data. Researchorganizations such as the ones described in Insight 3B-3 have taken similar steps to improve theavailability and consistency of outcomes data. These efforts are evidence of the growingimportance of performance in maintaining and improving the quality of healthcare services.

AHM Medical Management: Quality Improvement

Objectives

After completing the lesson Quality Improvement , you should be able to: Identify the major components of the performance improvement cycle Describe how health plans use benchmarking to guide quality improvement activities Identify the goals of member education and outreach programs Describe the techniques health plans use to improve providers' ability to work within the

healthcare system Describe three tools health plans can use to support provider decision making and

improve clinical performance

Introduction

In the lesson Quality Assessment, we discussed the relationship between quality and performanceand described some of the approaches health plans can take to assess existing performance levels.In this lesson, we will describe some of the strategies and tools health plans can use to improveperformance. Because performance has a direct effect on outcomes, these tools also help healthplans improve the quality of their services.

Performance Improvement

Performance improvement is based on making changes to existing structures and processes thatwill lead to changes in outcomes. In order to ensure that performance improvement activitiesproduce desired results, changes to structures and processes must be carefully planned,communicated, implemented, documented, and evaluated. The components of the performanceimprovement cycle are illustrated in Figure 3C-1.

Planning for Change

Change is a complex process that can take a variety of forms. Change that occurs randomly isreferred to as haphazard change. It can be caused by chance or by benign neglect. Because it isuncontrolled, its results are unpredictable. The dramatic increases in healthcare costs that canarise when consumers and healthcare organizations fail to recognize the consequences ofunlimited utilization is an example of a haphazard change.

Reactive change occurs when situations become unmanageable and some form of immediateaction is necessary. Reactive change is controlled, but it is rarely planned. It can lead to positiveor negative results; however, these results are usually situational. Reactive change also has alikelihood of producing unintended results. The introduction of preauthorization as an attempt tocontrol overuse of services is a form of reactive change.

The changes that performance improvement programs generate are planned changes. Plannedchange is deliberate, controlled, collaborative, and proactive. It involves the time and effort of allmembers of the organization. In planning performance improvements, health plans must make thefollowing strategic decisions:

Which of the critical services and processes identified during performance assessmentshould be targeted for improvement

What the desired outcomes of proposed changes are and how they will be measured What actions are most likely to produce desired outcomes

Identifying Targets for Quality Improvement

As we discussed in the lesson Quality Management, health plans offer a wide range of clinicaland administrative services to their customers. Any of these services can serve as targets forquality improvement. However, because resources are limited, health plans typically direct their

efforts toward those services that are most in need of improvement or that offer the greatestopportunity for development.

Defining Desired Outcomes

Outcomes guide the activities included in a performance-based QI program and turn randommotion into directed change. It is important to recognize that the outcomes set by improvementplans are the results the health plan hopes to achieve as a result of changes to existing structuresor processes rather than the results that are expected when a particular procedure is performed.For example, patients who undergo surgical procedures often experience pain or discomfortfollowing surgery. Providers manage post-surgical pain by administering pain medication (aclinical process). The expected outcome of this process is a reduction in the level of pain thepatient experiences. An action plan designed to improve pain management processes mightmodify the way medication is delivered by allowing patients to self-administer pain medication.The desired outcome of this intervention might be to increase patient comfort, reduce recoverytime, or improve efficiency.

Expected outcomes can be anticipated. Health plans must carefully define desired outcomes sothat they are

Specific: each outcome defines a single result Measurable: outcomes must be expressed in objective, quantifiable terms Appropriate: outcomes must be directly related to identified critical processes Realistic: outcomes must be achievable within the context of given patient health states,

treatment options, and resources

Desired outcomes must also be achievable within the time frame established in the plan.

Designing Interventions

Once desired outcomes have been defined, the health plan must decide what actions it willundertake to achieve those outcomes. Each service a health plan offers consists of its ownstructures and processes, and performance improvement efforts can address either or both of thesedimensions. For example, an important goal of a health plan's QI program might be to improveplan members' access to care. The health plan could change structures related to access bymodifying the size and/or composition of the provider network. The health plan could changeprocesses by modifying authorization and referral procedures. Both of these approaches are likelyto have an effect on access. The health plan's task is to determine which kinds of changes arelikely to be most effective in producing desired results.

Health plans communicate proposed changes to appropriate individuals or groups in the form ofaction statements. A sample action statement appears in Figure 3C-2. The "who" element of thestatement identifies the individual or group responsible for taking action. The "will do" elementidentifies the type of change that the proposed action will generate. The change should bedescribed in terms of results-increase, decrease, maintain, expand-rather than processes-define,evaluate, design. The "what" element describes the specific target of improvement efforts, and"when or by how much" establishes the timetable for or desired level of improvement. Actionscan be carried out by individual providers, work groups, or departments.

Extensive planning frequently raises objections. Some organizations argue that because planningis focused on future activities, it is based on speculation rather than fact. They also argue that theyare too busy dealing with today's activities to devote time and energy to tomorrow. In addition,planning runs counter to the emphasis among many organizations on getting things done.

These objections are more than offset by the following benefits that result from careful planning:

Planning directs an organization's activities by establishing performance goals Planning controls and limits an organization's efforts and expenditures by focusing

attention on specific tasks Planning establishes a system of responsibility and accountability for organizational

performance Planning provides management with an organized approach to complex problems and

opportunities Planning maximizes the effectiveness and efficiency of organizational activities Planning facilitates collaboration, creativity, and participation across all levels of the

organization Planning minimizes unintended results

Communicating Change

Communication is the process by which the health plan transfers information and results upward,downward, and horizontally through the organization to its internal customers and outward to itsexternal customers. Each of these audiences has its own information needs that define the contentand format of performance communication.

Performance information can be presented verbally or in writing. It can be limited to briefsummaries of important facts and figures or it can include detailed descriptions of programdesign, methodology, and outcomes. It can be presented informally in conversations with ormemos to individuals or work groups or formally in performance reports delivered tomanagement and governing boards.

Performance communication also serves a variety of purposes. Informational performance reportstransfer facts and figures for use in decision making. They are produced for individuals andgroups who need information on a routine basis. The reports that health plans submit to internalboards and committees, such as the QM committee or the pharmacy and therapeutics committee,are informational reports. Persuasive communication is intended to generate changes in attitudethat will lead to changes in behavior. This is especially important in communicating performance

information where the goal is to change behavior in order to achieve better outcomes.Recognition communication, which acknowledges achievements rather than problems oropportunities, provides motivation for continued growth and development.

Effective communication of performance information benefits all of its users. For patients andtheir families, performance information helps define and support healthcare expectations. Forproviders, information leads to improved guidelines for medical practice. For purchasers, itdemonstrates health plan value. For health plans, it provides protection against liability.

Implementing Change

In order to turn intention into action and link structures and processes to outcomes, health plansmust implement the programs they plan. Compared to planning, implementation is a relativelysimple process accomplished when responsible parties complete assigned tasks in a specified timeframe. The activities, timetables, and accountabilities associated with performance improvementplans are embedded in the plans themselves.

Implementation of a performance improvement plan depends on who is accountable fordelivering the service and whether the service is patient-focused, provider-focused, oradministrative. We will describe some of the specific tools that health plans use for performanceimprovement later in this lesson.

Patient-Focused Action Plans

Although patient behavior is outside the health plan's control, it is influenced by the health plan'sactions. Patient-focused plans, therefore, are designed to augment the activities of providers andadministrative staff and improve overall service outcomes. Strategies such as member outreachand patient education programs are designed to improve outcomes by helping plan members

Assume responsibility for their own health Feel more satisfied with the healthcare services they receive Obtain better care

Appropriately trained and educated patients can help manage minor problems and keep themfrom becoming major problems.

Provider-focused action plans address the performance problems and opportunities of theproviders and staff who deliver healthcare services. Clinical practice guidelines (CPGs), providerprofiles, and peer reviews are examples of tools that health plans can use to guide providerperformance and improve patient outcomes.

Health plan management identifies areas for improvement or development, defines outcomes, andnegotiates incentives. Providers then implement the recommended actions. Outcomes arereviewed periodically by management or a panel of professionals

Administrative action plans

Administrative action plans are used when performance problems or opportunities are related tothe way the organization itself operates. For example, low rates for cholesterol screening among

patients at risk for coronary artery disease can be caused by a variety of factors. If inadequatestaffing or a lack of equipment are contributing factors, an administrative action plan may benecessary.

Administrative action plans allow the health plan to:

Integrate service across all levels of the organization Coordinate management activities Improve resource allocation and utilization

It is the responsibility of the health plan to create an environment in which quality improvementactivities can occur.

Documenting Change

A health plan's improvement plan provides evidence of its intent to improve performance in keyareas. Documentation provides evidence that the health plan has translated its intentions intoactions. It also provides evidence of the health plan's progress toward achieving desiredoutcomes.

Accrediting agencies and regulatory bodies require a health plan to provide documentation ofthree major components of performance improvement: performance assessment, programplanning, and program evaluation. During performance assessment, the health plan collects asignificant amount of information about its customers and its services. This information providesa written record of the health plan's activities and their impact on each of the organization'scustomer groups.

The health plan also documents the methods it uses to collect and analyze performance data.Documentation of data collection and analysis provides evidence of the health plan's efforts tomeasure and monitor performance. It also supports the health plan's performance improvementefforts by identifying variance and measuring progress.

Documentation of program planning is contained in the health plan's action plans. These plansprovide written evidence of the organization's intent to take action. They document the servicesand processes that are of greatest concern, the interventions the health plan intends to implement,and the individuals or groups responsible for taking action. They also document expected anddesired results.

Program evaluation is documented by additional data collection and analysis designed to measurethe health plan's progress toward its performance goals. This documentation is recorded onprogress reports that describe program status and track changes in that status over time. Preparedconcurrently, progress reports describe how an action plan is progressing; retrospective reportsdescribe end results.

Evaluating Change

All improvement plans require follow-up evaluation to determine how successful the plans are inachieving stated goals. Evaluation can be conducted concurrently or retrospectively. Concurrentevaluation is conducted as the plan is being carried out and allows the health plan to check theprogress of its improvement plans against interim benchmarks. Retrospective evaluation is

conducted after all planned interventions are completed and allows the health plan to measureoutcomes.

Evaluation can also be formative or summative. Formative evaluation focuses on specificactivities and assesses the relative importance of those activities to the plan as a whole.Summative evaluation focuses on outcomes and assesses how effective actions are in achievingdesired results.

The overall purpose of evaluation is to allow the health plan to make judgments about the valueof its performance improvement program. Value, in this context, refers to the efficiency andeffectiveness of improvement activities. Efficiency is the relationship between what theorganization puts into an improvement plan and what it gets out of the plan. Effectiveness is thedegree to which the health plan is doing the right things and doing them right. In other words, didthe planned improvements work? Effectiveness is measured by reviewing outcomes to determine(1) the accuracy or appropriateness of improvement strategies, that is, the "fit" between theproblem or opportunity and the strategy used to address it; and (2) the adequacy of resourcesallocated to the strategy.

The effectiveness of an action plan is typically measured retrospectively, after planned actions arecompleted. Results of this retrospective analysis are then compared to the initial results and targetresults for a given indicator to determine the degree of progress or improvement. Evaluation ofplan effectiveness typically produces one of the three following results:

The plan achieved the desired outcomes. This result is achieved when predeterminedproblems have been resolved or opportunities have been exploited, and when re-measurement data are comparable to plan goals. Successful interventions are measuredperiodically to determine that improvement is maintained.

The plan did not achieve the desired outcomes, but it did make significant progresstoward those outcomes. This result occurs when re-measurement data indicate forwardbut incomplete movement toward predefined goals. Management typically responds tothis result by conducting a process review or formative evaluation of the goals, outcomes,interventions, resources, and timetables outlined in the plan to determine what additionalchanges are necessary. Plan elements are then revised as needed.

The plan did not achieve the desired outcomes and is unlikely to do so under currentconditions. In this case, re-measurement data are not significantly different from initialdata and may even indicate regression. This situation requires both summative andformative evaluation to determine if the health plan can revise its current plan or if itmust abandon the plan and develop a new one.

Data Collection and Analysis

We described the importance of data collection and analysis for quality assessment in the lessonQuality Assessment. Data collection and analysis are also important in evaluating qualityimprovement. The data that are collected and the methods that are used to collect and analyzedata for quality improvement purposes, however, are different than those used for qualityassurance. Figure 3C-3 summarizes these differences.

QA data describe the current state of various structures, processes, and outcomes. By describingthe status of structures, processes, and outcomes before and after a change has been implemented,QI data describe the progress the health plan has made toward achieving its goals.

Data collection for QA is primarily a reactive process designed to verify that the health plan'soperations meet expectations. Data collection for QI is a proactive process intended to

Verify that programs are proceeding as planned Identify opportunities for improvement Provide a rationale for decisions regarding resource allocation Support the development of reliable performance outcomes QA data collection focuses on providing sufficient objective data for evaluating current

performance. QI data collection procedures are designed to achieve the following goals:To provide the health plan with accurate data on which to base future decisions. In thehealthcare setting, where resources are often limited, data accuracy is critical. Poordecisions can lead to wasted time, misspent funds, poor utilization, and inadequate orexcessive spending. They can also lead to the creation of inappropriate standards.

To avoid using measurement results for punitive purposes. It is important to focus qualityimprovement on fixing the problem rather than on fixing blame. Data collection methods

that are "safe" from punitive applications foster organizational cooperation and dataaccuracy by eliminating fear of repercussion.

To provide the health plan with a global picture of improvement opportunities byidentifying all of the organizational areas that affect or are affected by key processes andoutcomes.

To confirm desired outcomes. By collecting data before and after an improvement planhas been implemented, the health plan can determine the degree of improvement itsprograms achieve.

To demonstrate sustained improvement. Quality improvement is an ongoing process thatrequires collecting data at regular intervals to track and describe trends or variations inresults.

Evaluators analyze quality assessment data in order to determine the degree of variance betweenthe organization's current performance and established standards. Health plans analyze qualityimprovement data in order to determine the cause of variance. Performance variance can beclassified as either common cause variance or special cause variance.

Common cause variance consists of minor variations in performance that occur regardless ofhow good a healthcare system or provider is. In some cases, common cause variance is imbeddedin the system and can be linked to specific factors such as employee skill levels or equipmentcapabilities. Changes in these factors can create changes in performance that cannot be correctedby modifying processes.

For example, a health plan's customer service staff might be capable of answering 2,000 calls perday at a rate of less than 30 seconds per call. If the call volume rises above 2,000, answer timewill also increase. Variance, in this case, is linked to system capabilities rather than serviceprocesses. In other cases, common cause variance may occur entirely by chance. In our earlierexample, variance in the number of calls answered per day would occur by chance if a largenumber of staff members were out sick at the same time. Because common cause variance isoften impossible to control, it is generally tolerated.

Special cause variance occurs when systems and processes break down-for example, whenstaffing levels are inadequate or when employees make errors or equipment malfunctions. Specialcause variance is generally easier to detect than is common cause variance. It is also easier tocorrect.

Data analysis for QA focuses on measuring current levels of performance without makingrecommendations for action. Because it is used to describe current performance, it provides a"snapshot" of performance at a particular time. Analysis of QI data is based on judgments aboutwhether performance after a change in structure or process is better than performance before thechange. In addition, because improvement program evaluation involves repeated measurementand analysis, it creates a kind of moving picture of the health plan's performance improvementactivities.

Strategies and Tools for Improving Quality

Health plans can use a variety of strategies to improve the quality of their services. Strategies canbe designed to improve services or they can be designed to improve the way those services are

delivered. They can be directed toward customers, providers, or the health plan itself. In all cases,the health plan's efforts are guided by the outcomes it hopes to achieve.

Benchmarking

Quality standards such as the ones described in the lesson Quality Assessment offer health plansand their constituents a valuable method of assessing the quality of the health plan'sadministrative and healthcare services. One of the most effective methods of planning andimplementing changes that will lead to quality improvement is benchmarking. The benchmarkingprocess consists of two parts: (1) describing a benchmark, or highest achieved level ofperformance, against which a health plan's performance can be compared; and (2) identifying theactions the health plan can or should take to arrive at that benchmark.

Fast Definition

Benchmarking is the comparison of a health plan's clinical and operational practices or outcomesto those of other organizations with the goal of identifying the practices that lead to the bestoutcomes and implementing those practices to achieve overall quality improvement.1

Establishing Benchmarks

Benchmarks identify "best of class" performance. They are similar to both standards and goals;however, unlike standards, which typically define the level of performance a health plan mustachieve, and goals, which express the level of performance the organization hopes to achieve,benchmarks describe the highest level of performance that has been achieved. To betterunderstand this relationship, consider the example of board certification as a measure of providerquality. A health plan might be subject to external standards that require a minimum percentageof providers to be board certified. As part of its strategic planning process, the health plan mightset a goal for board certification of physicians that is higher than the minimum percentage cited inthe standard. A benchmark percentage for board certification would put both the external standardand the health plan's internal goal in perspective by describing the best level of performance thathas been achieved by a recognized industry leader.

Identifying Best Practices

Traditionally, benchmarking for managed healthcare organizations has relied on cost-center datato identify those practices that lead to the lowest overall cost. The process has been fairly simpleto implement because cost-center data is easy to collect from patient billing and budget records.At the clinical level, benchmarking has focused on utilization data drawn from such sources asinternal physician profiles, diagnosis and treatment reference books, commercial data services,and professional peer review associations. The usefulness of cost-based benchmarking, however,has been somewhat limited by the following conditions:

Although cost-based benchmarking identifies which areas of a health plan perform betteror worse than comparable areas in other organizations, it does not reveal how or whyperformance levels are different.

Elements assigned to cost centers tend to vary from organization to organization. Forexample, some health plans assign costs for such services as utilization review andquality improvement to clinical cost centers; others assign these costs to administrativedepartments.

Supply costs are difficult to compare. Some health plans include all supply costs relatedto a particular procedure to a single cost center, whereas other health plans divide thosecosts among several cost centers. Similarly, supplies may be included in separatedepartment inventories or in a centralized organizational inventory.

Patient billing records are not always an accurate measure of the cost of a procedure. Inorder to be complete and current, procedure costs should include not only the cost of carebut the cost of key supplies such as needles, syringes, or swabs. These supply costs arenot typically charged to patients or itemized on bills.

The emphasis on quality care has shifted the focus of benchmarking from identifying lowest costpractices to identifying best practices. In the context of medical care, best practices are actualpractices, in use by qualified providers following the latest treatment modalities, that produce thebest measurable results on a given dimension. The premise behind a best practices approach isthat there is no reason for a health plan or a provider to "reinvent the wheel." Best practices canserve as models of care for others to follow.

A best practices approach to benchmarking benefits all of the members of the health plan system.Clinicians have traditionally relied on personal experience, role models, and journal articles todevelop practice patterns, and many have resisted changes mandated by financial managers intenton reducing costs. Best practices allow practitioners to

See how their practice patterns compare to patterns with proven, measurable results Use proven patterns in their own practices to emulate best results Obtain information about treatment or practice decisions for illnesses and injuries with

which they may not be familiar

Best practices, therefore, can help patients receive the most appropriate care from the outset andhelp health plans operate most efficiently.

At the organization level, best practices provide managers with an incentive to change operationsbased on ideas and practices that are proven effective. Insight 3C-1 illustrates how benchmarkingresults also help dispel some of the more prevalent misconceptions among healthcare executives.

Sources of Comparative Data

Health plans can obtain comparative performance data from a number of sources. Earlier in thissection, we mentioned some of the sources health plans use to gather comparative data aboutphysician practices. Health plans can develop an even more precise picture of practice patterns byanalyzing information provided by the current procedural terminology (CPT) coding system,which is a method developed by the American Medical Association that allows physicians toaccurately describe and bill for treatments and procedures.

CPT codes provide complete lists of supplies used for specific procedures, using descriptors thatare clinically meaningful. As a result, they provide a much more accurate account of procedurecosts than do patient billing records. CPT codes also have advantages over diagnosis-relatedgroups (DRGs), which are classifications developed originally for Medicare and now used bycommercial health plans to determine payment for inpatient hospital services based on a patient'sprincipal diagnosis, secondary diagnosis, surgical procedures, age, gender, and presence ofcomplications.2 Unlike DRGs, CPT codes describe individual procedures, cover outpatientprocedures and treatments as well as inpatient services, and reflect the physician's perspective.Because CPT codes are standardized descriptions, they also provide a means of comparingphysician practices across different healthcare organizations. When physicians compare the itemsthey use for a particular CPT-coded procedure with those used by other physicians for the sameprocedure, the need for change can be compelling.

Health plans can also obtain comparative data from government and commercial sources. In1979, the Department of Health and Human Services (HHS) published its first national agendafor improving health and preventing disease in the form of Healthy People. In 1990, HHSpublished Healthy People 2000, which included 319 objectives organized into 22 priority areasand focused on increasing years of healthy life, reducing disparities in health among differentpopulation groups, and achieving access to preventive health services.3 To date, 47 states, theDistrict of Columbia, and Guam have developed their own Healthy People plans. Healthy People2010 was launched on January 25, 2000, and includes health indicators related to (1) healthdeterminants and outcomes, (2) life course determinants, and (3) prevention.4

In 1997, NCQA began offering benchmarking information in the form of Quality Compass, anational database of HEDIS data and accreditation information collected from over 300 healthplans nationwide. Quality Compass allows NCQA to report regional and national averages and toidentify benchmarks. The public disclosure portion of the database provides regional and nationalcomparisons of plans on eight clinical and preventive measures, including Caesarian-sectionrates, breast cancer screening, and beta-blocker treatment.

Purchasers can use these reports to analyze and compare the performance of individual healthplans in order to make value-based decisions about health coverage. They can also use theinformation to generate report cards that employees and other consumers can use to assess plan-specific performance on key quality issues. Health plans can use the data to compare their ownperformance with that of other plans. Industry analysts consider Quality Compass data a majorstep toward holding healthcare systems publicly accountable for the quality of their services.

Regulatory boards, professional societies, provider organizations, commercial organizations, andstate and national health departments offer health plans additional sources of benchmarking data.For example, the U.S. Centers for Disease Control and Prevention maintain the NationalNosocomial Infection Surveillance (NNIS) System, a national database of information reportedvoluntarily by nearly 300 U.S. hospitals regarding the incidence of infections acquired inhospitals. Researchers use the database to develop baseline infection rates that can be used tocompare performance levels among participating hospitals. CMS maintains an equally extensivedatabase of administrative healthcare information that can be used for quality improvementactivities.

Member Education Programs

Traditionally, healthcare services were the exclusive domain of providers. Providers diagnosedpatients' medical conditions, prescribed treatment, defined desired outcomes, and evaluatedpatients' progress. Patients, for the most part, simply followed doctors' orders. Today, these rolesare changing. Patients are taking an active part in determining the course and outcome of theirmedical care. The increased participation of patients in making healthcare decisions has comeabout primarily as a result of member education programs that are designed to improve healthcareoutcomes. These programs provide patients with the information they need to better understandand manage their health.

Health plans use a variety of methods to deliver educational information to patients and theirfamilies. Providers are a primary source of information. For example, PCPs routinely discusspreventive measures such as weight loss, exercise, or substance abuse programs, diagnoses, andtreatment programs with their patients during regular office visits. Pharmacists provide

educational information about drug usage and interactions when they fill prescriptions. Hospitalpersonnel instruct families on how to care for patients following discharge.

Printed materials provide additional information. The format and content of printed materialsdepend on their source and intended use. Providers often produce and distribute printed materialsto support verbal instructions. For example, a patient who has a cut sutured in a doctor's office orhospital emergency department often receives printed instructions on how to clean and bandagethe wound, how to detect adverse reactions, and when to return for follow-up treatment.Brochures produced by outside sources such as medical associations, research organizations, orpharmaceutical companies provide information about specific medical conditions. Brochurestypically provide detailed information on the following topics:

Onset and progression of the disease state Populations at risk for developing the disease Risk factors associated with the disease Available treatment options and their expected outcomes Commonly prescribed medications Steps patients can take to manage their health status, including nutrition, exercise

programs, and life style/behavioral changes

Evidence shows that member education programs contribute to better outcomes. For example, ayear-long study of health plan members enrolled in a program designed to educate patients on thebenefits of using ACE inhibitors for treating congestive heart failure (CHF) showed a 58 percentdecrease in hospital days, a 60 percent drop in hospital admissions, and a 78 percent reduction inhospital costs. In addition, patient quality of life improved 15 percent and the mortality ratedropped 15 percent. Pharmacy costs associated with treatment increased by 68 percent, or$243,000, but total savings from the program were nearly $9.3 million.5 Member educationprograms such as this one augment provider services by encouraging patient input.

Outreach programs educate plan members about how the health plan works and about healthissues such as preventive care recommendations and techniques for managing chronic disease. Byproactively providing information about issues important to plan members, these programs helpprevent problems and complaints and improve customer satisfaction.

Most outreach programs consist of information packages that are sent out to plan members uponenrollment in the plan. These packages typically contain

Patient identification cards A description of plan benefits An updated provider directory Directions on how to use the plan, access services, and obtain authorizations An outline of patient rights and responsibilities

Information packages also describe the plan's system for resolving complaints. A clearunderstanding of grievance procedures is becoming increasingly important as the healthcareindustry responds to new state and federal regulations.

Some plans also conduct telephone-based outreach programs. Telephone outreach is particularlyvaluable during enrollment surges. Personal contact with new patients entering the system helps

disseminate plan information quickly and reduces confusion that might otherwise lead tocomplaints.

Provider Orientation and Education

Health plans can improve provider performance in two ways: by improving providers' ability towork within the health plan environment and by improving the way providers make decisions onbehalf of their patients. Health plans typically address health plan performance through providerorientation and education efforts.

Although provider orientation and education programs are primarily network management tools,health plans also use them to establish performance expectations. Provider orientation programscommunicate operational aspects of the provider contract to new providers. Orientation typicallyoccurs before providers begin delivering services to health plan members and covers thefollowing topics:

Health plan administrative requirements Member identification and eligibility verification Plan benefits and member copayment requirements Referral authorization and other UM processes Claims processing and reimbursement Member rights and responsibilities Provider rights and responsibilities

Orientation programs typically do not cover specific quality and performance guidelines, but theydo describe requirements such as credentialing, scope of services, and peer review that aredirectly related to the health plan's quality and performance management programs.

Providers also receive a copy of the health plan's provider manual during orientation. In additionto reinforcing contractual provisions, the provider manual demonstrates the health plan'scompliance with accrediting agency standards concerning provider performance.

Health plans provide continuing education and support in the following forms:

Regular training sessions for providers and staff Provider newsletters Contacts with provider relations staff Periodic provider meetings Online information

These tools help reduce confusion about ongoing administrative functions related to patient care.They also provide a means of addressing problems and questions that providers may have aboutthe health plan.

Health plans, insurance carriers, and pharmaceutical companies have also begun experimentingwith ways to assist providers with some of the nonclinical aspects of patient care such as patient-provider communication. Evidence shows that improved communication skills contribute tobetter outcomes for patients, providers, and health plans. Patients tend to be more satisfied withproviders who communicate effectively. Patient satisfaction, in turn, tends to lead to better

compliance with treatment programs and lifestyle recommendations, lower turnover among bothpatients and providers, and fewer lawsuits against health plans.

Provider Profiling

One important tool health plans use to support provider decision making is provider profiling.Provider profiling involves collecting and analyzing information about the practice patterns ofindividual providers. Profiling is used during credentialing and recredentialing to help determinehow well a provider meets health plan standards. It is also an important part of a health plan'sperformance measurement and improvement efforts.

Health plans create provider profiles by gathering detailed information related to the followingperformance measures:

Quality of care Outcomes Patient satisfaction Resource utilization Cost-effectiveness Compliance with plan policies and protocols

Claims and encounter reports yield information about the number and type of services deliveredby the provider to plan members. UM and QM reports provide additional information about thecosts and outcomes of those services. Complaints and office surveys provide information aboutplan members' satisfaction with providers. Together, these data provide a cumulative picture of aprovider's performance.

Once provider data have been collected, they are analyzed to establish the provider's level ofperformance. Results are presented in the form of outcomes and rates or measures of resource useduring a defined period of time for a defined population. For example, a PCP profile mightpresent information about the average lead time required to schedule a routine physicalexamination, the number of referrals the PCP made within and outside the plan network, theextent of the PCP's compliance with practice guidelines, and the level of member satisfactionwith the PCP. In order for information to be comparable for all providers, results should beadjusted to reflect differences in risk. The risk adjustment process is described in the lesson,Quality Assessment.

Results can be used to describe the provider's current level of performance or they can becompared with profiles of other similar providers or with benchmarks to identify the provider'sstrengths and weaknesses. Figure 3C-4 provides an example of a profile developed for aparticular diagnosis. Results are then communicated back to the individual provider by a healthplan medical director.

Because profiles focus on patterns of care rather than on specific clinical decisions, they provide avaluable measure of the overall quality of a provider's performance. Because they combineoutcome and utilization information, profiles provide a broad measure of a provider'seffectiveness and efficiency. Because individual profiles can be compared to peer profiles orbenchmarks, they are also useful in identifying areas needing improvement or development.

In addition, profiles offer health plans a means of establishing a provider's value to theorganization by identifying outliers and high-value providers. Outliers are those providers whouse medical resources at a much higher or lower rate or in a manner noticeably different thanother similar providers. High-value providers are providers who consistently deliver qualitymedical care in a cost-effective manner.

Providers also benefit from profiling. Providers can use profiles to negotiate higherreimbursement rates. For example, some health plans offer higher capitation rates to PCPs whocan demonstrate exceptional rates for preventive services. Providers can also use profile results tomonitor and improve their practice patterns.

Provider profiles have limitations as well. Although a profile provides insight into the quality andcost of services that the provider delivers to plan members, that picture does not extend beyondthe plan. It is virtually impossible for the health plan to gauge the provider's total performance.Profiles can also expose the health plan to legal risks if they are used for purposes other thaneducation and performance improvement.

Peer Review

In the lesson Quality Assessment, we described the use of outcome measures to evaluate specificclinical processes. These measures assess both the provider's skill in performing procedures andthe effectiveness of those procedures in achieving desired outcomes. In order to develop acomplete measure of a provider's performance, the health plan also needs to evaluate theappropriateness of a provider's healthcare decisions. Appropriateness is an indication of the extentto which the expected benefits of diagnostic or treatment measures exceed expected risks. Healthplans typically obtain information about the appropriateness of patient care through a peer reviewprocess. Peer review discussions are designed to provide confidentiality and, in some states, toprovide freedom from legal discovery.

A health plan can assemble peer review panels from its own network providers, or it can contractwith outside peer review organizations to conduct periodic quality reviews. A peer revieworganization (PRO) is a physician-sponsored entity responsible for reviewing the appropriatenessand medical necessity of medical services ordered or furnished by practitioners in order tomaintain quality of care.

During peer review, panel members analyze the healthcare services furnished by a provider toplan members. Although most peer review is conducted retrospectively, panels can also be

convened to assess the appropriateness of care before it is delivered. Peer review can focus on asingle case or episode of care, or it can be applied to an entire program of care. Most often, peerreview focuses on high-risk, problem-prone, and high-cost services.

Clinical findings from the review are compared to standards to establish a measure of overallquality. Problems or deficiencies that are discovered by the review commonly serve as a basis forperformance improvement. They also serve as a learning tool for the members of the group.

Peer review is required under the Health Care Quality Improvement Program (HCQIP) forservices furnished to Medicare and Medicaid beneficiaries enrolled in health plans. For servicesfurnished to commercial plan members, provider participation in the peer review process isdetermined by the health plan. In some plans, participation in peer review is required; in others,participation is voluntary.

In order to encourage voluntary participation in peer review, health plans have taken steps tosupport full disclosure and fair evaluation of medical information. One of these steps is to basepeer review programs on well-defined principles and standards. Figure 3C-5 describes some ofthese principles. Health plans also follow established procedures for protecting the confidentialityof any medical information collected and used during the peer review process. In some cases,protection is mandated by federal law. For example, the Health Care Quality Improvement Act(HCQIA) mandates protection for participants from suits and from discovery for the documentsgenerated by the peer review process. Most states have also enacted statutes governing theproduction and use of medical information. The protection offered by these statutes ranges fromabsolute immunity to some form of qualified immunity for actions taken in good faith.

The guarantees health plans have been able to grant to participants are critical to the success ofthe peer review process, where the disclosure of errors in professional judgment may havesignificant economic and career consequences for providers. Those guarantees, however, may nolonger be available. In June 1999, the Supreme Court issued a decision allowing individuals tosubpoena peer review records for federal lawsuits6. This decision is likely to have a significanteffect on the strategies that health plans use to measure, monitor, and improve the clinicalperformance of their providers.

Clinical Practice Guidelines

As you recall from the lesson Clinical Practice Management, health plans develop clinicalpractice guidelines (CPGs) in order to help providers consistently deliver medical services thatwill improve the health status of plan members. Although CPGs are an important aspect of ahealth plan's clinical practice management policy, they are also valuable tools for improvingprovider performance. By following approaches that have been proven to be successful and bydecreasing inappropriate variations in patient care, providers should be able to achieve the best,most cost-effective patient outcomes possible.

Research seems to support this position. For example, a recent analysis of published studiesrelated to guideline use showed that "the introduction of clinical guidelines led to measurableimprovement in clinical care processes."7 Unfortunately, CPGs are not widely accepted byproviders.

Providers' willingness to adopt CPGs is affected by a variety of internal and external barriers.Internal barriers are related to a provider's knowledge, attitudes, and experience and includesuch factors as:

Lack of awareness. The number of organizations conducting research into theeffectiveness of specific treatment options for specified medical conditions has increaseddramatically in recent years. The number of guidelines based on results of that researchhas also increased. Although some of these guidelines-for example immunizationguidelines and recommendations for infant sleeping positions-are widely recognized byproviders, many more are unknown to a significant number of practitioners.

Lack of familiarity. Knowing that guidelines exist does not guarantee that providers arefamiliar with or can correctly apply guideline recommendations as part of their dailypractice.

Lack of agreement. Providers have traditionally based their treatment decisions on theirown past experience or on the experiences of other providers with whom they arefamiliar. The concept of practice guidelines often runs counter to this decision process.Because practice guidelines provide a standardized approach to treating typical patients,they often conflict with provider autonomy and clinical judgment regarding individualpatients as well.

Lack of confidence. In order to initiate and sustain the activities recommended inpractice guidelines, providers must be confident that they can actually perform theactivities and that the activities will lead to positive outcomes. For example, althoughmost providers agree with guidelines recommending that patients be counseled to stopsmoking, many fail to provide counseling during office visits because they do not believetheir efforts will be successful. Physicians also need to know when not to followguidelines; for example, when there are contraindications to a proposed protocol.

Lack of motivation. Established providers often have a long history of practice patternsassociated with particular medical conditions. In order to adopt new patterns, providersmust be willing to expend the energy necessary to overcome the inertia of past behaviorpatterns.

External barriers are created by such factors as:

Patient preferences. Patients can feel strongly about the need for or appropriateness ofparticular procedures or treatment options. In some cases, personal preferences can leadpatients to refuse appropriate procedures, especially if they consider those proceduresembarrassing or offensive. In other cases, personal preferences can result in requests forinappropriate services. Providers often find it difficult to reconcile these patientpreferences with guideline recommendations.

Guideline characteristics. Providers tend to consider guidelines in general asinconvenient or difficult to use, especially if they require eliminating establishedbehaviors. This attitude is due, in part, to the fact that guidelines are often based on studypopulations that are different from most providers' patient populations. Becauseguidelines are designed to be applicable to a wide range of providers and settings, theyare frequently "encyclopedic, equivocal, and not executable at the local level8."

Environmental constraints. Even providers who are willing to accept guidelinerecommendations may be unable to carry them out because of environmental factors thatare beyond their control. Limited time, inadequate technology or resources, insufficientstaff, increased practice costs, limited referral privileges, lack of tools such as flow sheetsand reminder cards to effectively implement guidelines, and increased liability can allcontribute to a provider's inability to adhere to guidelines.

One of the ways health plans can overcome these obstacles is to focus CPGs on clinicalconditions that providers consider most important, that they encounter most frequently, or forwhich there is substantial agreement as to what constitutes appropriate treatment. Health planscan accomplish this task by gathering information from resources that providers know andrespect; working with other health plans in the region, state, or locality to develop guidelines thatare consistent across health plans and relevant to the needs of member populations; and recruitingopinion leaders that providers trust to assist with disseminating guidelines.

Health plans can also improve provider acceptance of CPGs by including providers in guidelinedevelopment. Flexibility and autonomy are important issues for most providers. Health plans cansupport flexibility by allowing providers some freedom to customize guidelines according to theneeds of their patients and the medical practice conventions in their areas. Keeping guidelinescurrent with medical literature can provide additional support. Health plans can support providerautonomy by presenting CPGs as decision support tools rather than as requirements. Thisapproach allows physicians to vary from guidelines as long as they can document a sound clinicalreason for the variance.

A third step health plans can take to improve adoption of CPGs is to simplify programimplementation. For example, health plans can divide complex or lengthy guidelines intointerrelated modules to facilitate understanding and usage. Health plans can introduce CPGsgradually into the provider community and allow providers to experiment with recommendedinnovations on a trial basis. Health plans can make CPGs available in an interactive computerizedformat that automatically adjusts to specific clinical circumstances and providing preprintedorders that are consistent with CPGs for common health problems. Health plans can provide

physicians with a method for identifying the patients to which guidelines apply. In addition,health plans can provide guidelines for patient as well as provider use. All of these efforts arelikely to make the process more "user friendly."

Because demonstrated success is often the best incentive to change provider behavior, healthplans should also measure and report improvements in outcomes that result from the use of CPGs.

Conclusion

In recent years, health plans, accrediting agencies, governments, and purchasers have dedicatedtime and resources to developing programs to measure, evaluate, and improve the quality ofhealthcare services within the health plan environment. The goal of these programs has been tomake useful information about quality available to purchasers and consumers.

Quality management programs such as those described in this lesson have made a significantcontribution to health plans' efforts to balance the quality and cost of healthcare services. Theprocess, however, is still evolving. As more and better information becomes available, theimportance of quality management is certain to increase.

Endnotes



3. "Healthy People 2010 Fact Sheet,"

4. Leading Health Indicators for Healthy People 2010: Final Report, ed. Carole A. Chrvalaand Roger J. Bulger (Washington, DC: National Academy Press, 1999),http://www.nap.edu/html/healthy3/(1 June 2000).

5. "Burrows v. Redbud," 1998 U.S. District Court (187 F.R.D. 606), LEXIS 22728; 1998U.S. District Court (187 F.R.D. 606), LEXIS 22541; 1998 U.S. Appeals Court, LEXIS29537.

6. Stanley Goldfarb, M.D., "The Utility of Decision Support, Clinical Guidelines, andFinancial Incentives as Tools to Achieve Improved Clinical Performance," HealthcareLeadership Review (June 1999): 7.

7. Susan D. Horn, "Clinical Practice Improvement: A Data-Driven Methodology forImproving Patient Care," Journal of Clinical Outcomes Management 6, 3 (March 1999):32.

AHM Medical Management: Preventive Care Programs

Objectives

After completing the lesson Preventive Care Programs, you should be able to:

Identify the three levels of preventive care Explain the role of health risk assessment (HRA) for preventive care Describe some strategies that health plans may use to enhance member participation in

preventive care programs

Introduction

The improvement of the overall health of health plan members is central to the philosophy ofhealth plans. In fact, from a historical perspective, health maintenance organizations (HMOs)were so named because of their coverage and promotion of preventive care services, most ofwhich were not covered by traditional indemnity insurers.

A health plan's preventive care initiatives can be divided into three main categories: primaryprevention, secondary prevention, and tertiary prevention. Primary prevention refers to activitiesdesigned to prevent the occurrence of illness or injury. Secondary prevention includes activitiesdesigned to detect a medical condition in its early stages and to manage the condition so thatdisease progression and complications are prevented or at least delayed. Tertiary preventionincludes activities designed to prevent exacerbation of or complications from an establishedmedical condition.1

In this lesson, we focus on primary and secondary preventive care. Tertiary prevention, which isan important aspect of disease management, will be discussed in the lesson Disease Management.We begin the lesson with a discussion of the role of preventive care in medical management. Wethen describe some of the strategies health plans commonly use to develop and implementpreventive care programs.

Importance of Preventive Care to Medical Management

Preventive care programs impact medical management in a number of areas. One of the mostimportant of these areas is risk management. In recent years, healthcare professionals andresearchers have recognized that a significant proportion of diseases and injuries can beprevented. In fact, recent studies indicate that as much as 70 percent of healthcare treatment costsare the result of preventable diseases and injuries.2 Further, the severity of many illnesses can begreatly reduced if the conditions are detected and treated early in the disease progression. Byoffering programs that help members stay healthy and reduce the need for diagnostic andtherapeutic services, health plans can decrease members' exposure to the risks of complicationsoften associated with those services.

Preventive care programs are also an important part of a health plan's quality management efforts.Accrediting agencies typically include prevention programs in their evaluation of the quality of ahealth plan, and NCQA, JCAHO, and URAC all have standards that address the health plan's rolein preventive care.3

For example, NCQA and JCAHO both require health plans to base their clinical practiceguidelines (CPGs) for preventive care on evidence from current, scientifically sound medicalresearch. NCQA also stipulates that health plans distribute preventive healthcarerecommendations to members on an annual basis. HEDIS has measures related to prevention andhealth promotion.

The desire to improve member satisfaction also motivates health plans to establish preventivecare programs. An increasing number of members are becoming health-conscious and wantaccess to a variety of preventive healthcare services. These members believe that by takingproactive measures to improve their health, they can avoid the financial costs, inconvenience,anxiety, and discomfort typically associated with the diagnosis and treatment of illnesses andinjuries. Members' perceptions of a health plan's efforts toward improving health status have animpact on the health plan's overall satisfaction ratings, which, in turn, affect that plan's scores onaccreditation evaluations, HEDIS, and report cards. Programs for health improvement alsoenhance a plan's public image and make it more attractive to purchasers.

Medical management staff at health plans have realized that, in general, proactive measures thatprevent or at least limit the severity of disease and injury are more cost-effective than reactivehealthcare services that address illnesses and injuries only after they occur. Purchasers alsorecognize the value of prevention programs. Many purchasers believe that preventive care keepsmembers healthier and more productive, so they prefer that health plans offer a variety ofpreventive care initiatives.

Preventive Healthcare Programs

The primary and secondary prevention programs available to members vary from one health planto another. When selecting specific preventive care initiatives to offer to its members, a healthplan considers several factors including

The expected effectiveness of the initiative in improving health, based on evidence in themedical literature

The projected cost-effectiveness of the initiative The expected effect of the initiative on member satisfaction Applicable federal, state, and regulatory agency mandates for preventive care Applicable accrediting agency standards for preventive care and health promotion Applicable HEDIS measures for preventive care The preferences of members and purchasers and the specific needs of the population

served

A health plan in a highly competitive market may choose to offer a broad range of preventiveservices as a means of differentiating itself from its competitors and appealing to purchasers.4

Not every health plan member, however, needs every type of preventive care service. Healthplans, therefore, try to target their prevention programs to the healthcare needs of their members.They typically do this by assessing their members' health risks.

Health Risk Assessment

Health risk assessment (HRA), also known as health risk appraisal, is a process by which ahealth plan or other entity projects a plan member's likelihood of experiencing specific illnesses

or injuries, based on the member's current health status, health history, family health history, andhealth-related behaviors. The objective of HRA is to improve health outcomes by identifyingmembers who are at risk of developing specific health problems and determining the appropriateaction to reduce those risks. In many instances, the appropriate action is to direct the member topreventive care programs or disease management programs. In addition to improving clinicaloutcomes, HRA can also reduce costs by reducing the need for complex or long-term care.

Collecting, analyzing, storing, and reporting information about health risks is a complex task thatoften requires sophisticated information technology. Although some health plans perform theirown HRA, many health plans delegate some or all components of HRA to external entities thatspecialize in managing information about health risks. Keep in mind that a delegate (rather thanthe health plan) may perform some or all of the HRA activities described below.

Gathering Health Risk Data

Each health plan determines which types of health risks to evaluate in its HRA, depending on itspopulation and the issues that the plan hopes to address with the HRA. Health risk assessmentgenerally evaluates risks associated with members' demographic characteristics, behaviors, orlifestyle choices and, in many cases, includes a provider's clinical assessment of current and pasthealth problems. Figure 4A-1 provides more details on the types of risk data that health plansmay evaluate through HRA.

Health plans can obtain information for HRA from one or more of the following sources:

When a health plan obtains HRA information, it is important for the health plan to compareinformation from all available sources to get a complete, up-to-date risk profile for a member. Forexample, does a member with high blood pressure also have a record of high cholesterol orsmoking? When was the last time the member was screened for high cholesterol?

Member enrollment records. Demographic data on the age, gender, and occupation of amember can provide insight into health risks. For example, a woman who has reached theage of 40 is at greater risk for breast cancer than a younger woman. A member whose jobincludes physical labor has an increased risk of back injury5.

Claims and encounter reports. Claims and encounter reports typically includediagnostic and procedural codes that may help a health plan identify members withsymptoms or minor conditions that may develop into serious illnesses unless preventivemeasures are taken. An analysis of claims and encounter data can also produce a list ofmembers whose medical histories include preventable illnesses or injuries.

Pharmacy claims and drug utilization reports. Pharmacy claims and drug utilizationreports provide information about both existing and potential conditions. For example,pharmacy claims for blood pressure medication or cholesterol-lowering medication maybe an indication of members who are at increased risk for serious illnesses such ascoronary artery disease (CAD).

Reports on laboratory tests. Like claims and encounter reports, laboratory reportsinclude diagnostic and procedural information that may help a health plan identifyconditions that can benefit from preventive measures.

HRA surveys. These surveys can yield information on virtually any type of health riskfactor, depending on the design of the questionnaire. In addition to collecting informationabout clinical health status and health behaviors, surveys also allow health plans toexplore members' beliefs about the value of preventive care and attitudes towardchanging health-related behavior.

Comprehensive claims, encounter report, pharmacy, and laboratory data can be very useful forHRA, but this information is not always available to a health plan. If a health plan has onlyrecently contracted with a purchaser or if a plan experienced a large influx of new membersduring the last open enrollment, information about members' past medical problems andtreatments may be very limited. In addition, the use of pharmacy and lab data to identify healthrisks is somewhat controversial. Consumers and privacy advocates may view a health plan'sexamination of such information as an invasion of privacy if the health plan does not obtainmembers' consent to access this data.

HRA surveys have become a standard approach for gathering data about health risks, and manyhealth plan and healthcare personnel use the term health risk assessment to refer to this type ofdata-collection tool as well as to the entire risk evaluation process. However, a health plan thatuses a survey to gather health risk information must consider the following issues about thecontent of the questionnaire:

Which types of health risks (e.g., lifestyle, current health, past medical problems, mentalhealth) should be addressed? Should the questionnaire address sensitive issues such asdomestic violence and drug abuse and, if so, how?

How specific and detailed should the survey be? Will a single survey address the risks of the entire member population or are multiple

surveys tailored to different population segments needed? (However, if the health planwishes to compile meaningful aggregate information, the plan must use the same HRAsurvey for a large number of members.)

In addition to content issues, the health plan must also determine how the survey will beadministered. Many HRA surveys are self-administered; that is, plan members read and answer aseries of questions on paper or on a computerized questionnaire. Alternatively, health plans mayinterview members about health risks by telephone or in person. Some health plans use aninteractive voice response (IVR) system to administer surveys over the telephone. With an IVRsystem, a computer asks questions and members enter their responses on a touch-tone keypad.Providers often play a role in administering the HRA survey when the survey includes any type of

clinical assessment of health status. In many instances, the HRA survey is completed throughsome combination of self-administration and administration by the health plan and/or providers.

A health plan may develop its own HRA survey or administer a standardized questionnaire. Byusing a standardized, publicly available tool, a health plan can compare its results to those fromother health plans. One example of a standardized questionnaire is the Behavioral Risk FactorSurveillance System (BRFSS) developed by the Centers for Disease Control and Prevention(CDC). The BRFSS monitors the prevalence of the major behavioral risks associated with illnessand injury among adults. The BRFSS consists of a series of core questions plus optional questionmodules that may be added to tailor the survey according to the population of a particular state orregion.6 Figure 4A-2 lists the core sections and optional modules included in the CDC's BRFSSquestionnaire for the year 2000.

Each state may also add additional questions to address special interests. Figure 4A-3(http://www.educode.com/Images/ahm540_4A_13pA.pdf) shows the table of contents from the2004 BRFSS questionnaire. Although the BRFSS was not designed specifically for use by healthplans, a health plan may use or adapt this system for its HRA program. Health plans that serve aMedicare population typically use a questionnaire designed to address the needs of seniorcitizens.

A health plan may also opt to work with a vendor who specializes in health risk surveys todevelop a customized data-collection tool. When obtaining a survey from a vendor, the healthplan should check the vendor's reputation for medical knowledge and valid, scientifically soundsurveys. The health plan may choose to develop its own survey according to the nature of itsmember population; however, this approach is typically more time-consuming and may not befeasible if the health plan wishes to implement the survey quickly.

Health plans vary in terms of how often they conduct HRA and the proportion of members whoundergo HRA. Ideally, a health plan conducts an HRA for every member soon after membersenroll in the plan and periodically thereafter to monitor any changes in health status. In reality,however, many health plans do not have the financial or human resources to establish or maintainsuch a comprehensive assessment program. Another obstacle for HRA data collection is the factthat not all members wish to participate in HRA surveys. Reasons for lack of memberparticipation include

The perception of HRA as an invasion of privacy Lack of understanding about the value of the process The time required to complete the HRA survey Concern about employers or other parties learning the results Concern that the information might be used to exclude the member from future health

plan coverage or to increase plan premiums

As a result of limited resources and lack of member participation, health plans typically focustheir HRA efforts on newly enrolled members.

A health plan may be able to increase member participation in HRA by educating members,purchasers, and providers about the purpose of HRA. Members who view HRA as an initial steptoward improved health status and who believe that the health plan will treat HRA information ina confidential manner are more likely to participate than members who have little knowledgeabout the program. For example, the health plan can present studies that show the effect ofpreventive care on health outcomes. The health plan should also assure members that purchaserswill receive only aggregate HRA results and that information about individuals will not bereleased to employers or other parties.

Education about the value of HRA may also increase the willingness of purchasers and providersto encourage members to complete the HRA process. In some cases, employers allow employeesto complete a self-administered HRA survey during work hours. The employer may even makethe survey available on computers in the workplace.

The health plan can make the HRA survey process more convenient by offering members severalways to complete it. For example, members might have a choice between a paper questionnaire, acomputerized questionnaire at the workplace, or a computerized questionnaire available on thehealth plan's Internet website. Some health plans and employers offer incentives to members whoparticipate in HRA surveys, especially if the HRA process is lengthy. For example, a memberwho completes the survey might receive a T-shirt, mug, gift certificate to a local store, or even asmall discount off their health plan premium.

Analysis of Health Risk Data

Because HRA often integrates many different measures of risk from a variety of sources, healthplans typically use computer software specifically designed for HRA. In addition to determiningthe risks for each individual member, a health plan usually tabulates the data for its population asa whole and for certain segments of the population to gain a better understanding of thepreventive programs that are needed. For example, a health plan may analyze the data accordingto purchaser, occupation, age, gender, income level, race, ethnic group, or some combination ofthese characteristics. The HRA information management system may also allow the health plan tostratify risk data according to other variables, such as the level of risk for individual members.

For example, in addition to identifying members at risk for developing coronary artery disease(CAD), the information management system may divide the list of members with any CAD riskfactors-smoking, obesity, high blood pressure, high cholesterol, family history of the disease,fatty diet, sedentary lifestyle-into subgroups according to the number and type of risk factorspresent. The health plan can then make a plan of action based on the level of risk represented byeach subgroup.7

Another type of analysis that may be useful is stratification according to knowledge about healthrisks and willingness to change health-related behaviors in order to improve health status.

Application of HRA Results

The results of a health risk assessment for an individual member may be stated as theapproximate number of years of life remaining, the member's age in terms of health risk, or ascore on a numerical scale. Along with the numerical results, each member typically receiveswritten recommendations on how to reduce the level of risk. For example, the health plan mayencourage the member to join a smoking cessation program or to make an appointment to bescreened for prostate cancer. The health plan may provide a copy of the results andrecommendations to the member's primary care provider (PCP) to ensure that the provider has thenecessary information to coordinate the member's care.8

Based on the health risks identified for the population as a whole or for segments of thepopulation, the health plan can develop and promote appropriate primary, secondary, and tertiaryprevention initiatives. For instance, do the employees of a particular purchaser have a highincidence of repetitive motion injury? Do the female members of the plan have unmet preventiveor self-care needs? What health issues should be addressed for adolescents? Is a certainpreventable condition prevalent among members of an ethnic group?

A health plan that stratifies members according to the level of risk represented can tailor itsapproaches to preventive care according to the urgency of the need. For example, the health plancan offer educational literature on health improvement and access to wellness programs tomembers with low-to-moderate risk. The health plan can direct members who are at high risk tomore intensive and focused preventive care programs.9

Suppose that a member is at high risk for developing diabetes. The health plan might provide thatmember with educational material about diabetes and the symptoms of the disease, a descriptionof the complications associated with that disease, and recommendations for reducing the risks thatcan lead to diabetes. The health plan may also contact the member frequently to offer remindersabout healthy behaviors, encourage screening at appropriate intervals, and check for anyproblems that may have developed. By targeting needs more specifically, the health plan canaddress those needs more effectively and use its preventive care resources more efficiently than ifit offers the same services to all members regardless of risk level.

Stratification of members according to knowledge about health risks and willingness to takeproactive measures to reduce those risks also helps health plans direct members to appropriatepreventive care programs. For example, a member who is not even aware of the health riskscaused by a sedentary lifestyle will probably not be receptive to a recommendation to join afitness program.

In addition to evaluating risks for illness and injury that may occur in the future, HRA oftenidentifies members who already have chronic conditions. If the current management of thecondition is not optimal, the health plan can refer the member to the appropriate diseasemanagement program (if one exists) or to a provider who specializes in the condition. Complexcases, such as members with multiple medical problems or those who are at high risk forexperiencing serious complications, may be directed to the health plan's case managementprogram

Health plans must exercise caution when interpreting and applying the results of health riskassessment. Because the calculations of risk are based on probabilities derived from experiencewith large numbers of medical cases, the results for individual members are generally lessaccurate than the aggregate results. In addition, HRA is subject to sampling bias, which occurswhen errors in data collection change the end results so that the results do not accurately depictthe characteristics of the population under study. For example, the members who participate inHRA may not be representative of the entire member population. In general, members who worryabout their health even though they are relatively healthy are more likely to complete theassessment than the population as a whole. Older members who tend to have more healthproblems than younger members are also likely to participate in HRA. Unfortunately, somemembers who have significant risk factors, such as obesity or heavy alcohol use, may be reluctantto complete the survey because they perceive these risk factors as embarrassing or personal.Embarrassment about health-related behaviors or the desire to please may lead members to givefalse answers. For instance, members may tend to exaggerate their levels of exercise because theythink they should be more active and do not want to disappoint their providers.

Although the information is not intended for utilization planning purposes, some health plans alsouse aggregate results from HRA to predict medical resource utilization. HRA information istypically not a reliable predictor of utilization because of sampling bias issues as described above.However, HRA can enhance the effectiveness of both primary and secondary preventionactivities.

A health plan must also consider the cost of the HRA process and the effects of HRA on clinical,financial, and member satisfaction outcomes. Further, a health plan needs the appropriate diseasemanagement and case management programs to address the risks identified by the HRA.Otherwise, the costs of HRA may exceed the benefits realized by the health plan.

Once a health plan has identified the health risks present in its member population, it can designprimary and secondary preventive initiatives to address those risks.

Primary Prevention

The initiatives most often employed by health plans to prevent or at least delay the onset of healthproblems are immunization programs and health promotion programs. An immunizationprogram is an initiative that monitors and promotes the administration of a vaccine, that is, amedication to prevent members from contracting a particular illness. A health promotionprogram, also known as a wellness program or health education program, is an initiative thateducates and motivates members to prevent illness and injury through their lifestyle choices.Members typically receive primary preventive care services from PCPs or directly from thehealth plan.

Historically, the practice of medicine has been mainly curative rather than preventive, so manyproviders and members still view healthcare as services to treat existing illnesses and injuries.Medical education and training, particularly for physicians, have tended to emphasize diagnosisand treatment, with less attention paid to primary prevention. One significant challenge for healthplans is to educate both providers and members about the health benefits of primary preventionand to motivate them to take a more proactive approach to healthcare.

Immunizations effectively prevent many diseases for both children and adults, so immunizationprograms are one of a health plan's most direct means of improving health status and reducingmember's needs for healthcare services. Figure 4A-4 contains a list of diseases for whichvaccinations are most commonly used. In addition to keeping members healthier, immunizationsare typically cost-effective as well.

Although members and providers often think of immunization as a children's issue, many of thevaccine-preventable illnesses typically associated with childhood, such as measles or chickenpox, can result in serious illness or even death for adults. Adults can benefit from otherimmunizations as well. For example, influenza is a respiratory illness that, at best, is inconvenientand uncomfortable and, at worst, can cause severe complications that result in hospitalization oreven death, especially for older members or those with chronic health conditions.10

Influenza shots have been shown to significantly reduce the incidence of flu cases amongimmunized adults.

Despite the obvious benefits of immunization, many health plans have experienced difficulty inachieving optimal immunization rates for their members. Health plans often focus on one or moreof the following areas to improve these rates:

Member participation Provider participation Reporting systems

The following sections describe some strategies for improvement.

Member Participation. In many instances, members' failure to obtain appropriate immunizationsis due to lack of knowledge. They may not be aware of all the vaccinations that exist or theschedules for administration of those vaccines. Some members view measles, mumps, andchicken pox as a normal part of childhood and do not realize the dangers of these vaccine-preventable diseases and the benefits of having their children immunized. Members may also fearadverse effects from the vaccination, such as having an allergic reaction or even contracting thedisease itself. Ethnic and cultural backgrounds may have a great influence on members'knowledge about and attitudes toward immunizations. When attempting to educate membersabout the benefits and risks of immunization, health plans must also recognize and addressmembers' common fears.

In addition to including information about immunization in member newsletters, there are severalother ways that a health plan can reach and educate its members, such as informational articles inthe health section of newspapers and magazines or brochures placed in the plan's pharmacies.Local retail stores may be willing to place educational material about immunization near theirchildcare products or over-the-counter medications. Members may need to see information aboutimmunization several times before they completely understand it and remember to get thevaccinations.

Some health plans (or their providers) remind individual members about immunizations that aredue via post cards or telephone calls. Insight 4A-1 describes one health plan's strategy forimproving member cooperation with immunizations for children.

Another way that health plans can encourage members to receive immunizations is to makevaccinations available at low or no cost. The out-of-pocket cost may be a significant barrier formembers who are in a health plan with a deductible or coinsurance requirement in its cost-sharingstructure, especially for low-income members. Members also want to be able to getimmunizations at a convenient time and location. Health plans may offer immunizations at sitessuch as local malls, hospitals, or community centers during day and evening hours to make iteasier for members and their children to receive the vaccines.

Insight 4A-1

Blue Care Network of Michigan Makes Member Education Foundation of New Program toIncrease Adolescent Immunization Rates

Blue Care Network of Michigan (BCN) has launched a series of member-centered initiatives aspart of its new program to increase immunization rates among the plan's more than 11,000adolescent members.

The program, named Blue Champs, reaches out through newsletters and financial-based providerincentives to a network of the 3,000 primary care physicians and pediatricians who largely treatthe targeted 12- and 13-year-old adolescent population. The Physician Performance Recognitionprogram, started in 2000, offers physicians a financial incentive, in addition to their negotiated

fees, for reaching a targeted goal on a variety of health quality indicators, including adolescentimmunization, explains Cynthia McDonald, Manager of Quality Management for Blue CareNetwork of Michigan. BCN then sends the physician a peer analysis indicating how his or heradolescent immunization rates compare to those of other physicians across the state, she says.

However, the thrust of the Blue Champs program is to increase the number of adolescentsimmunized against measles, mumps, rubella (MMR), hepatitis B (HepB), and varicella, orchickenpox, by focusing educational outreach efforts primarily on young members and theirparents, according to Ms. McDonald.

The goal, says Ms. McDonald, is for both the physician and member-focused initiatives to worktogether simultaneously to achieve the overarching goal of increasing adolescent vaccinationlevels of plan members. However, she explains, the plan is utilizing more “member touch”initiatives to make the plan-patient relationship more personal and the initiatives more effective.

The first initiative implemented as part of Blue Champs, started in June 2004, uses reminder callsand cards to inform parents of gaps in their child's immunization history and encourage them totake him or her to the physician's office by the end of the year to get any needed vaccinations.“The goal is to make a call in spring or early summer on an annual basis when the kids are out ofschool” when they have more flexibility in their schedules to be taken to physician offices forappointments, explains Ms. McDonald. BCN-contracted vendors have made reminder calls tomore than 7,000 households to date, she adds.

The newest feature to the program also uses scheduled reminder calls to urge parents to updatetheir child's immunization records. However, in this case, BCN nurses who are QualityManagement Coordinators make the requests.

“This is another way to let parents know we are trying to help them and ensure that theiradolescents are up to par with their immunizations,” says Ms. McDonald, adding that this effort isa more personalized way to build a rapport with the parents.

Member newsletters and the Internet also have been effective tools in educating adolescents andtheir parents about the health benefits of immunizations and notifying them about vaccinationschedule updates. Ms. McDonald says the biannual member newsletters include articles on childand adolescent immunization and preventive health guidelines with recent recommendations fromthe Centers for Disease Control and Prevention. BCN posts similar information on its web site,www.bcbsm.com/bcn, she adds.

BCN also actively participates in the Michigan Department of Community Health's Alliance forImmunization in Michigan (AIM) Coalition, which offers practitioners and their staff toolkitscontaining up-to-date information on vaccine administration, data on the Michigan ChildhoodImmunization Registry (MCIR), and other important information on immunizations. Thesetoolkits, which are distributed to the offices of network physicians by the Quality ManagementCoordinators, include resources for young patients and their parents as well.

Another innovative initiative, named Health e-Blue, provides primary care physicians, includingpediatricians, with patient-specific information on members who are not up to date with theirimmunizations, adds Ms. McDonald. Again, the emphasis is on engaging the member in theimmunization process. “The [initiative] is another prompt for [physicians] to contact the parentsof the member and let them know their child is due for an immunization,” she says.

While the Blue Champs program remains in the early stages of development, BCN is confidentthat the combination of initiatives that make up the program will successfully improve adolescentimmunization rates, which for 2004 stand at 65 percent for Combination 1 (MMR, HepB) vaccineand 49 percent for Combination 2 (MMR, HepB, Varicella) vaccine.

Provider Cooperation. Health plans should also seek ways to increase provider participation inimmunization programs. Provider-side issues that may result in low immunization rates include

Confusion about which vaccinations are due because of changes in recommendations forchildhood vaccination schedules and new combination vaccines that have been developedin recent years

Lack of awareness that their patients are not receiving immunizations Overlooked opportunities to administer vaccinations when the member is in the office for

another reason (e.g., sick child) Tendency of many providers to place less emphasis on preventive care than on

diagnosing and treating existing problems

Health plans can alleviate provider confusion about vaccination schedules by giving providers up-to-date information about immunizations. For example, a health plan can send providers posterswith immunization guidelines for display in their offices. Health plans can also help providersdevise manual or computerized information systems to monitor immunization needs so that whena member contacts or visits the provider for any reason, the provider is alerted to immunizationsthat are due.

Providers may also need information about the health and cost-effectiveness advantages ofimmunization to encourage them to make immunization part of their standard approach to care.Regular monitoring and feedback on each provider's rates for immunization helps providersdetermine areas where improvement is needed.

Some health plans also consider immunization rates when determining financial incentives forproviders. Insight 4A-2 describes how one health plan worked with its providers to improveimmunization rates.

Improvements to Reporting Systems. Low immunization rates may be due, at least in part, toinaccurate information in a health plan's records. Consumers frequently change from one healthplan to another, so health plans often lack complete medical records about their members' medicalhistories. Another factor that complicates immunization tracking is the availability ofvaccinations from multiple sources. For example, children may receive some or all of theirimmunizations at a local health department. Adult influenza (flu) vaccinations are often availablein public sites such as drug stores and malls. A health plan usually has no way of knowing when amember receives an immunization from a source outside the provider network unless the memberhappens to report this information to the plan.

In some communities, health plans and public health agencies work together to create andmaintain a central registry for immunizations. This registry helps a health plan target themembers who are in need of immunization for reminders and educational information. Providersand members may also benefit from this information. For example, a provider who is unsureabout the immunization status of a new patient can consult the registry. Members who need achild's entire record of immunization for school or camp can obtain a copy from the registry.

Health Promotion Programs

Many of the common medical problems experienced by health plan members are avoidablebecause these conditions are primarily due to health-related behaviors. However, members areoften unaware of their risks, or they lack the knowledge and confidence to make the neededchanges. Health plans often direct members to health promotion programs to help them recognizeand modify the behaviors that pose health risks. Health promotion programs reduce the risks ofspecific physical health problems such as obesity, high blood pressure, high cholesterol, andweakened bones. In addition, for many members, these initiatives also result in better overallhealth as characterized by increased energy levels and positive attitudes.

Meeting the health education needs of a member population can be a complicated task. Whenchoosing health promotion programs for its members, a health plan should consider the followingfactors:

Types of behavior to address Educational approach of the program Methods of delivering the information Expected cost and outcomes Member participation Provider cooperation

We describe considerations for each of these factors in the following sections.

Types of Behaviors to Address. Variations in the topics of health promotion programs availableto members are countless. The problems most often addressed by health promotion programsinclude lack of physical activity, smoking, poor nutrition, abuse of alcohol and drugs, depression,and anxiety. Figure 4A-5 provides more details on different types of behaviors that are commonlyaddressed through health promotion programs.

In many instances, one type of health promotion program can benefit several different aspects ofa member's health. For example, a stress management program that includes relaxationtechniques and coping skills can reduce anxiety levels. Lower anxiety levels can reduce bloodpressure, the incidence of headaches, the use of tobacco, alcohol, and drugs, and the likelihood ofaccidental injuries.

Health plans that conduct HRA can use the aggregate results to determine the types of programsthat their members need. Before a health plan develops a new health promotion program, thecompany should assess the health education options that are already available from sources suchas employers, hospitals, provider organizations, community service agencies, and companies thatspecialize in health education programs. For instance, smoking cessation programs may beavailable through the American Cancer Society, the American Lung Association, or the AmericanHeart Association. Hospitals and provider groups often sponsor educational classes on commonissues such as nutrition and weight management. Programs on prenatal care, well-baby care, andsmoking cessation are often available from commercial vendors. If an appropriate programalready exists, the health plan may choose to refer its members to that program and devote itsown resources to developing programs that focus on unmet needs. In some cases, the educational

services and materials from other entities are available free of charge to a health plan's members;in other situations, the health plan or the member must purchase or at least share the costs of theservices and materials.

Educational Approach of the Program. Determining the appropriate behaviors to addressthrough health education is only the first step toward achieving effective health promotionprograms. Health plans must recognize that members who have similar health-related behaviorsvary greatly in terms of their readiness to participate in wellness activities. In a health plancontext, readiness refers to a members' level of knowledge about existing health risks andproblems and the member's ability and willingness to adopt new health-related behaviors.

A health promotion program is more likely to be effective if its content, presentation, andapproach to motivation reflect a member's readiness for health education than if the program is a"one size fits all" approach. For example, a smoker who has never really thought about the risksof smoking tobacco will probably not be receptive to a recommendation to join a smokingcessation program. Likewise, a member who has already sought counseling for alcohol abusestands to benefit little from basic education about the risks of alcohol use. Readiness is animportant consideration for self-care and decision support as well as for preventive care.

Health plans often refer individuals to specific health promotion programs based on the data fromtheir HRAs. An HRA that includes data on readiness enhances the health plan's ability to match amember with appropriate health promotion programs. In general, low readiness indicates the needto build awareness of the risks involved and understanding of the need to change behaviors.Members with moderate readiness have already been contemplating their risks and the neededchanges and are ready to initiate the new behaviors. Reminders about healthy behaviors,encouragement, and support are essential aspects of programs designed for members withmoderate readiness because those in the early stages of change often have lapses in which theyrevert to their former risky behaviors. Members with high readiness have already madesignificant progress toward modifying their behaviors, but may need periodic reminders andpositive feedback before the new behaviors become routine for them.

In addition to member readiness, a health plan should also consider other characteristics of thetargeted population when determining the educational approach of a health promotion program.By tailoring the program according to the language, literacy level, and cultural sensitivities ofmembers, the health plan can enhance members' understanding and acceptance of theinformation. For example, if a significant proportion of the population is Spanish-speaking, thehealth plan might provide health promotion literature in Spanish as well as in English. Inaddition, different cultures and religions often encompass alternative views of disease and healingprocesses. Some ethnic groups believe in treatments and health-related behaviors that are notrecognized by medical science. Members of certain ethnic backgrounds may resist discussinghealthcare issues with a person of the opposite sex. In order to serve these populations, healthplans must be sensitive to and, within the limits of safety, accommodate their health-relatedbeliefs and behaviors.

Methods of Delivering Educational Information. Health plans can choose from a wide varietyof ways to deliver educational information to members. The options include printed literature,live instruction (either one-on-one, in small groups, or in large groups), counseling by healthcareproviders during office visits, videotapes, audiotapes, recorded messages that can be accessed bytelephone, interactive computer programs, and Internet websites. No single method of conveyinghealth education information is best in every situation. In some instances, the health promotion

program may combine delivery methods such as a live instructor who distributes printed materialand plays a videotape for a small group.

Any or all of the following factors may influence the choice of delivery method:

Preferences of members, including cultural influences Amount and complexity of information. In general, as the amount or complexity of the

information increases, members have a greater need for printed material for futurereference

Literacy level of the population Need for illustrations or active demonstrations Members' access to and ability to use information technology, such as video cassette

recorders, computers, or the Internet Sensitivity of the information. Sensitive issues, such as sexual behavior or mental health,

are often inappropriate for group settings Costs of the different delivery methods

Regardless of the delivery method, whenever possible, members should have access to a liveperson who can answer questions and provide further resources. Insight 4A-3 describes twodifferent approaches to delivering wellness information to members.

Expected Costs and Outcomes. A health plan must also consider the cost of a particular healtheducation program and how that cost compares to the likely benefits. Health education istypically a long-term investment for a health plan. A health plan incurs substantial costs as soonas the program is implemented, but improvements in members' health and reductions in overallhealthcare service utilization are not generally evident for many years. In many instances,consumers have changed to another health plan by the time that the benefits of health educationare realized. One notable exception to the typical cost/benefit pattern for health education istobacco cessation. Programs that encourage and enable consumers to stop smoking often yieldsignificant financial and clinical benefits within two years.

Member Participation. To encourage members to participate in health promotion programs, ahealth plan must raise members' awareness of their risks and inform them about the plan'sinitiatives to reduce those risks. Articles in member newsletters, direct mail notices or telephonecalls to members who may be at risk, and posters in providers' offices and network pharmaciesare some of the ways that health plans can convey messages about programs to reduce healthrisks.

Convenience is another important consideration for member participation in health promotionprograms. For example, can the member access the program at the workplace or in a location nearthe home, such as a community center, hospital, or shopping mall? Lunchtime educationalsessions at the workplace are a popular option for members with hectic schedules.

Many purchasers and members view wellness programs as valuable, but some members requireadditional encouragement before they will initiate or even contemplate changes in health-relatedbehaviors. Members who lack motivation may be more responsive to one-on-one or small groupcounseling, particularly if the counselor is a healthcare professional. As another form ofmotivation, some health plans offer prizes such as T-shirts, caps, or mugs as incentives forparticipation in health promotion activities.

Provider Cooperation. Through education on the effectiveness of counseling, health plans canencourage providers to contribute to health promotion efforts. The health plan may work withproviders to develop a system in which the PCP assesses a member's needs and then eithercounsels the member or directs the member to other resources for instruction. Individualinstruction is time-consuming and typically does not require physician-level training, sononphysician clinicians-such as nurses, nurse practitioners, and dieticians-often provide the healthpromotion instruction recommended by a member's PCP.

A health plan may target certain risky behaviors as priorities for improvement and then structureits provider profiling and quality-based incentives to reflect those priorities.

Secondary Prevention

The first step in secondary prevention is screening. Screening involves conducting a medical teston a member to determine if a health problem is present even though the member has notexperienced any symptoms of that problem. Screening asymptomatic members may lead todetection of an illness in its early stages. Screening activities may involve specialty care providersas well as PCPs and the health plan.

Although secondary prevention often results in more utilization immediately following thescreening (as conditions are identified), this type of preventive care typically yields betteroutcomes and long-term savings for the plan because of early intervention. For example, the useof mammograms increases the number of breast biopsies and the number of members treated forcancer. However, the use of mammograms generally results in earlier detection of breast cancer.Overall, clinical outcomes for breast cancer detected in Stages I or II are better than outcomes forStages III and IV, and breast cancer detected in the later stages typically requires more extensive,more costly treatment.

Screening can detect a wide variety of physical and mental illnesses in their early stages.However, health plans and their providers should use screening judiciously because unnecessarytests waste medical resources as well as the time of the provider and the member. In addition,

many screening tests are uncomfortable for the member. Testing for many diseases is notappropriate unless a member has risk factors specific to the disease, such as age, gender, overallhealth, lifestyle, or a family history of the disease.

The types of screening most commonly performed are

Blood pressure measurement Assessment of body mass index (based on height and weight) Cholesterol level Fecal occult blood test (to detect colorectal cancer) Pap smear (for women) Mammogram (for women)

Studies have shown these tests to be both effective in improving outcomes and cost-effective forthe general adult population.16 For adult men, prostate specific antigen (PSA) testing to detectprostate cancer is also common. However, some controversy exists over the clinicalappropriateness and cost-effectiveness of this test for the general male population.15

Health plans that conduct HRA can use the HRA results to determine which members needscreening beyond the basic tests listed above. Some health plans have clinical practice guidelines(CPGs) that describe the population that should be screened for a particular disease, the tests thatare appropriate for screening, and the recommended frequency for screening. Recommendedfrequencies for screening often depend on the member's age, gender, and health status. Forexample, adult men under the age of 45 with risk factors for coronary artery disease (CAD) mayneed a cholesterol test every year. For adult men under the age of 45 without CAD risk factors,less frequent cholesterol testing (e.g., every five years) may be sufficient.

Member Participation

Many of the methods that health plans use to encourage members to participate in screening aresimilar to those for improving participation in primary prevention:

Creating awareness of possible health problems and the benefits of early screenings Making screening convenient (e.g., sponsoring blood pressure and cholesterol screening

at the workplace or mammograms in a mobile mammogram unit that visits local malls orcommunity centers)

Sending out reminders to at-risk members Rewarding those who participate in screening with give-aways

Insight 4A-4 describes an incentive program that includes rewards for both primary andsecondary prevention.


Another option for encouraging members to undergo screening is for the health plan to waive anycopayment, deductible, or coinsurance requirements that would normally apply to a healthcareservice so that the member does not incur any out-of-pocket costs. For members who are at riskfor a particular illness, a health plan may offer direct access to screening tests, such asmammograms or bone density tests to detect osteoporosis, that are performed by specialty careproviders. Under a direct access approach, the member does not need to visit a PCP to obtain areferral.16

Conclusion

In this lesson, we have examined how health plans use preventive care programs to decrease theincidence of avoidable illness and injury, to facilitate early detection and treatment of medicalconditions, and to achieve better health for their plan members. In the next lesson, we describehow health plans use self-care and decision support programs to improve members' abilities toassess and manage health problems that do occur.

Endnotes

1. Roberta L. Carefoote, "Preventive Medical Management Techniques," MedicalManagement Signature Series, Health Plan Resources, Inc. ©1997,http://www.mcres.com/mcrmm09.htm (15 January 1998).

2. Wendy Tercero, "Health Plan in the Age of Accountability," Journal of AHIMA (April1999): 22.

3. National Committee for Quality Assurance (NCQA), Accreditation '99 (Washington, DC:National Committee for Quality Assurance, 1998), 13, 97-99.

4. Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 1998-2000Standards for Health Care Networks (Oakbrook Terrace, IL: Joint Commission onAccreditation of Healthcare Organizations, 1998), 103-104.

5. American Accreditation HealthCare Commission/URAC (URAC), Health Network andUtilization Management Accreditation Standards Interpretive Guide, (Washington, DC:American Accreditation HealthCare Commission/URAC, 1998), 74

6. Glen P. Mays, Paul K. Halverson, and Arnold D. Kaluzny, "Health Promotion andDisease Prevention in Health Plan: Examining Strategies for Coverage, Delivery, andUse," Compensation & Benefits Management (Summer 1999): 38.

7. Craig S. Russell, "Targeting Approaches Affect Health Care Consumer Behavior andCost Savings," Managing Employee Health Benefits (Winter 1999): 54-55.

8. "About the BRFSS," Behavioral Risk Factor Surveillance System (4 November 1999),http://www.cdc.gov/nccdphp/brfss/about.htm (14 January 2000).

9. Craig S. Russell, "Targeting Approaches Affect Health Care Consumer Behavior andCost Savings," Managing Employee Health Benefits (Winter 1999), 54.

10. Roberta L. Carefoote, "Preventive Medical Management Techniques," MedicalManagement Signature Series, Health Plan Resources, Inc. ©1997,http://www.mcres.com/mcrmm09.htm (15 January 1998).

11. Walter S. Elias, "Choosing and Using a Health Risk Appraisal Instrument," in BestPractices in Medical Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher,M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 30-31.

12. Kristin L. Nichol, M.D., et al., "The Effectiveness of Vaccination Against Influenza inHealthy, Working Adults," New England Journal of Medicine 333, no. 14 (1995): 891.

13. Therese M. Droste, "It Pays to Immunize Adults," Business & Health Special Report:Adult Immunization (September 1998): 8.

14. Ed Rabinowitz and Diane Targovnik, "The Silent Disease," Managed Healthcare News(June 1999): 21.

15. Jill Wechsler, "Health Plan Firms Are Kicking Butts!" Managed Healthcare (April 1998):34

16. Mari McQueen, "The New Medical Exam," Money (September 1999): 121-122.

17. Thomas M. Vogt, M.D., et al., "The Medical Care System and Prevention: The Need fora New Paradigm," HMO Practice 12 (March 1998): 7.

18. Sandy Moretz, "Improving Your HEDIS Results Through Breast CancerScreening," Managed Healthcare (October 1998): 34-35.

AHM Medical Management: Self-Care and Decision Support Programs

Objectives:

After completing the lesson Self-Care and Decision Support Programs, you should be able to:

Describe the use of telephone triage services in self-care and decision support programs Identify some general methods that health plans can use to evaluate the effectiveness of

their preventive care, self-care, and decision support programs Discuss the use of integration and partnerships to improve preventive care, self-care, and

decision support programs

Introduction

In the lesson Preventive Care Programs, we described how health plans use preventive careprograms to achieve better overall health for health plan members. In this lesson, we describe theuse of self-care and decision support programs. Self-care programs focus on providing memberswith the knowledge and confidence to perform certain aspects of healthcare for themselves.Decision support programs enable members to (1) decide when and how to seek medical carefrom healthcare professionals and (2) participate with providers in decisions about the course ofcare. At the end of the lesson, we explore some general strategies that health plans may apply toall of these programs, including considerations for program evaluation.

Self-Care Programs

Most health plan members experience some type of healthcare problem on a regular, even daily,basis. In many instances, these medical problems are minor ones-headaches, indigestion, cuts,scrapes, colds, and muscle aches, for example-that members generally treat without the assistanceof healthcare professionals. However, without appropriate treatment, these conditions may causepain or worsen to the point where professional care is necessary. For example, a small cut that isnot kept clean may become infected and require treatment with antibiotics or even surgery. Manyhealth plans offer self-care education and training to enable members to assess healthcareproblems and, when appropriate, take care of the condition on their own.

Types of Self-Care Programs

Self-care programs typically address common symptoms, illnesses, and injuries that can usuallybe safely and effectively treated with readily available methods such as rest, changes in diet,over-the-counter medications, or applications of heat or cold. Self-care education also helpsmembers differentiate between minor problems and serious conditions that require treatment byhealthcare professionals. Insight 4B-1 provides an example of self-care instruction that might bedistributed to members. Some self-care initiatives teach members to conduct breast or testicularself-examinations, skin cancer checks, blood pressure monitoring, and other screening tests.Health plans often combine self-care programs with preventive care and telephone triageprograms.

Some health plans also have self-care programs for members with chronic conditions that requireregular management in order to prevent pain, complications, or hastening of the disease process.Severe arthritis and diabetes are two examples of common illnesses that need proper daily care by

members in addition to services from providers. This type of self-care is often included in ahealth plan's disease management programs.

Another application of self-care education is for members who need ongoing care because theyare recovering from acute illnesses or injuries. Proper self-care for these members can speedrecovery and reduce the likelihood of complications. For example, a member's progress inrecovering from a heart attack depends in great part on how well the member complies withprovider recommendations on medications, diet, and exercise. A self-care program that focuseson cardiac rehabilitation can enhance the member's understanding of the instructions andconfidence in performing self-care.

Methods of Delivering Self-Care Information

Health plans use a variety of approaches to convey self-care education and training to members.Common methods include member newsletters, self-care pamphlets and books, recorded

messages that are accessible by telephone, videotapes, information on the health plan's Internetwebsite, references to other relevant websites, and interactive computer programs.

The criteria for selecting an appropriate medium for conveying self-care information are similarto those described for health promotion programs. Since the information provides advice onmedical care, all material must be clinically sound according to current standards to promoteproper treatment and to protect the health plan from charges of negligent care. In addition, thepresentation of the material should be understandable by the average layperson.

While health plans often distribute some self-care information to all members, they may wish totarget some members for additional education. The health plan can check claims and encounterreports to identify members with records of inappropriate utilization of medical care.

Demographic information may also be useful in identifying members with high potential forexperiencing illness or injury and creating programs to address their needs. For example, familieswith young children tend to visit providers frequently, many times for health problems that couldbe treated by parents if they knew the proper approach. Health plans can send them self-careinformation about common children's illnesses and injuries and refer them to telephone triagelines or Internet websites for additional information. Health plans may also design self-careinformation for women, men, teenagers, senior citizens, or other demographic groups.1


When designing and promoting their self-care programs, health plan medical managementpersonnel must realize that members vary greatly in terms of their perceptions of need forhealthcare services from providers and their readiness to adopt self-care. Members who visitproviders for seemingly minor problems because they lack the knowledge or self-confidence toperform self-care are often receptive to self-care instruction. Other members would rather see aprovider because they consider self-care too much trouble or they enjoy the attention they receivefrom providers and their staffs. These members may need extensive education and motivationbefore they will attempt self-care, and in many cases, the results may not justify the expenditureof health plan resources.

Decision Support Programs

Decision support services are another approach that health plans use to give members morecontrol over their own health. Members often seek care that is unlikely to improve their healthbecause they lack the knowledge to choose the healthcare services that are the most appropriatefor their situations. Health plans can improve member's abilities to make appropriate caredecisions through educational material and advice from healthcare professionals about specificmedical problems. Telephone triage and shared decision making are the most common types ofdecision support programs used by health plans.

Telephone Triage Programs

When medical problems occur, many consumers have difficulty judging (1) whether to seekprofessional healthcare services and (2) what type of services they should seek. For example, amember may wonder if a child's sore throat is really a symptom of something more serious, suchas a streptococcus infection (strep throat). When members experience troubling symptoms,telephone triage programs can help them determine the most appropriate approach to care.

Telephone triage programs are phone-based services with clinical staff who provide informationto sick or injured members to help the members decide if they need to seek care immediately atan emergency department or urgent care center, call a provider for an appointment, or treat thecondition themselves. When a situation is urgent, the staff can alert the local emergencydepartment or urgent care center of the member's needs and impending arrival. If self-care isindicated, the clinician can instruct the member on self-care treatments to relieve symptoms andhasten recovery. The staff may also be able to authorize referrals for specialty care and expediteappointments with specialists if the condition warrants specialty care. Figure 4B-1 provides anexample of the health problems that most frequently caused the members of one health plan tocall the plan's telephone triage line.

Telephone triage service is generally available at a toll-free number during hours well beyondtypical PCP office hours. In many cases, telephone triage service is offered 24 hours a day, 7 daysa week, 365 days a year. Plans that have telephone triage in addition to self-care or healthpromotion programs may integrate some or all of these services at a central call center.

The clinical staff at telephone triage services are typically nurses or physician's assistants whohave been trained specifically for this type of healthcare service. A physician with relevantclinical experience and training in managing phone triage lines generally oversees thedevelopment and implementation of the program. The clinical staff are often assisted by

nonclinical personnel who answer calls, obtain nonmedical data (such as health plan membershipinformation), and route the calls to the clinical staff.

When a member calls with a medical problem, the clinical staff person listens to the caller'sexplanation of the problem and then asks a series of questions about the situation to help thecaller determine the seriousness of the problem and the most appropriate course of action. Forrisk management purposes, telephone triage clinical staff should not attempt to diagnose or givemedical advice. Training for staff should emphasize that their role is to elicit information aboutsymptoms and other aspects of the situation and then promptly refer emergencies to anemergency department or explain treatment options for nonemergency needs.

Clinical staff members use clinical decision support tools to guide them in their questions andresponses to members. These decision support tools range from manual systems with differentpatterns of questions based on a member's responses to interactive computer programs thatprovide the clinical staff with information and questions suited to the situation. Regardless of thelevel of technology used, clinical decision support tools should be evidence-based guidelines thatare developed in a manner similar to that for clinical practice guidelines (CPGs). The use ofscientifically sound decision support tools increases the likelihood of good clinical outcomes andprotects a health plan against charges of negligent care. Even though there may not be a physicianor pharmacist on location, the clinical staff should be able to contact these healthcare personnelimmediately if the decision support tool gives this direction or if a staff member feels thatadditional input is indicated. For example, a clinical staff member who suspects that a member'sproblem is due to drug interactions may wish to contact a pharmacist.

The clinical staff member documents all information received from and given to the caller,including the type of care the caller plans to utilize and follow-up activities that the staff shouldperform. Typical follow-up actions include

Expediting referrals and appointments with specialists Relaying relevant information about the call to a member's PCP Contacting the member and/or the provider from whom the member sought care to gather

outcomes information Checking back periodically to reassess the situation when a member has decided that

self-care is the appropriate approach

Accurate, complete documentation of calls is critical for quality management. QM activities fortelephone triage typically focus on both the quality of clinical information provided and thequality of service. For example, how did the information given affect the ultimate outcome of themedical problem? Was the caller able to speak with a clinical staff member promptly?

Monitoring the reasons for calls to telephone triage services can also be useful to the health plan'sdevelopment of health promotion or self-care programs. Suppose that the telephone triage servicereceives many calls regarding children with fevers. The health plan may decide to send self-careinformation describing the treatment of fever in children and indications for seeking professionalcare to members with children.

The full documentation of calls is also necessary for the protection of the health plan in case it isfaced with a legal suit that involves information given out by its telephone triage service.

URAC has an accreditation program specifically for telephone triage and health informationservices. This accreditation program's standards address staffing, policies, and procedures forhandling calls, including the use of clinical decision support tools, documentation of calls, follow-up activities, and quality management.2

Even if a health plan does not seek accreditation from this agency, URAC's standards may beuseful quality guidelines for establishing and operating this type of program.

Delegation of Telephone Triage Services

Health plans often delegate telephone triage activities. Contracting with a delegate typicallyallows a health plan to implement telephone triage more quickly than developing its ownprogram. Since this program is conducted by phone, the delegate does not need to be in the samegeographic area as a plan's members, so many telephone triage companies operate on a regionalbasis and serve multiple health plans. As a result, health plans have many potential delegates tochoose from.

When a health plan delegates telephone triage, the health plan must confirm that the delegate

Understands the health plan's medical policy and is prepared to provide triageinformation consistent with this policy

Employs qualified, well-trained clinical personnel Uses evidence-based clinical decision support tools Has an effective system for rapid feedback to PCPs and the health plan on a case-by-case

basis for emergencies

Benefits of Telephone Triage Programs

Telephone triage programs offer benefits for plan members, providers, and the health plan itself.Members typically view telephone triage as a convenient, no-cost way to obtain healthcareinformation. Receiving information from a healthcare professional can relieve anxiety formembers who have a condition that is beyond their knowledge or confidence level. Members whochoose to perform self-care not only obtain treatment immediately, they also avoid the cost andinconvenience of a visit to a provider. In actual emergencies, the triage staff can calm callers andhelp them take appropriate actions until they can access care from a provider.

Providers may appreciate the fact that telephone triage services address members' health concernsimmediately and help them determine the appropriate level of care. Triage services also saveproviders after-hours time that would otherwise be spent taking calls from members who areuncertain about a medical problem.

Telephone triage programs may be quite effective in reducing unnecessary utilization of medicalresources, especially costly emergency services.3 However, a health plan must structure itstelephone triage program so that quality and continuity of care and member satisfaction are notcompromised for the sake of more appropriate utilization.

Shared Decision Making

Consumers' access to healthcare information has increased markedly over the past two decades.As a result, consumers have become more knowledgeable about medical issues and more

interested in participating in decisions about their own care than in the past. To accommodatemembers' wishes to be involved in healthcare decisions, many health plans offer programs thatfacilitate shared decision making. In a shared decision-making program, a provider and amember discuss care options and the provider's recommendations, but the ultimate decision aboutcare is up to the member. By educating members about their care options and encouraging themto participate in decisions when possible, health plans hope to improve members' satisfaction withclinical outcomes and with the health plan as a whole.

Shared decision making is not applicable to all medical situations. For many illnesses andinjuries, one approach to care is clearly superior in terms of safety and effectiveness. A shareddecision-making approach is appropriate when there are multiple approaches that are generallyaccepted as valid by the medical community and none of the approaches is best for everysituation. For example, in many cases of breast cancer, lumpectomy and mastectomy are bothviable options and the choice of the surgical approach depends on the member's preferences.Other conditions that may be appropriate for shared decision making include low back pain,benign prostatic hypertrophy, prostate cancer, infertility, and menopausal and post-menopausalsymptoms.

When informed about their options and given the opportunity to weigh the risks and benefits,many members select a relatively conservative approach to care. For example, they may elect towait and see how their symptoms change rather than undergoing a diagnostic test immediately, oropt for a medical treatment rather than surgery. In many instances, the interventions that memberschoose are less costly for the health plan than are the other care options that providers might haverecommended.

Health plans should exercise caution with shared decision-making programs to support the qualityof care and avoid the perception that they are simply trying to steer members toward lessexpensive approaches to care. A shared decision-making program must present a full range oftreatment options (including no treatment) and the likely outcomes associated with thosetreatments in an unbiased manner.

NCQA, URAC, and JCAHO all have standards in support of members' rights to participate inhealthcare decisions.4

JCAHO standards outline a variety of elements that should be explained to members, such as theright to be involved in all aspects of care including decisions about life-sustaining treatments orparticipation in clinical trials or investigational studies.5

Approaches to Education for Shared Decision Making

By checking HRA results, claims, and encounter reports, a health plan can identify memberswhose conditions and associated care options are suited to shared decision making. In order toparticipate in healthcare decisions, members need complete, current information about theirconditions, their options for diagnosis and treatment, and the likely outcomes of the differentapproaches. Education for shared decision making may come in one or more of the followingforms:

Printed material Personal or group counseling from providers or other healthcare educators Support groups, either local or on the Internet

Videotapes Audiotapes or phone-accessible audio recordings Internet websites Interactive computer programs

Videotapes and interactive computer programs are particularly useful for explaining how a test ortreatment is performed. The approach to education for shared decision making should alwaysinclude access to healthcare personnel who can answer questions and address specific concerns.Some programs for shared decision-making education include an assessment of a member'sknowledge to ensure that the member has a good understanding of the relevant issues.Verification of member knowledge about care options also protects providers and health plansagainst charges of malpractice.

When deciding which specific shared decision-making programs to offer, a health plan mayexamine claims and encounter reports and then focus its resources on diagnostic and therapeuticprocedures that appear to be overused, based on current CPGs. For example, suppose that thefrequency of surgery for low back pain is significantly higher than national or regional rates forthat procedure and diagnosis. The reason may be that members are not aware of other treatmentoptions and the possible advantages of the other options over surgery. Information about manyconditions and care options is already available from providers, medical professionalassociations, and community agencies such as the American Cancer Society. Before developingnew programs for education about care options, health plans should evaluate existing resourcesand use its own resources to meet needs that are not already addressed.

Another way that a health plan can help a member understand care options is to provide achecklist of questions as a guide for talking to providers or conducting other research. Figure 4B-2 lists questions to help a member understand and choose among different treatment options.


The approach to education for shared decision making should reflect the same considerations thatwe presented for health promotion programs. Readiness to participate in care decisions is acritical issue. Although many members welcome the opportunity for more control over their ownhealth, others are extremely uncomfortable about making healthcare decisions and prefer tofollow provider recommendations. Members may become frightened or angry if pushed beyondtheir level of confidence about healthcare, so health plans must be careful to let membersdetermine how involved they want to be in care decisions.

Provider Cooperation

Many providers are accustomed to making decisions about healthcare with limited input frommembers, so they may be unfamiliar with or even resistant to the shared decision-making process.By showing evidence that many members want more control over their own health and involvingproviders in the development of shared decision-making programs, the health plan can encourageprovider cooperation.

Evaluation of Preventive Care, Self-Care, and Decision Support Programs

The evaluation of a preventive care, self-care, or decision support program is a complex processthat considers many different variables. One important basis for program evaluation is progresstoward specific goals. For each type of program, health plans typically identify areas forimprovement and establish goals that reflect the nature of the proposed improvement, the amountof change projected, and the timeframe for the change. Program goals often specify a subset ofthe member population. For example, a health plan's goals for a 12-month period might includethe following objectives:

10 percent increase in the proportion of members over the age of 65 who have receivedinfluenza vaccinations

8 percent increase in participation in fitness programs by members who are at least 20percent overweight

10 percent decrease in inappropriate utilization of emergency services 7 percent increase in the proportion of women over the age of 50 who receive a

mammogram

However, progress toward goals is not a sufficient basis for determining the overall worth of aprogram. Health plans also consider other effects of the program such as changes in

Clinical outcomes Member and purchaser satisfaction Results on accreditation evaluations, HEDIS scores, and report card ratings Relationships with providers Appropriate and inappropriate utilization Financial outcomes (i.e., the cost of the program compared to cost savings from the

program)

Ideally, these types of programs will improve clinical outcomes, member and purchasersatisfaction, quality ratings from external bodies, and relationships with providers. Providersoften play a critical role in the success of a health plan's preventive care, self-care, and decision

support programs. A provider's recommendation that a member participate in one of theseprograms greatly increases the likelihood that the member will actually do so. Additionally, inputfrom providers helps to maintain the scientific soundness, timeliness, and suitability of theseprograms' educational materials, CPGs, clinical decision support tools, and self-care information.On the other hand, a health plan must avoid the perception that it is infringing on providers'autonomy or interfering in their relationships with members. For example, if a telephone triageprogram refers a member directly to a specialist without informing the member's PCP in a timelymanner, the PCP may feel that the health plan is interfering with the care of that member.

While these programs should decrease the incidence of members' seeking inappropriate levels ofcare, the health plan should not be surprised at increases in utilization of lower-intensity services,such as more members receiving immunizations and screening or members making appointmentsto see a PCP rather than seeking care in the emergency department.

When considering the costs and benefits associated with preventive care, self-care, and decisionsupport programs, the health plan must take into account both current and future costs andbenefits. In many instances, health plans have difficulty relating cost savings and health benefitsto a particular program, especially if the health plan has all three types of programs for aparticular medical condition. Another obstacle to demonstrating medical effectiveness and cost-effectiveness is that, for many of these programs, the results may not be apparent for at least ayear and often longer. In addition, other factors may influence the results of an initiative. Forexample, a local hospital's program to encourage women to obtain mammograms may inflate theresults reported by a health plan's mammogram awareness program.

Role of Information Management in Program Evaluation

Effective information management is necessary for a health plan to measure the benefits and costsof a preventive care, self-care, or decision support program. A health plan's information systemsmust be able to accurately collect, analyze, and report data on

The costs of providing the program to the health plan's members Clinical research evidence supporting widespread implementation of the intervention The level of member participation in the program Changes in the utilization of other services because of the program Short-term and long-term cost savings that result from the program Clinical outcomes and member satisfaction ratings for the program Provider satisfaction ratings Quality management initiatives and periodic measurements for the program

In addition, the information system must link the different measures in order for the health plan todetermine the overall value of a program. For example, does increased participation in a self-careprogram decrease inappropriate utilization of providers' services? How much money is saved foreach dollar invested in an immunization program? Do cost savings come at the expense ofclinical outcomes or member satisfaction?

Additional Strategies for Preventive Care, Self-Care, and Decision Support Programs

The final section of this lesson provides more detail on two of the strategic approaches that healthplans may use when developing and implementing preventive care, self-care, and decision

support programs. These strategies are (1) integration of the programs and (2) partnerships withother entities.

Integration of Programs

While some health plans have separate programs for preventive care, self-care, and decisionsupport, other health plans have coordinated and integrated their initiatives for a particular healthissue to create a care continuum that encompasses a wide variety of activities. Such a continuummay also be linked to a health plan's disease management programs. In many cases, thedevelopment and delivery of integrated programs are driven by member needs identified throughHRA. An integrated approach may be targeted to a specific medical condition, such as CAD, orto a broader concern, such as health issues for a particular demographic group. Insight 4B-2provides an example of an integrated program of prevention, self-care, and decision supportactivities for peri-menopausal and menopausal women.

Partnerships with Other Entities

Health plans should also explore the possibility of partnering with other entities that have a stakein health plan member health, such as employers, hospitals and other providers, state and localhealth departments, health-oriented community service organizations, and other health plans, forpreventive care, self-care, and decision support programs. Insight 4B-3 describes a cooperativeeffort for prevention between a health plan and the American Lung Association. Other lessobvious choices for partners are businesses that provide goods or services that may contribute tohealthy lifestyles (e.g., food manufacturers, restaurants, fitness centers), media that are interestedin public service opportunities, and churches whose members have unmet health-related needs.

Such partnerships often result in more effective programs with a greater level of participationthan a health plan could achieve on its own. Partnering also allows a health plan to share thefinancial costs of a program.

Suppose that a health plan decides to partner with an employer on a fitness program. The healthplan and the employer can pool their knowledge to select the type of program and the manner ofpresentation that will best address unmet employee health needs. The health plan typicallydevelops the program according to the risks and other characteristics of the employees, and theemployer can post notices and distribute reminders about the program. In some instances, theemployer may provide a convenient location for the fitness activities, encourage employeeparticipation through incentives, or subsidize the cost of the program. Increased participation inthe program may improve the overall health of the employees, and healthy employees are moreproductive and miss less time away from work due to illness than employees who are lesshealthy. Employer sponsorship of preventive care programs also conveys the message that theemployer cares about the well-being of its employees.

Provider partners can be invaluable for the development and implementation of preventive care,self-care, and decision support programs. As hands-on caregivers, providers may be in the bestposition to know the healthcare needs of individual members and the population as a whole.Further, providers often have the opportunity to address preventive issues when a member visitsfor another reason. For example, when a teenager comes in for a pre-camp or pre-sports physical,a PCP can conduct an HRA that looks at issues such as sexual activity, drug and alcohol use, seatbelt use, and depression.7

Hospitals are likely partners for these programs because many of them already have experiencewith preventive care, self-care, and decision support. Hospitals have traditionally been involvedin primary and secondary prevention programs, and some hospitals manage their own telephonetriage services or conduct self-care classes such as first aid.8

In addition, members are often receptive to hospital-sponsored programs because they typicallyknow and respect the hospitals in their communities.

A health plan may also decide to share its preventive care, self-care, or decision supportexperience with other health plans for the benefit of an entire population. Programs such as theAmerica's Health Insurance Plans (AHIP) Innovations in Health Plans identify and publicizehealth plans' best practices for medical management. In some locations, health plans arecollaborating on preventive care programs to (1) help providers and members understand andremember prevention guidelines and (2) improve the health of the community for the benefit ofall health plans.

Conclusion

By enhancing the care that health plan members give to themselves, health plans can improve theoverall quality of care their plan members receive and decrease unnecessary utilization of carefrom healthcare professionals. Self-care and decision support programs can also improve memberand provider satisfaction. Fewer visits to providers mean more time and money saved bymembers and more control over their own healthcare. Providers are generally supportive of self-care programs as well. Improved patient education not only contributes to better health outcomes,it also leads to fewer visits for minor problems. Providers can focus on more serious healthproblems and improve the quality of care they deliver to their patients.

Endnotes

1. Craig S. Russell, "Targeting Approaches Affect Health Care Consumer Behavior andCost Savings," Managing Employee Health Benefits (Winter 1999): 54-55.

2. American Accreditation HealthCare Commission/URAC (URAC), Health Call CenterStandards (Washington, DC: American Accreditation HealthCare Commission/URAC,1999).

3. Robert Mayo, "Education Can Increase Loyalty and Decrease Costs," ManagedHealthcare (August 1999): 28.

4. National Committee for Quality Assurance (NCQA), Accreditation '99 (Washington, DC:National Committee for Quality Assurance, 1998), 85.

5. American Accreditation HealthCare Commission/URAC (URAC), Health Network andUtilization Management Accreditation Standards Interpretive Guide, (Washington, DC:American Accreditation HealthCare Commission/URAC, 1998), 72.

6. Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 1998-2000Standards for Health Care Networks (Oakbrook Terrace, IL: Joint Commission onAccreditation of Healthcare Organizations, 1998), 72-73, 76-77, 94-95.

7. "Best Practices in Women's Health: Hormone Replacement and Mid-Life Issues,"Healthplan (May/June 1999): 56-60.

8. Ibid., 336.

AHM Medical Management: Utilization Review

Objectives

After completing the lesson Utilization Review, you should be able to:

Discuss some of the key issues health plans must address to develop and maintaineffective utilization review programs

Explain the importance of medical necessity, medical appropriateness, and utilizationguidelines

Describe the role of authorizations and member appeals in the utilization review process Identify some of the ways that health plans evaluate the results of utilization review

programs

Introduction

Few Americans have unlimited access to healthcare-primarily because of the high cost-yet whenthey need it, consumers want the very best care that money can buy. In addition, members andproviders often equate the "best" with the "most" or "the most expensive," even though studieshave shown that such an approach does not always lead to appropriate or even safe care.

One way that health plans seek to offer more affordable coverage is by excluding services andsupplies that are not medically necessary and appropriate. When making coverage decisionsbased on the appropriate use of medical resources, health plans are sometimes confronted by thedemanding and conflicting expectations of members, employers, providers, legislators, regulators,the courts, consumer advocates, and the media. Broadly speaking, health plans make thesedecisions by performing utilization review (UR).

In this lesson, we begin with a discussion of the purpose and function of utilization review, theprocess, and the types of services included in UR. Then we take a closer look at the criteria healthplans use to determine medical necessity and appropriateness, as well as the role of authorizationsystems in UR. Next, we examine how the appeals process provides members with a means todispute UR decisions. We also address the influence of accreditation requirements andgovernment regulations. We end the lesson with a look at several strategic issues associated withUR. Although our discussion addresses UR in terms of a health plan's activities, keep in mind thatsome health plans delegate some or all UR activities to external organizations, such as utilizationreview organizations (UROs) or provider organizations.

The Purpose of Utilization Review

Since the 1970s, when Dartmouth Medical School professor John E. Wennberg and hiscolleagues began conducting studies to monitor healthcare delivery costs, researchers haveuncovered significant variations in the practice of medicine. Practice variations have beenobserved between different regions of the country, different locations within a region, and evendifferent physicians practicing in the same area.

For example, in a 1995 Harvard Medical School study of Medicare heart-attack patients, thelikelihood of undergoing coronary angiography was 50 percent higher for hospitalized patients inTexas than for a comparable group in New York, while the New York patients were more likelyto receive beta-blocker therapy. Over the following two-year period, a greater number of the

Texas patients suffered from angina or died. The researchers suggested that these outcomes mayhave been related to the combination of invasive, possibly dangerous angiograms and the absenceof life-extending beta-blocker therapy for the Texas patients. 1

A primary reason for practice variations is the lack of scientific evidence that would givehealthcare practitioners the information they need to determine optimum treatments. According toWennberg, differences often arise when there is a choice between an aggressive surgicalintervention and a more conservative medical approach. Wennberg goes on to say that"controversies arise because the natural history of the untreated or conservatively treated case ispoorly understood and well-designed clinical trials are notably absent."2

The utilization review process provides a way for health plans to determine whether carerecommendations made by providers are (1) covered under the benefit plan and (2) medicallynecessary and appropriate. It is important to note, however, that UR does not actually recommendprocedures.

A primary goal of utilization review is to address practice variations by applying uniformstandards and guidelines, supported by evidence-based medicine, when available, or bycommunity standards of practice in the absence of evidence-based medicine. Another importantgoal of UR is to support cost-effective care, based on the health plan's medical policy, thecontract with the purchaser, and the member's medical needs.

Health plans also maintain UR programs to comply with regulatory requirements. Earlyregulations often directed HMOs to implement procedures for compiling, evaluating, andreporting utilization of healthcare services. These requirements, which usually subjected a healthplan's UR procedures to review and approval by the state insurance and/or health department,continue to apply today. In addition, with the rise of managed healthcare, UR regulations nowinclude features intended to protect consumers from UR practices that might inappropriately limitaccess to medical care. Insight 5A-1 provides a brief history of the development of utilizationreview in the United States.

The Utilization Review process

When determining if benefits are payable, health plans perform two basic types of reviews:administrative and medical. An administrative review addresses nonclinical aspects of coverageby comparing the applicable contract provision to the proposed medical care. For example, theservice in question might be specifically excluded or might not appear in the contract's list ofcovered services and supplies. This type of review can be conducted by a staff member who is nota medical professional.

A medical review, on the other hand, is one that requires an evaluation based on medical need.For example, to determine if a therapeutic procedure meets the contract's requirement thatservices be medically necessary and appropriate, a healthcare professional must review theproposed course of treatment and determine if it is consistent with the health plan's medicalpolicy and utilization guidelines.

A health plans decisions regarding coverage and medical appropriateness are typicallyincorporated into utilization guidelines, which indicate standard approaches to care for manycommon, uncomplicated healthcare services. Utilization guidelines often take the form ofcomputer-based screening tools or criteria sets that are structured as a series of questions arrangedin a decision-tree format. A UR nurse proceeds through a set of questions to determine if aproposed course of care is similar to what a healthcare professional would normally expect underthe given circumstances. Utilization guidelines also indicate when the nurse should refer adecision to a medical director or other physician reviewer due to unique circumstances.

UR can be performed prospectively, concurrently, or retrospectively. A prospective reviewevaluates a proposed plan for medical care before care is delivered, a concurrent review occurswhile the care is in progress, and a retrospective review takes place after the care has beencompleted. When payment for a course of medical care is approved, the care is said to beauthorized or, in the case of prospective review, preauthorized or precertified.

Generally, health plans prefer to perform UR on a prospective basis, when feasible, so that thevarious parties-the member, provider, and health plan-can reach an understanding about thetreatment for a given medical condition before it begins. To illustrate, let's consider a proposedinpatient hospital admission. By requiring advance notice of the admission, the health plan canconsider a full range of healthcare service alternatives for the member, beginning with adetermination as to whether the hospital is the most appropriate setting. Using establishedstandards of care for specific medical conditions, a prospective review might lead to thedetermination that the proposed care could be performed in an ambulatory surgical center or in aphysician's office. If an inpatient admission is appropriate, UR staff can use established standardsof care to determine a maximum length of stay and can begin the process of discharge planning.

In some health plans, UR is also used to identify as early as possible those members who arelikely to benefit from other medical management initiatives, such as case management or diseasemanagement. For instance, as a result of a request for precertification of a total hip replacement, ahealth plan might assign a case manager who would suggest a care plan that includes preoperativephysical therapy and postoperative rehabilitation. We discuss case management in greater detailin the lesson Case Management.

After the hospital admission, the health plan's UR activities switch from prospective to concurrentreview, which entails: (1) gathering information about the member's progress, (2) tracking thelength of stay, and (3) continuing the discharge planning process. A UR nurse performs theseactivities by working with the physician, hospital staff, the member, and the member's family;visiting the hospital; and/or communicating by telephone or other forms of telecommunication asneeded. At some point during concurrent review, it may be determined that acute inpatient care isno longer required. In this case, the member might be moved to a skilled nursing unit within thehospital, transferred to a skilled nursing facility, or discharged from the hospital to receiveoutpatient follow-up care.

In most cases, the UR nurse documents the clinical details of the patient's condition and care toprovide a case history, which can be used in consultations with physician reviewers or possibly inappeals or retrospective utilization review.

Under retrospective review, decisions on the authorization of payment for services are made afterthe services have been rendered. This approach limits the number of options available to planmembers because the plan cannot direct the plan member to a more appropriate setting or type of

care. An even greater problem arises when retrospective review results in the denial of paymentbecause the completed services fail to meet coverage requirements.

One way that health plans reduce the number of retrospective denials of payment is byperforming retrospective reviews on a large number of cases, collecting data on these cases, thenidentifying and addressing questionable utilization and outcome patterns. For example, aretrospective review of hospital admissions might reveal that certain surgeons unnecessarilyadmit patients the day before scheduled surgery for preoperative care that, in many cases, couldhave been provided on an outpatient basis or in the hospital on the day of the surgery. Byidentifying these surgeons and discussing utilization criteria with them, the health plan canprevent inappropriate early admissions.

The Focus of Utilization Review

Because it would be an overwhelming task to review every course of care for every member in orout of the hospital, many health plans concentrate on healthcare services that produce the bestreturn on their UR investment. For example, UR programs often consider services that are

Overutilized Utilized differently by different providers Not well-supported by scientific evidence Known to produce variable outcomes New or investigational Known to pose potential medical risks for members Often performed for cosmetic reasons Costly

Figure 5A-1 shows some healthcare services that health plans might identify for review using theabove criteria. Lists like the one in Figure 5A-1 continually evolve as medical procedures,technologies, and medications are developed or gain popularity.

Ultimately, for UR to be effective, each health plan must carefully assess its own situation andthen determine which types of UR activities would be most effective. For example, a health planwhose providers rarely propose unnecessary hospital admissions might determine thatprecertifying every hospital admission is no longer necessary. This health plan might choose tofocus more of its UR resources on drug utilization review or on outpatient services such asdiagnostic tests.

A health plan might also choose to replace or supplement traditional UR methods with otherinitiatives for managing the appropriateness and costs of medical care. Insight 5A-2 describeshow one health plan reduced its use of precertification. Other health plans have reported that theyalso have greatly reduced the number of services for which they require precertification ofmedical necessity.4

Appropriate Treatment and Use of Healthcare Resources

Recognizing that some services are more expensive, are less effective, or pose unnecessary healthrisks, health plans use appropriateness standards in utilization guidelines to help determine whatshould be covered. Recall from The Role of Medical Management in a Health Plan that medicallyappropriate services are diagnostic or treatment measures for which the expected health benefitsexceed the expected drawbacks and risks by a margin wide enough to justify the measures.Utilization guidelines typically indicate standard approaches to care for many common,uncomplicated healthcare services and often take the form of computer-based screening tools or

criteria sets that are structured as a series of questions arranged in a decision-tree format. A URnurse proceeds through a set of questions to determine if a proposed course of care is similar towhat a healthcare professional would normally expect under the given circumstances. Utilizationguidelines also indicate when the nurse should refer a decision to a medical director or otherphysician reviewer due to unique circumstances.

In addition to evaluating the appropriateness of particular medical treatments, utilization reviewevaluates the appropriateness of resources used in conjunction with those treatments. This aspectof utilization review focuses on determining the appropriateness of the

Level of care needed to treat the condition Clinical setting in which care is provided Services and supplies used to treat the condition

Although health plans emphasize primary care, some conditions require referral to medicalspecialists.

A specialty referral is a decision to divide a patient's care among one or more medical specialties.Typically, a specialty referral is made by a primary care provider (PCP) or by another specialistwho determines the need for additional diagnostic or therapeutic services. Later in this lesson, welook at different approaches that health plans use to handle specialty referrals.

When making decisions about the appropriate clinical setting, UR personnel rely upon utilizationguidelines as well as the member's unique medical needs and personal circumstances, such as theability of family and friends to provide support. For example, the most appropriate clinical settingfor a low-birth-weight infant might begin with a neonatal intensive care unit (NICU). As theinfant's condition improves, the setting might switch to a neonatal transitional care unit andeventually home healthcare.

A resource some health plans use to review surgery and certain nonsurgical interventions is a siteappropriateness listing, which indicates the most appropriate settings for common procedures.After reviewing this listing, a UR nurse might be able to point out to a surgeon that networkphysicians have performed a proposed surgical procedure more than 90 percent of the time on anoutpatient basis. The surgeon might respond by providing additional information that justifiesinpatient surgery or may decide that the surgery can, in fact, be performed safely and effectivelyin an outpatient setting.5

As we have seen, health plans rely on evidence-based medicine and community standards ofpractice to develop utilization guidelines that help determine the healthcare services and suppliesthat are necessary and appropriate. By reviewing medical outcomes data, health plans candetermine if a particular service most often produces the best results. However, because clinicalstudies have not been performed for many conditions and procedures, health plans balanceevidence-based criteria with experience-based criteria. Experience-based criteria recognizecommunity standards of practice and the overall experience of medical directors, UR nurses,physician reviewers, and the provider's first-hand experience and knowledge of the patient toidentify the most effective treatment.

Developing and Maintaining Utilization Guidelines

A health plan's utilization guidelines are developed and maintained by licensed physicians andother healthcare professionals who are employees of the health plan. Also, UR programs oftenuse "off-the-shelf" guidelines developed by nationally recognized vendors such as InterQual,Value Health Systems, and Milliman & Robertson, Inc. (M & R Healthcare ManagementGuidelines™).

Health plans collect and analyze internal data-such as approvals and denials of payment, andcomplaints related to specific services-which could indicate a need to update utilizationguidelines. In addition, as we saw in The Role of Medical Management in a Health Plan, healthplans rely on committees to track trends in medical practice. These committees consult a varietyof sources such as peer advisors, network providers, and online services that monitor and reviewmedical literature. Usually, when the need for evaluation is identified, a health plan medicalmanagement committee reviews and, if necessary, updates the health plan's medical policy. Thenthe departments responsible for maintaining the health plan's contract, claims administrationsystems, and utilization guidelines make the applicable adjustments to reflect the company'sposition.

Clinical Practice Guidelines and Utilization Guidelines

As we noted in the lesson Clinical Practice Management, clinical practice guidelines (CPGs) areintended to aid providers in making decisions about the most appropriate course of care forindividual patients. Many health plans make available CPGs that were developed by the providercommunity; other health plans distribute CPGs that they themselves have developed. Although itis important for CPGs to be aligned with conditions for coverage in the contract, CPGs are notbenefit payment standards.

CPGs are used primarily as an educational tool for providers, but they can also help a health planmeet utilization goals. For example, consider a health plan that has identified a particular electivesurgical procedure prone to overutilization. The health plan could send network providers theCPGs for the medical condition being treated by the overutilized procedure, then reinforce thisinformation through the UR process. Some health plans have found that a combination ofeducation and UR can lead to more appropriate utilization of services.

Authorization Systems

To see that utilization guidelines are consistently applied, UR programs rely on authorizationsystems. An authorization system can be described as a set of policies and procedures that givesspecified individuals the authority to make certain choices or decisions about benefit payments.When we speak of authorization here, we generally refer to the authority to make a paymentdecision prior to or at the time care is rendered, rather than after the fact. In the case of medicalemergencies, however, the authorization process by necessity occurs within a reasonable timeafter treatment in an emergency department.

For some types of care, authorization of payment is not needed. For example, a member caninitiate a visit to a PCP without contacting the health plan first. Also, some health plans allowPCPs to authorize payment for certain types of care, such as a specialist visit or a hospitaladmission, without the need for health plan approval. In addition, as we saw earlier, some health

plans have redesigned their authorization systems so that physicians are able to approve mosttypes of care without health plan approval

A health plan's approach to authorization is largely determined by its philosophy concerning theappropriate degree of health plan control of utilization. Several other factors also influence ahealth plan's approach to authorizations. For example, if a health plan contracts with a largemedical group on a capitated basis, then the health plan may be comfortable delegating to themedical group most of the responsibility for developing and implementing authorizationprotocols.

Health plans develop authorization protocols to clarify responsibilities and effectively monitorand manage utilization of healthcare. Invariably, UR nurses may issue approvals based onmedical necessity criteria, but must refer potential nonauthorization decisions to physicianreviewers; only physicians can make nonauthorization decisions based on medical necessity.Under certain circumstances, the authority to make coverage decisions can reside with an internal

In the past, most health plan authorizations were handled through the mail or over the telephone.Today, however, competitive pressures and consumer demand have prompted many health plansto modify their authorization processes. In order to make access to care more convenient formembers, some health plans have

Streamlined authorization processes Implemented special referral protocols for unique situations Given PCPs the authority to authorize referrals and/or certain healthcare services Designed products that permit self-referrals by members6

Streamlined Authorization Processes

Besides traditional paper authorizations, health plans now offer many more options, such asautomated telephone voice response systems, fax, computer-based software packages, andInternet-based programs in which the provider visits the health plan's home page and enters anidentification code and password to transmit requests for authorization. Some computer-basedauthorization programs contain built-in decision criteria that can be used to authorize commonprocedures without the need for a UR staff person to review the request.

Unique Specialty Referral Protocols

Some health plans have determined that for certain types of medical conditions, a specialist,rather than a general practitioner, is in a better position to coordinate care for the member. Underthese circumstances, the health plan allows the specialist to act as the PCP. For example, in thecase of a member suffering from a serious heart ailment, a cardiologist, rather than a familyphysician, might coordinate care. Similarly, a health plan might determine that a certain type ofspecialist, such as an OB/GYN, can also function effectively in the role of PCP. These plansallow female members direct access to both a general practitioner and an OB/GYN. Some stateshave mandated unique specialty referral protocols such as those described in this paragraph

PCP Authorization

Generally, when health plans allow PCPs to authorize coverage, they develop strategies toimprove provider communications and education to help manage utilization. A health plan that is

confident in the ability of its providers to recommend appropriate care is more likely toimplement physician authorizations and reduce or eliminate health plan review.

Self-Referrals

Increasingly, health plans are offering products that allow members to self-refer to a specialist forany medical condition that the specialist is qualified to treat. A direct access product requires themember to select a PCP, but the member can visit any provider in the network without a referralfrom the PCP or the health plan. Similarly, an open access product allows the member to visitany network specialist without a referral from a PCP or the health plan; however, unlike directaccess, an open access product does not require the member to select a PCP. Some health planshave designed products that charge a higher copayment for self-referrals than for referralsauthorized by a PCP or the health plan. Several states require health plans to allow direct accessto certain types of providers, such as chiropractors, dermatologists, and podiatrists.

Nonauthorizations

There are many reasons why a health plan might not authorize payment for a particular healthcareservice. In some instances, the determination is straightforward; in others, the decision canbecome quite involved. For example, a request for surgery to straighten nose cartilage might atfirst glance appear to be cosmetic surgery, an excluded service in virtually all contracts. However,the surgeon may respond to the health plan's nonauthorization decision by providing additionalinformation stating that the primary purpose for the surgery is to correct a condition that makes itdifficult for the member, an asthmatic, to breathe. Typically, the cosmetic surgery exclusion doesnot apply when the surgery is to treat a condition that impairs a bodily function. In this situation,the UR staff would carefully examine the proposed procedure to determine if, in fact, the surgeryis medically necessary to treat the member's respiratory condition or if the primary purpose is tochange the person's appearance.

As the preceding example illustrates, a health plan might initially determine not to authorizepayment for a procedure but later revise its decision when the provider communicates additionalinformation. Figure 5A-2 lists several examples of why a health plan might determine not toauthorize payment for a hospital inpatient stay.

Decisions not to authorize payment of benefits are communicated to the patient and provideralong with information about the right to appeal. Such decisions can result in several types ofliability for health plans. For example, a plan member can file a lawsuit claiming that the contractor a marketing piece, such as a member newsletter, requires the health plan to pay benefits for theservices in question. To reduce the risk of this type of lawsuit, called breach of contract, a healthplan must develop language that accurately conveys the plan's provisions for paying benefits.

A member might also file a lawsuit claiming that the health plan exhibited negligence in thedesign of its utilization review program that resulted in a decision that was not in the best interestof the plan member. To reduce the risk of this type of lawsuit, a health plan must maintain andfollow medical policy and UR/appeals processes that are based on recognized outcomes data andcommunity standards of practice. A health plan must also see that all authorization decisions aremade by personnel who have appropriate training and experience. 8

Although health plans must do everything reasonably possible to limit the risk of liability thatmight result from authorization decisions, they must also be careful not to allow a fear of lawsuits

to lead to defensive practice of utilization review. In other words, just as healthcare professionalscan become overly conservative in the practice of medicine to avoid malpractice lawsuits, healthplans can become overly conservative in the design and administration of their UR programs toavoid lawsuits.

Member Appeals

Regardless of how well designed the UR program is, there are times when certain decisions leadto disputes. To address disagreements that result from utilization review, as well as other types ofcomplaints, health plans develop and administer complaint resolution procedures for theirproviders and members. The term complaint resolution procedures (CRPs) refers to the entireprocess available to members and providers for resolving disputes with the health plan andincludes informal complaints as well as formal appeals. In Network Management in Health Plans,we discuss CRPs available to providers; these procedures address, among other things,complaints about the health plan's UR decisions. In the following paragraphs, we discuss CRPsavailable to members.

Health plans maintain complaint resolution procedures for a number of reasons, includingstatutory requirements. In addition, the CRP process

Helps build trust with members Reduces the likelihood of errors in decision making Reduces the likelihood of costly lawsuits Reduces the likelihood of negative publicity Provides information to analyze trends and improve processes

Members are encouraged to first attempt to resolve a problem by means of an informalcomplaint through a telephone call or letter to the health plan. An informal complaint can pertainto virtually anything concerning the delivery, financing, or administration of healthcare. Forinstance, a member might complain about long wait times in a provider's office, the care providedby a network physician, a bill from a provider that the member believes the health plan isobligated to pay, a confusing explanation of benefits, or problems obtaining an identificationcard.

If the informal complaint is not resolved to the member's satisfaction, the member has the right tofile a formal appeal. A formal appeal allows a member to have a dispute resolved by someone inthe health plan other than the person who made the decision or performed the service that led tothe complaint. Formal appeals follow an established process that typically allows for at least twolevels of appeal within specified timeframes. The process steps are described in the member'scertificate of coverage or are referenced in the certificate of coverage and described in a separatedocument available to members upon request. As we saw in Healthcare Managment: AnIntroduction, many health plans also issue to their members a philosophy of care, code ofconduct, or statement of member rights and responsibilities that often includes a statement aboutthe member's right to file an appeal.

States often enumerate specific appeals standards that apply to health plans. For example, somestates require that appeals of nonauthorizations be reviewed by a specialist in the same or similarfield of medicine as typically treats the condition being reviewed. At a minimum, most statesrequire health plans to

Obtain state insurance and/or health department approval of appeals processes Disclose to members their right to appeal Maintain and make available to the state all records regarding the number and nature of

member appeals Adhere to specific timeframes for reviewing and responding to appeals

An appeal of a decision that results from administrative review is sometimes called anadministrative appeal, and an appeal that addresses medical issues is sometimes called a medicalappeal. Some health plans distinguish between administrative and medical appeals, assigningeach type of appeal to a different process flow involving different personnel.

The Formal Appeals Process

The formal appeals process can be viewed as an extension of the authorization process, requiringthe health plan to further review its initial decision not to authorize payment of benefits. It isimportant for the health plan to closely monitor the appeals process to see that it is consistentlyadministered and that accurate records are kept. Figure 5A-3 shows a diagram of typicalcomplaint resolution procedures, beginning with the initial UR decision, proceeding throughinternal review (informal complaint and formal appeals), and ending with an independent externalreview. It is important to note, however, that most complaints are resolved without proceedingthrough the entire process.

Formal Appeal: Level One

A Level One appeal often goes to one of the health plan's medical directors, assuming that themedical director was not the person who made the initial decision. Members may write a letter orrequest a meeting in person to present their case. Members also have the right to name someoneelse to represent them in their appeal, provided that they document their agreement that anotherperson will be acting on their behalf. Such documentation is not required if the representativeaccompanies the member in person to an appeal meeting.

Health plans have a specified number of working days to respond to appeals, as stated bycompany policy or applicable regulatory requirements. This timeframe typically falls between 20and 60 days, but is accelerated for certain types of appeals, called expedited appeals, whichrequire a prompt decision because of the nature of the medical condition. The review periodbegins when the appeal arrives at the health plan. Some states give the health plan an additionalnumber of days (e.g., 10) if the appeal arrives without all the information needed to make adecision; in this case, the health plan must send notification of the delay to the member.

Typically, the health plan sends a letter communicating its decision to the member and/orprovider involved. If the Level One appeal overturns the original decision, then the health planinforms the member that it will pay for the service in question. If the Level One appeal upholdsthe original decision, then the health plan sends a letter that states the reason for the

nonauthorization, quotes the applicable contract provision that supports the nonauthorization, andinforms the member of additional rights to appeal.

It is important for the health plan to prepare clear, accurate, and consistent communications of itsdecisions at all levels of the appeals process. For example, if a decision not to cover a particularsurgical procedure has been upheld on appeal because of the cosmetic surgery exclusion, allletters upholding similar nonauthorizations should cite the same exclusion. Otherwise, a healthplan's decisions could be viewed in court as inconsistent and perhaps faulty.

Formal Appeal: Level Two

If the Level One appeal upholds the original decision not to authorize, then the member has theright to appeal to the next level, which is often handled by an appeals committee at the local,regional, or corporate level, depending on the health plan's organizational structure.

Typically, an appeals committee consists of representatives from various areas within the healthplan who meet regularly to consider most appeals and who also meet as needed to considerexpedited appeals. An appeals committee that handles medical reviews always includes aphysician. To avoid conflict of interest, if the committee's physician member was involved in adecision that is being appealed, then the physician is replaced by another physician within theorganization. An appeals committee might also include a nurse, an attorney, and representativesfrom areas such as customer services and health plan operations. Some appeals committees alsoinclude health plan members.

Prior to the date of the appeals meeting, the committee members receive the files for each appeal.An appeals file contains information such as the applicable contract provisions; correspondencefrom the member, customer services, UR staff, and the provider involved; and any internaldocumentation, case history notes, or information such as the health plan's medical policy or theutilization guidelines that pertain to the care under review. During the deliberation process, thecommittee might contact the member or provider for clarification or might consult with aspecialist.

Under certain circumstances a health plan may allow for an alternative level of appeal in lieu ofthe Level Two appeal. For instance, a request to precertify treatment for a life-threateningcondition might go directly to the senior medical director rather than the local or regional appealscommittee.

Health plans maintain records of all appeals and track information such as turn-around time fordecisions and the percentage of decisions that overturn the initial determination. An important useof appeals data is to identify opportunities to improve utilization, such as those listed below:

If the appeals process reveals a large number of emergency department visits for routinecare, the health plan might decide to develop or redistribute a member brochure thatexplains the authorization process for emergency department visits.

If the appeals process reveals that a particular provider consistently performs orrecommends a service excluded from the benefit plan, the health plan can supply thisprovider with additional training on plan provisions.

If the appeals process reveals that a UR staff member consistently fails to authorizepayment for a particular course of treatment that typically should be covered, the healthplan can give the staff member training.

Independent External Review

An independent external review is a review conducted by a third party that is not affiliated withthe health plan or with a providers' association, is free of conflict of interest, and has no financialstake in the outcome of the authorization decision. Typically, this step in the appeals process ismade available to members after the completion of the internal appeals process. Health plansshould seek to establish an external review system that is easy for members to use, considersappeals quickly, and produces fair decisions based on expert medical evaluation and currentmedical evidence.

Accrediting agencies, Medicare, and many states have specific requirements and standardspertaining to independent external reviews, although the standards vary. For instance, in somestates, health plans may be required to offer external reviews for all determinations of medicalnecessity, while in other states, health plans may be required to offer external reviews only forexperimental or investigational procedures.

According to a study by the Kaiser Family Foundation, most cases submitted for external reviewinvolve nonauthorizations based on questions of medical necessity and coverage limitations, anda large number involve disputes over mental health coverage, substance abuse, oncologytreatment, and pain management. This study also reports that about half of the decisions made byhealth plans have been upheld by external reviewers. 9

External appeals are often handled by independent review organizations (IROs), companies thatspecialize in reviewing healthcare disputes. These companies typically offer a number of differentservices to health plans. For example, they can

Offer advisory opinions or consultation services to health plans on utilization review Mediate disputes between health plans and members and/or physicians Render binding decisions as the final step in the formal appeals process

When considering an appeal, an IRO receives a file similar to the one described earlier in ourdiscussion of the appeals committee and might seek clarification or additional information asneeded from the health plan, the member, and/or the provider involved. IROs often employ multi-disciplinary review teams capable of handling a broad variety of both administrative and medicalissues. The IRO provides the basis for its decision in a communication it sends to all partiesinvolved in the dispute.

Accrediting Agencies

Utilization review activities are influenced by regulatory authorities and, if applicable, healthcareaccrediting agencies.

Two prominent accrediting agencies in the area of utilization review are the AmericanAccreditation HealthCare Commission/URAC (URAC) and the National Committee for QualityAssurance (NCQA). In general, URAC and NCQA take a similar approach to UR by requiringhealth plans to

Use care criteria developed with input from actively practicing providers who areknowledgeable in the field for which the criteria are being developed

Base criteria on sound, nationally recognized clinical evidence

Evaluate criteria at specified intervals, updating as necessary See that UR personnel have appropriate qualifications for the specific activities they

perform Maintain and follow specific policies and procedures for conducting UR activities

Figure 5A-4 provides examples of the types of specific issues addressed by accrediting agencies.

Regulatory Requirements

Most states that regulate UR require the entity performing UR to establish its standards with inputfrom peer advisors. Some states require UR standards to be objective, clinically valid, andcompatible with established principles of healthcare, yet adaptable enough to permit variationsfrom the normal course of treatment when justified.

A growing number of states have enacted laws requiring health plans and UROs to disclose theirutilization guidelines. In some states, utilization guidelines must be disclosed to participating

providers on demand. In other states, the information must be provided to state regulators, anddepending on the state, the information may be made public. In still other states, if the health planmakes a determination not to authorize payment for a particular service, the health plan mustdisclose to the provider and patient the specific criteria upon which the decision was based.10

Some states require entities that perform UR to disclose the clinical education of their reviewersand to document training programs. Most states with UR requirements stipulate that the educationof any reviewer who has the authority to decline payment for a course of treatment must havesome correlation to the condition being reviewed. Procedural issues addressed by state URregulations include standards for telephone accessibility, confidentiality of patient and providerinformation, and time limits for authorization and nonauthorization decisions.12

In some states, entities that perform UR must (1) be accredited by a nationally recognizedorganization such as URAC or NCQA and (2) comply with all applicable statutory requirements.In other states, the UR statutes specify that national accreditation is deemed to satisfy the state'sUR requirements. In still other states, the UR statutes give regulators the authority to acceptnational accreditation in lieu of compliance with the requirements specified in the statutes.13

Health plans that operate in more than one jurisdiction must identify all applicable requirementson a state-by-state basis and implement appropriate compliance procedures. Variations in theserequirements make implementation of UR a challenge. Health plans have also expressed concernthat the variety of regulatory requirements might force them to inconsistently apply utilizationstandards that, in the absence of such laws, would be applied uniformly in all states. Thesevariations and inconsistencies are eliminated to the extent that health plans are permitted to usenational accreditation to satisfy state requirements.

Benefit mandates can also impact a health plan's utilization review standards. For example, thefederal government and several states mandate a minimum length of stay (LOS) for maternitycare. If the required LOS exceeds the time that the health plan's UR staff would have consideredappropriate for a particular case, the health plan must cover the additional hospital stay, eventhough the health plan otherwise would have considered the additional stay not medicallynecessary.

Does UR Constitute the Practice of Medicine?

A controversial legal issue surrounding utilization review is whether UR decisions constitute thepractice of medicine. This question is critical to health plans because if legislatures, regulators, orthe courts determine that a health plan's UR activities constitute the practice of medicine, thensuch activities and the medical directors who perform them would be under the jurisdiction ofstate medical boards. In addition, health plans and medical directors would be subject to medicalmalpractice lawsuits.

Some people maintain that UR decisions are medical judgments, not benefit decisions, sincemany patients cannot afford to proceed with care unless payment is authorized. In other words, nomatter how it is defined, nonauthorization often results in treatment being withheld. Others pointout that state laws typically define the practice of medicine as the direct treatment of patients orthe direct advisement of patients concerning healthcare decisions. These people note that whenhealth plans perform UR, they evaluate the member's medical records, not the member, and thenmake a benefit payment decision, but do not offer medical care or advice. 14

To date, only two states have enacted legislation that considers UR to be the practice of medicine.Although this issue has been the subject of state medical board positions, court decisions, andattorney general opinions, a clear consensus has yet to emerge. For example, a North Carolinaattorney general opinion states that "denial of third party payment may have a direct impact upona patient's decision of whether to undergo the treatment. However, such denial does not prohibitthe patient from seeking treatment without third party benefits, and it does not prohibit theattending physician from providing the treatment.15" On the other hand, a Louisiana attorneygeneral opinion states that "the act of determining medical necessity or appropriateness ofproposed medical care so as to effect the diagnosis or treatment of a patient in Louisiana is thepractice of medicine and must be made by a physician licensed to practice medicine." 16

Health plans can take some or all of the following steps to reduce the risks associated with URand the practice of medicine:

Monitoring the legal and regulatory environment in each state where the health plan doesbusiness and revising UR protocols as needed

Developing UR training programs and protocols that emphasize the need to avoid givingthe appearance of making medical recommendations

Maintaining appropriate liability insurance for both the health plan and its physicianemployees

Strategic Issues

In this section, we examine several key strategic issues associated with UR programs: memberand provider perspectives, information management, staffing and training, coordination withother health plan functions, and evaluating UR results.

Members and Providers

When designing and implementing UR programs, health plans must objectively anddiplomatically address the unique perspectives of members and providers. The need to controlhealthcare costs is not uppermost in the minds of members when their own or a loved one'scourse of treatment is under review. In addition, members frequently object to the "bureaucraticred tape" of UR procedures, and they complain about referral or authorization delays,complicated rules, and network providers who are not familiar with the UR processes of the plansthey represent.

From the provider's perspective, the administrative demands of UR programs are often consideredtime away from the practice of medicine. Further, some healthcare practitioners view UR effortsas a negative judgment on their professional competence. Health plans must consider the impactUR programs have on the way providers interact with members and on the likelihood thatproviders will want to continue working with the health plan.

In developing a UR strategy, health plans should strive for a collaborative rather than anadversarial relationship with members and providers. A health plan can foster such a relationshipthrough

Sensible and consistent UR procedures A timely UR process A convenient UR process (i.e., one that is easy for the patient and the provider to use)

UR protocols that rely on evidence-based medicine and, when appropriate, arecustomized to local practices

An unbiased process that is based on reliable data and presented in a manner that does notjudge physicians

Procedures that foster clear communication among all parties Access to information that supports appropriate use of healthcare resources and sound

decision making Procedures that are developed with input from providers, members, and purchasers

To specifically address the needs of members, health plans must simplify UR procedures anddesign education programs that help members better understand coverage provisions. Healthplans must also focus on clearly communicating all available information about a proposedcourse of treatment, as well as the reasons for decisions not to authorize benefit payments.

To work effectively with network providers, health plans must implement procedures andeducation/communication programs that make it easier for providers to adhere to authorizationprotocols. For example, a health plan might measure, by provider, the percentage ofprecertification requests that are ultimately approved. If a provider always proposes services thatare approved, the health plan might eliminate the authorization requirement for this provider. Onthe other hand, if a provider consistently proposes courses of care that are not authorized, thehealth plan might arrange additional education on the plan's medical policies and/or benefitadministration policies for this provider.

Recognizing the importance of addressing the types of issues discussed above, some health plansare merging UR programs and case management programs, which typically involve increasedcommunication and involvement with members and providers.

Information Management

Information technology plays an increasingly important role in utilization review. Some healthplans use electronic medical records (EMRs) and health information networks (HINs) to collectand analyze medical outcomes data from the general population as well as their memberpopulations. In addition, advances in information technology enable providers to access planinformation. Providers are much more likely to comply with a health plan's utilization guidelineswhen they have online access to eligibility and coverage information, authorization systems,formulary lists, and so on.

The increasing use of eCommerce facilitates concurrent review by enabling medical directors,nurse reviewers, and providers to communicate clinical information between provider sites andthe health plan on a real-time basis. The UR nurse can meet with the hospitalized member and thetreating physician and then enter data directly into the health plan's information system. In thisway the nurse can provide up-to-the-minute clinical information about the member's conditionand obtain immediate access to the applicable UR standards and expertise available in the healthplan's information systems.

Staffing and Training

Utilization review cannot be successful unless a health plan has qualified employees in sufficientnumbers to effectively administer the program. Many health plans have UR staff (such as nursesand medical directors) available during regular business hours, with procedures in place for after-

hours or expedited requests. Some plans provide availability of UR staff 24 hours a day, everyday of the year. Health plans must also see that authorizations and appeals decisions areconducted by healthcare practitioners licensed in the same or similar medical specialty as the casethey are reviewing, and that appropriately qualified physician reviewers are available as needed.

Health plans often evaluate staffing levels by looking at the ratio of UR staff to the averagenumber of members or the average number of reviews performed. Staffing ratios also varydepending on factors such as the severity of the medical conditions generally treated and whetherUR is conducted on site or off site.

Health plans maintain training programs so that UR personnel can properly perform their duties.Training addresses issues such as application of clinical protocols, procedures for appeals,regulatory requirements, and protection of patients' rights, including confidentiality.

Coordination with Other Health Plan Functions

Utilization review is one of two functions that health plans perform to make benefit paymentdecisions; the other is claims administration. As we saw earlier in this lesson, utilization reviewfocuses on whether a service is a covered benefit and meets the health plan's guidelines formedical necessity and appropriateness. As described in lesson 1, claims administration is theprocess of receiving, reviewing, adjudicating, and processing claims for either payment or denialof payment.

Claims administration examines all of the provisions of the contract to determine whetherbenefits should be paid. For example, does the person meet the definition of an eligible employeeor dependent? Were the services performed while the person was eligible for coverage under theplan? Were the services properly authorized? Are the services included in the list of coveredservices? If the services are covered, should they be paid as a network or out-of-network benefit?Is there a copayment or coinsurance? Were the services medically necessary and appropriate? Doother exclusions apply?

A health plan's claims administration and UR departments must maintain a positive workingrelationship to function effectively. UR can assist claims administration in a number of ways. Forinstance, the UR department might specify certain types of cases that always require medicalreview prior to claims determination and other types of cases that can be processed by claimsadministration personnel according to written guidelines. Also, the UR department might provideinformation on prospective and concurrent reviews so that the claims administration departmentcan prepare for these cases and better manage the claims workload.

In most health plans, the claims administration department maintains a comprehensive databaseof information needed for processing claims. The database includes information on benefit planprovisions, coverage standards, compensation arrangements, member information, and providerutilization. Other departments in the health plan, including the UR department, contribute to thisdatabase and rely upon it for certain functions. For example, the UR department uses the claimsadministration database to identify utilization patterns through retrospective review.

The UR department must also maintain a positive working relationship with other departmentswithin the health plan such as provider relations, member services, the legal department, sales andmarketing, product development, or any other areas that communicate benefit paymentdeterminations or provisions to members or providers.

Evaluating UR Results

One way that health plans evaluate the results of UR is by determining whether UR results inreduced medical costs and/or greater consistency and quality of care and if so, how these benefitscompare to the costs of maintaining the UR function? In other words, does a financial cost/benefitanalysis justify the activity? Do the improved outcomes and reduced medical expenses outweighimplementation costs and the potential for dissatisfied members and providers who resentnonauthorizations and the inconvenience of the process?

Health plans often monitor utilization rates to determine the effectiveness of their UR programs.Utilization rates typically measure the number of services provided per 1,000 members per yearto indicate how frequently a particular service is provided. For example, a health plan maymonitor the number of inpatient hospital days or the number of referrals to specialists per 1,000members per year. These utilization rates are then examined and used to help determine overallplanning, budgeting, quality management, and medical expense management.17 If a health plannotices an increase in hospital days, it may decide to precertify all or a greater number ofinpatient hospital admissions. If a health plan notices that its specialty referral rate has beensteadily increasing since contracting with a new PCP medical group, it may improve theeducation programs or UR procedures it uses with this group.

In addition to utilization rates, there are a number of other indicators that health plans mayconsider to evaluate the effectiveness of their UR programs, such as

Changes in the total amount of medical expenses or claim dollars paid for particularprocedures

Outcomes and other quality measures Number of appeals Number of complaints overturned by the formal appeals process and/or by external

review Member and provider responses to satisfaction survey questions pertaining to the UR

process

Health plans also evaluate UR programs to adjust their medical management strategies andactivities. After studying UR results, a health plan may decide to shift its focus from inpatient tooutpatient reviews or to tighten authorization procedures for one course of treatment and loosenprocedures for another. UR results may also affect other medical management programs. Forexample, a UR manager might review a summary report-showing items such as diagnosis andtype of care-and identify an increase in hospital admissions for complications of pregnancy,which in turn might lead the health plan to institute a disease management program related toprenatal care or a case management program targeted at high-risk pregnancies.18

Conclusion

Although utilization review is a common component of health plan medical managementprograms, individual health plans vary greatly in the extent to which they use UR and the specificUR processes that they implement. In addition, the overall use of UR in the health plan industryhas fluctuated in recent years. Some health plans are beginning to turn UR responsibility over toprovider groups; others are experimenting with more aggressive healthcare resource evaluationtechniques. As the healthcare industry changes to meet new member, provider, purchaser, andenvironmental demands, utilization review is likely to change as well.

Endnotes

1. Walter A. Zelman and Robert A. Berenson, The Health Plan Blues and How to CureThem (Washington, DC: Georgetown University Press, 1998), 41-42.

2. John E. Wennberg, "Variations in Medical Practice and Hospital Costs," in Quality inHealthcare: Theory, Application, and Evolution, ed. Nancy O. Graham (Gaithersburg,MD: Aspen Publishers, Inc., 1995), 52.

3. Scott Falk and Kip Betz, with Martha Kessler, "United HealthCare Replacing ObsoletePreauthorization with Provider Profiling," BNA's Health Plan Reporter 5, no. 45: 1087.

4. Ibid., 10875. Raymond J. Fabius, M.D., A Physician Executive's Guide to Patient Management for the

'90s and Beyond (Tampa: FL: American College of Physician Executives, 1995), 2, 17.6. Faulkner & Gray's Healthcare Information Center, "Policymakers Grapple with

Foundations of Process for Coverage Decision, Appeals," Medicine and HealthPerspectives, ed. Robert Cunningham (3 May 1999): 3.

7. Eleanor Mayfield, "Streamlining Referrals," Healthplan (May/June 1997): 17.8. Academy for Healthcare Management, Health Plans: Governance and Regulation

(Washington, DC: Academy for Healthcare Management, 1999), 12-4-12-5.9. Jill Wechsler, "External Appeals Please Patients at a Low Cost," Managed Healthcare

(January 1999): 8.10. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,

ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,1996), 3-29-3-30.

11. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,1996), 3-22-3-23, 3-30-3-33.

12. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,1996), 3-14-3-15.

13. Ibid., 3-14--3-1514. Ibid., 3-1715. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,

ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown & Company,1996), 3-17.

16. LA Att'y Gen. Op. No. 98-491, 1998.17. Marianne F. Fazen, St. Anthony's Health Plan Desk Reference, 1996-97 ed. (Reston, VA:

St. Anthony Publishing, Inc., 1996), 300.18. Catherine M. Mullahy, The Case Manager's Handbook, (Gaithersburg, MD: Aspen

Publishers, Inc. 1995), 194.

AHM Medical Management: Case ManagementObjectives

After completing the lesson Case Management, you should be able to:

Describe a variety of case management activities Explain the steps of the case management process Identify several strategic issues that may affect the development and improvement of case

management programs

Discuss the impact of legal issues, regulations, and accrediting agencies on case managementfunctions

Introduction

Although most of the medical management issues discussed so far in this text relate to patientpopulations, medical management can also be used to maintain the quality and cost-effectivenessof care delivered to individual plan members. This is especially true in case managementprograms. Case management is used for two basic reasons. First, in almost any population, asmall number of individuals will incur the most serious health problems as well as adisproportionately large percentage of total healthcare expenses. Second, for individuals withcertain types of conditions, evidence increasingly points to the effectiveness and value ofcoordinated, multidisciplinary care. Case management seeks to identify individuals with theseconditions and dedicate resources to managing their care.

In this lesson we examine the purpose and role of case management, and then we describe thecase management process. We discuss case management strategies and how case managementprograms are evaluated. We conclude with a discussion of regulatory and accreditation issues.

As we saw in the lesson The Role of Medical Management in a health plan, "case management isa collaborative process that assesses, plans, implements, coordinates, monitors and evaluatesoptions and services to meet an individual's health needs through communication and availableresources to promote quality, cost-effective outcomes." 1 Health plans may use case managementto

Improve overall health status for members who receive case management services Prevent complications and deterioration of condition for members Optimize use of limited healthcare resources Improve cost management Improve member compliance with provider recommendations for care

The case management process is directed by a case manager whose goal is to oversee the timelycoordination of healthcare services in a cost-effective manner and in a way that meets thehealthcare and quality of life needs of the individual member. The case manager facilitatescommunications and activities among all participants in the case management process andreduces the fragmentation of care that often results when individuals obtain services from severaldifferent providers. Serving as a liaison between the member, the member's family, the healthplan, healthcare providers, purchasers, and community-based resources, the case manageraddresses the member's ongoing needs by providing continuity across a continuum of care. A keyelement of case management is that it fosters individualized interventions with a focus on

objectively informing and educating members, families, and providers about the casemanagement process, healthcare options, healthcare coverage, cost factors, community resources,and all relevant issues that might help participants make informed decisions.

Although case managers play a central role in care coordination and often make importantrecommendations regarding care, the physician in charge of the patient must approve all caredecisions. Other providers involved in the patient's care, the health plan's medical director, and asocial worker may also be part of the case management team.

Over the years, the individuals conducting case management have been nurses, social workers,occupational therapists, rehabilitation counselors, participants in self-managed multidisciplinaryteams, physicians, and specialists in fields such as behavioral healthcare, pharmacy, and healtheducation. Insight 6A-1 provides a brief history of the development of case management in theUnited States.

The Case Management Landscape

A health plan can conduct its own case management or obtain case management services fromone or more of the following outside sources:

Other health plans Third party administrators Providers Companies that specialize in case management in conjunction with other medical

management services, such as utilization review Independent case managers

Many healthcare providers such as hospitals, rehabilitation facilities, home healthcare agencies,and infusion care companies use case management to improve outcomes and more effectivelymanage medical resources. Some healthcare facilities have their own case management

departments with which a health plan's case managers interact. These departments are influentialin assisting physicians in discharge planning and implementation.

The Scope of Case Management

Case management incorporates aspects of various medical management programs, such as qualityimprovement, utilization review, preventive care, self-care, member decision support systems,and disease management. It also incorporates activities that may not be a responsibility of thehealth plan, but that clearly influence a member's situation and response to care. These activitiesinclude

Assessing a member's financial situation Providing or arranging for motivational support for members and their families Providing or arranging for vocational counseling Negotiating the timing and circumstances of a member's return to work Arranging for community and social services

By offering these value-added services, which might exceed the member's usual expectations of ahealth plan company, case management has the potential to increase customer satisfaction.

Case management and utilization review are similar in some respects, and in recent years, theboundary between the two activities has become less distinct. However, case managementgenerally requires a more comprehensive and complex approach to a course of care than doesUR. For example, UR is used primarily to determine medical necessity, and UR often appliespreestablished criteria to evaluate medical necessity against a norm. Case management, on theother hand, consists of additional activities, such as advising members about how to optimizetheir healthcare benefit program, contacting members to make sure they follow the prescribedcourse of care, arranging for psychological counseling for members or their families, and so on.Because case management typically requires more coordinating, arranging, facilitating, andnegotiating of care, the case manager is in a better position to uncover medical issues thatotherwise might have gone unnoticed. For instance, if a member is taking medications prescribedby two or more providers or if the case manager is aware of an over-the-counter medication thatthe member is taking in addition to a prescription drug, the case manager would point out thepotential for an adverse drug interaction.

For patients with chronic conditions, case management also includes a disease managementcomponent. A health plan's disease management program may identify members who areappropriate for case management, such as members who have other medical problems in additionto a chronic condition.

In the past, case management was concerned primarily with individuals whose medical conditionswere categorized as catastrophic-in terms of health and/or cost. Invariably, these cases involvedhospital inpatient confinements. Over time, however, case management has been applied to othertypes of medical conditions, such as chronic conditions that are not necessarily catastrophic, butthat might benefit from the customized nature of case management. For instance, if a member isnot adhering to the treatment plan or would benefit from an increased focus on support andeducation, then case management might be justified. In addition, case management is morefrequently used for individuals who suffer from multiple medical conditions. When casemanagement is used in these situations, hospitalizations may be avoided and patient care may bebetter managed over the long term. As a result, case management has evolved to become an

increasingly collaborative process designed to meet a variety of healthcare needs across all caresettings, not just high-cost conditions that require inpatient hospital stays.

Case management seeks to manage a complete episode of care from the initial encounter with aprovider through specialty care, hospital inpatient stays, and follow-up care in step-down units,skilled nursing facilities, or the member's home. Risk assessments are conducted to identifypotential problems and begin case management before hospitalization is necessary and majorexpenses are incurred. For example, health plans use case management for elderly members andfor members who are suffering from chronic conditions (such as back pain) or degenerativeneuromuscular diseases (such as multiple sclerosis).

The Needs of Members and Their Families

Case management seeks to address a variety of member needs across the continuum of care andto actively involve the member and the member's family in the case management process byproviding recommendations, information, and resources in any of four different areas: medical,financial, psychosocial, and vocational.

Medical Needs

A case manager spends a substantial portion of time on activities associated with obtaining themost effective and appropriate medical care for the member. Typically, a case manager contactsthe member and the treating physician to learn about the medical condition, then suggestsalternative care options, if applicable. When appropriate, the case manager also recommendsadditional services that may result in better overall clinical or financial outcomes. The casemanager's primary goal is to find the most appropriate medical resources for providing optimalcare and promoting the best possible outcome for the patient. For example, a case manager might

Identify care options and communicate them to members, family, and the medical team Refer members to appropriate healthcare providers when necessary, such as a center of

excellence for a patient in need of a transplant Work with members to make sure they understand and adhere to the courses of care

prescribed by their physicians Monitor home care by re-evaluating equipment and making sure supplies are replenished Provide health education for members and/or family Inform members about community-based health education programs or programs

sponsored by the health plan

Financial Needs

Case managers match healthcare needs with benefits available under the plan. They explainauthorization procedures, examine the proposed course of care, determine the member's out-of-pocket costs, and discuss alternatives that might lower costs and/or improve quality. For example,a case manager might suggest that a member move from an inpatient setting to the home. Such amove often reduces the total healthcare bill, while obtaining clinical and psychosocial benefits,such as reduced risk of hospital-acquired infection and a greater comfort level for the member.

If the covered benefits do not match the member's needs, the case manager conducts apreliminary review of the member's financial situation, considering both financial obligations(e.g., housing, utility, and food bills, and out-of-pocket medical expenses) and sources of income

(e.g., salary, sick pay, short- and long-term disability coverage, and government benefits). Basedon this review, the case manager might refer the member to his or her employer's humanresources department or might locate appropriate community-based resources or governmentprograms.

If the member requires assistance with healthcare expenses, the case manager typically plays amore active role. The case manager serves as a liaison between the member, the health plan, andproviders, facilitating plan administration and addressing problems that may arise.

Case managers also look outside the health plan to pursue methods of payment or ways to obtainneeded equipment or services at a lower cost. Case managers may negotiate discounts fromhealthcare suppliers or find community resources that will provide the needed items or services atlow or no cost. For example, the case manager may arrange for the delivery of meals to a disabledmember.

Psychosocial Needs

Case managers work with members and families to develop realistic expectations about theprogression of medical conditions and the expected outcomes of treatment plans, and to establisheffective coping strategies. It is common for a patient with a serious illness or injury to be anxiousabout the uncertainty of the ultimate prognosis or despondent about the impact that the medicalcondition is having on daily living. Case managers must distinguish between clinical depression-which may require psychotherapy and/or medication-and common mood symptoms oftenassociated with illness or injury. In many cases, patients will benefit from referrals to resourcesoutside the health plan such as self-help groups, disease-specific community-based organizations,or local clergy. In addressing the member's psychosocial needs, case managers

Refer members to healthcare professionals to help them manage depression or othernegative feelings associated with the illness or injury

Arrange counseling in areas of marital discord, role reversal, dependency, and sexualproblems that might arise because of the medical condition

Help the family better cope with their emotions about their loved one's medical conditionand more effectively provide support6

Vocational Needs

As we discuss in later lessons, a member's vocational needs are an integral part of workers'compensation plans, and workers' compensation case managers spend considerable amounts oftime on vocational rehabilitation and training. If a member's medical condition results from anaccident or illness that is not work related, then the case manager in a non-workers' compensationplan is also likely to conduct at least a preliminary review of a member's vocational needs as partof the case management process. For example, the case manager might refer the member tocommunity-based counseling or job rehabilitation services.

In most instances, case managers do not focus on vocational needs because job-training activitiesare not covered under most commercial health plans. However, some health plans offer productsthat combine features of health plans and disability plans. Coordinated by case managers, thesecombination plans emphasize returning employees to work. Also, some self-funded employersare willing to invest additional case management resources in rehabilitation services to returntheir employees to work as soon as possible.

The Case Management Process

The case management process follows five basic steps: (1) case identification, (2) assessment, (3)planning, (4) implementation/monitoring, and (5) evaluation. In reality, these steps frequentlyoverlap. For instance, when health plans identify a member for case management, they may alsobegin assessing risk factors and planning a course of care. Or as case managers implement andmonitor plans, they also begin evaluating the results. In addition, case management is an iterativeprocess. The case manager is constantly assessing, planning, implementing, monitoring, andevaluating the member's condition and the course of care as circumstances change. Figure 6A-1summarizes the basic steps in the case management process and the activities performed at eachstep.

Case Identification

Case identification is a process that determines which members may be appropriate candidatesfor case management. To identify members for referral to case management, health plansexamine a combination of factors, such as medical condition or diagnosis, type of treatment beinggiven, level of resource utilization, and cost of healthcare. The utilization review processproduces the greatest number of case management referrals. However, health plans also rely upona number of other referral sources, such as network providers, institutional discharge planners,employers, member services staff, disease management staff, and plan members. Additional dataabout potential candidates for case management comes from pharmacy and laboratory reports,claims reports and computer-based risk assessment models.

To screen large member populations and determine individuals whose outcomes might bepositively influenced by case management, health plans conduct health status assessments bymail or telephone. Health plans also inform network providers about the services and advantagesof the case management program and encourage these providers to recommend case managementwhen appropriate. Some health plans review claims reports or conduct claims system queries toidentify patients whose diagnoses or use of prescription medications indicate a potential need forcase management. Claims system queries can also determine when members reach specifiedtrigger points such as a certain length of hospital stay or total claims dollars incurred within agiven period of time.

Health plans also use computer-based health status assessment models designed to screen theirmember populations for individuals who may be candidates for case management. A health plancan collect encounter-based diagnoses from office visits, urgent care, emergency room visits, andinpatient hospital stays, and classify diagnoses according to (1) clinical attributes such as causeand severity of the condition and (2) the most likely course of care. With this information, thehealth plan can predict with some degree of certainty which diagnoses have a relatively highexpense risk compared to others and which are likely to have better outcomes with casemanagement.

In addition, disease management programs may stratify patients according to the severity of theirconditions. Members who meet specified clinical criteria are assigned a case manager. Thepurpose of proactively identifying the need for case management is to begin treatment at an earlyenough stage in the disease to halt or slow disease progression and thus reduce the need for majormedical interventions.

Because the largest referral source for case management is the utilization review process, theinteraction between UR and case management is critical. In some health plans, utilization reviewnurses and case managers routinely review case histories and collaborate to identify memberswho might benefit from case management. In other health plans, UR nurses simply refer membersto case management. Sometimes, case managers review UR files to identify appropriatecandidates for case management, consulting with UR staff to obtain additional information asneeded.

Nurse reviewers often identify case management candidates based on diagnostic codes, type oftreatment being provided, other existing health problems, utilization data, or total medicalexpenses incurred. Indicators such as those listed below may help identify members who wouldbenefit from case management:

Catastrophic illness or injury such as premature birth, AIDS, stroke, head or spinal cordinjury, severe burns

Multiple hospital admissions in a short period of time, e.g., three or more admissionswithin a six-month period

Extensive utilization of services A member who has incurred a specified amount of medical expenses within a given

period of time A variety of practitioners consulted on a seemingly straightforward case Extension of a course of care or early release from a seemingly appropriate level of care

However, objective indicators like the ones listed above do not always lead to case management.Consider two members who have incurred high amounts of healthcare expenses. A closer lookmight reveal that the first member obtained successful major surgery with no post-operativecomplications and an excellent prognosis. The second member may have incurred the sameamount of expenses through a variety of healthcare encounters that when examined togetherindicate a serious underlying problem that is likely to result in a catastrophic illness. Even thoughcomparable claim amounts have been paid, the latter member would probably be selected for casemanagement, while the former would not.

Also, a seemingly straightforward diagnosis-which might not at first seem to justify casemanagement in terms of severity, complexity, or cost-sometimes leads to case managementbecause of a combination of factors. For example, a diagnosis of cellulitis, an inflammation ofconnective tissue, might not raise any red flags. However, upon closer examination, the nursereviewer might discover that this member has had diabetes mellitus for 15 years, is a heavysmoker, and underwent coronary artery bypass graft surgery three years earlier. Because of theseadditional factors, the member might be at high risk of amputation and therefore be referred tocase management, even though the initial diagnosis would not have led to this decision.

Assessment

Case assessment refers to the collection and evaluation of medical, financial, social, andpsychosocial information about a member's situation. After case identification, the case managercontacts the member and the member's family, the treating physician, and, if applicable, thehealthcare facility where the member is confined. The initial contact, often made by telephone, isto explain the case management process and to begin the initial needs assessment. An initialneeds assessment is an information gathering and reporting activity conducted by the casemanager to provide an understanding of the patient's condition.

Among other things, the initial needs assessment indicates whether or not a member wouldbenefit from case management or perhaps from a less comprehensive medical managementinitiative, such as healthcare education. Invariably, the case identification process identifies somecases that are not appropriate for case management. For example, after an initial needsassessment, a heart-attack patient, identified as high risk based on his age and history of coronaryartery disease, might be found to be without symptoms, fully informed of his condition,practicing recommended preventive and self-care, and regularly visiting his physician. Acomprehensive case management plan would not add much value for this member, who wouldprobably benefit as much from a simple referral to a cardiac exercise program.7

Before beginning the initial needs assessment, the case manager obtains consent to proceed withthe case management process from the member or, if the member's condition prevents this, from

the appropriate relative. When the initial needs assessment confirms the potential value of casemanagement, the case manager proceeds with a thorough assessment of the member's situation,obtaining information from a variety of sources, such as the member, the member's family,healthcare practitioners, health plan reference material, and general resources. The case managergathers information about the medical diagnosis, prognosis, past and present treatment, proposedcourse of care, short- and long-term goals, and available provider options.

The case manager also assesses the member's medical history, background, skills, attitude,support network, home environment, and so forth to determine the need to resolve potentialproblems or to leverage favorable circumstances. The following examples illustrate some of thefactors considered by the case manager:

If the member has been receiving treatment for several years for a condition that hasshown no significant signs of improvement, the case manager, in conjunction with thephysician, would investigate the reasons.

If the member is not compliant with the planned course of care, the case manager wouldtry to determine the cause.

The case manager notes the level of interest displayed by the member's family inproviding assistance and support.

If home care is being considered, the case manager helps determine whether medicaltreatment can be provided effectively and safely and whether the patient is cognitivelyready for such a move; also, the case manager makes sure that a physical assessment ofthe home is completed to address architectural barriers.

Planning

The case management plan establishes goals for the member's short-term, intermediate, long-term, and ongoing needs. These goals focus on obtaining optimal medical outcomes, appropriateutilization of resources, and quality-of-life improvements. For each goal, the case managementplan identifies accountable individuals and describes how needed services and supplies will beprocured and coordinated. In addition, where appropriate, the plan identifies potential barriers toattainment of the stated goals and ways to overcome them.8

Typically, the case manager works with the treating physician(s) to explain to the member and thefamily all available healthcare options. An important aspect of case management is to empowermembers, enabling them to be active participants in the decision-making process. Anotherimportant function is to determine if any other healthcare professionals might add value to themember's care. For instance, the case manager or physician might consult a pharmacist who hasexperience with a particular condition to obtain recommendations for possible pharmaceuticalalternatives to an invasive and costly surgical procedure.9

Once the case manager, physician(s), member, and family agree upon the plan, the case managerprepares an initial report to describe it. This report also incorporates information gathered duringthe case identification and assessment steps. The case management plan also includes the casemanager's assessment of whether needed services are covered benefits and the value of bothcovered and noncovered services listed in the plan. We describe case management reporting inmore detail later in this lesson.

Implementation/Monitoring

Once there is agreement on the proposed course of care, the case manager is ready to beginimplementing the plan. The main features of implementation are coordination and monitoring. Bycoordinating and monitoring activities, the case manager can facilitate timely care in the mostappropriate setting, while avoiding unnecessary or duplicative services. Monitoring activities mayinclude concurrent UR if a member is an inpatient at a hospital or other healthcare facility.

The case manager notifies the involved healthcare providers, healthcare resources, andcommunity-based resources, as well as the member and the member's family to initiate the casemanagement plan. For example, if the member is scheduled to receive home healthcare afterbeing discharged from the hospital, the case manager informs the member and the member'sfamily and makes the appropriate arrangements with the hospital and the home healthcare agencyin advance. As the discharge date approaches, the case manager follows up with all involvedparties to make sure the care is available when the member arrives home. In this way the casemanager facilitates referrals and the transfer of care among various providers.

Throughout the course of treatment, the case manager monitors and documents the member'sprogress to determine if the stated goals are being achieved and to confirm that the original goalsremain appropriate. The case manager maintains rapport and communication with the memberand providers to address plateaus, improvements, relapses, and depressions. Unexpected eventsare immediately addressed. As the patient's condition evolves, new measures of care may beneeded and the care plan may require adjustments or even redevelopment. Consequently, the casemanager periodically reexamines the advantages, disadvantages, and costs of different options.The case manager should also investigate any new treatments that might prove beneficial to amember's condition.

To help determine when and what types of modifications may be necessary, the case managerasks questions such as

How well is the treatment working? Does the member's disease course align with the expected course for this disease? What, if any, complications have developed? How is the family coping? Does the caregiver need a rest?

How frequently the case manager reviews the course of care and the member's progress dependson the medical condition.

As a case progresses, the case manager follows up to make sure the member is adhering to thecourse of care prescribed by the physician and that there are no unintended consequences. If theoutcome is uncertain or the member's condition seriously deteriorates, the case manager increasesattention to the psychological and emotional needs of the member and immediate family.

Evaluation

Ultimately, the case management team determines when to release the member from casemanagement, by evaluating whether

The desired treatment goals have been met Case management services would no longer have an appreciable impact on outcomes

Obviously, the services provided by the case manager to the member and family also end if thepatient dies or is no longer eligible for case management coverage. Regardless of the reason, aftercase management ends, the case manager performs a final evaluation of the overall effectivenessof the case management services that were provided. The evaluation of case management for aparticular member focuses primarily on the effect of the case management services on qualityissues (such as healthcare quality, member and family satisfaction, and continuity of care) andcosts. The evaluation report usually includes the following elements:

A brief summary of the reason for case management of the member A summary of the case management and medical services rendered Actual charges incurred for the care and the case management services Cost savings that resulted from the case management (e.g., reduced utilization of

services, products, equipment, and facilities during the episode of care, and negotiateddiscounts with healthcare providers)

Reason for release of the patient from case management (e.g., improved medicalcondition, case management no longer adds value to care, death of patient)

The evaluation report may also include cost savings that are expected to result from the avoidanceof potential charges in the future. For example, suppose that the case management plan provideddisease management education for a patient with a chronic condition. If the education enables thepatient to better manage the condition, the patient will be less likely to require emergency care orhospitalization for the condition in the future. However, future cost savings are difficult toaccurately predict, and some health plans may not consider these savings in their evaluation ofcase management.

Aside from the cost/benefit analysis, the evaluation of case management services might alsoconsider the extent to which the goals developed during the planning step were met duringimplementation. Another area of evaluation may be to determine how closely the treatment planadhered to clinical practice guidelines (CPGs).

Case Management Reports

An essential aspect of case management is the documentation of pertinent information andpreparation of reports, starting with the case identification step and continuing throughassessment, planning, implementation/monitoring, and final evaluation, which concludes with afinal report. For example, a report prepared after the initial assessment step would contain basicinformation such as the member's name, the date of occurrence, and the name of the treatingphysician, as well as detailed information about the member's condition and current course ofcare. After the planning step, the case manager would add information about the recommendedcourse of care and would specify the goals of the case management plan.

Depending on the circumstances, a case manager might be called upon to prepare a variety ofreports for different audiences. Reports might be used to keep the treating physician, health plan,and purchaser apprised of activities coordinated by the case manager. Because of the variedinterests and backgrounds of each of these parties, the reports would likely vary. For instance, areport intended for a physician would contain much more clinical detail than a report intended fora purchaser. A report intended for a health plan or purchaser would focus on the value added bythe case management services. In other words, what difference did case management make interms of clinical outcomes, member satisfaction, coordination of care, or cost savings?

Strategies for Successful Case Management

To operate a successful case management program, a health plan must address several importantstrategic issues, which we examine in this section.

In-House Case Management versus Delegation

Some health plans have the knowledge, experience, and resources to develop and administer theirown case management programs. Others obtain case management services from external entities,either as a stand-alone product or as part of a package of medical management components (e.g.,case management plus utilization review and disease management). In some instances, externalcase management companies offer specialized programs such as care for high-risk pregnancies,cancer, Alzheimer's disease, stroke, AIDS, severe burns, mental illness, or substance abuse.Health plans may determine that it is quicker, easier, or more effective to delegate casemanagement functions than to develop and maintain such capabilities on their own.

Integrating Case Management with Other Health Plan Functions

Case management improves considerably when integrated with other functions in the health plan.We have already seen how utilization review is used to identify candidates for case management.Member services and disease management programs can play a similar role. In addition, theprovider relations area can help obtain the cooperation of providers. By communicating details oftreatment plans to the claims administration department, case management can support theprompt, accurate handling of a member's claims payments. For example, communication betweenthe case management function and the claims administration department can see that anynegotiated savings are properly recorded and applied during claims processing. Health plans seekto establish procedures and lines of communication that take full advantage of these types ofopportunities. 10

Staffing and Training

The scope and complexity of case management is challenging, to say the least. To performeffectively, a case manager must be knowledgeable in a number of different domains. Forexample, a case manager must be familiar with:

Medical conditions and interventions to be able to evaluate treatment plans and makeinformed and creative recommendations

Psychosocial, benefit funding, vocational, and community resource issues Benefit plans and how benefits are paid to providers or members Legal, regulatory, and ethical issues associated with case management Utilization review processes and techniques

Further, a case manager must possess numerous skills such as

Research and analytical skills to obtain information from a variety of sources and toidentify optimum courses of care

Interpersonal and verbal communication skills to collaborate with and gain the trust ofpatients, families, healthcare providers, medical suppliers, payors, purchasers, andcommunity resources

Project management skills to expedite delivery of a variety of services and to identify andresolve treatment gaps that may arise

Writing skills to provide clear and complete documentation of all pertinent information Computer skills to facilitate case identification, assessment analysis, and documentation

Many health plans hire nurses as case managers because of the obvious advantages of a medicalbackground for monitoring medical conditions, providing health education and instruction, andplanning care with treating physicians. Often, health plans look for nurses with a background incoordinating rather than administering care. To supplement a nurse's clinical background, theseorganizations provide additional training and job experiences that help develop essentialnonclinical capabilities, such as benefit plan knowledge and familiarity with community-basedresources.

Some health plans hire social workers as case managers, particularly if the people who rely upontheir services tend to have socially or economically complex situations that would benefit frompsychosocial care and access to community-based support. These organizations then provide theircase managers with training and job experiences that help develop the medical and benefit planknowledge essential to effective case management. 11

A team approach to case management can incorporate the skills of a nurse with the skills of asocial worker, physicians, and other providers. Through periodic conferences, the casemanagement team can share their experience and ideas.

To support the quality of case management, a growing number of health plans rely upon casemanagement certification-a process similar to, though not as formalized as, the credentialingprocess for network providers-in which health plans obtain, review, and verify the credentials ofprospective case managers. Health plans establish specific criteria with regard to certification,educational background, training, experience, and other qualifications and then use these criteriaas the standard for case management hiring decisions. Figure 6A-2 lists the certification standardsdeveloped by the Case Management Society of America (CMSA), a non-profit society of casemanagement professionals.

CMSA supports the individual and collective professional development of case management.CMSA's Standards of Practice for Case Management provides formal, nationally recognizedstandards and guidelines for the practice of case management. For example, CMSA defines thecase manager's responsibilities in the roles of assessor, planner, facilitator, and patient advocate.12

A division of CMSA, the Center for Case Management Accountability, establishes evidence-based standards of practice through the measurement, evaluation, and reporting of medicaloutcomes. CMSA also maintains a peer-reviewed Ethics Statement on Case Management fromwhich case managers can apply ethical principles to the practice of case management.

Similar to other types of medical management functions, the appropriate level of staffing for casemanagement depends on the members and the nature of their medical conditions. For example,compared to commercial groups, Medicare and Medicaid populations usually require a higherratio of case managers to members.

Another way to look at health plan staffing levels is by workload per case manager. For example,an entity whose cases tend to be extremely complex might consider an optimum workload to besignificantly lower than other entities that provide case management services.

Other factors that determine staffing levels include

Scope of the case management services that are provided Amount of case management services rendered by hospitals, or other providers Expectations of the purchaser

Telephonic versus On-site Case Management

Health plans must determine whether and under what circumstances case management will beconducted off site. Often, due to logistics, time constraints, and cost considerations, health planschoose to conduct case management without traveling to meet face-to-face with the patient andprovider. This off-site process, commonly called telephonic case management, relies uponeffective use of telecommunications and information management technology, such astelephones, fax machines, electronic mail, and computers.

Telephonic case management can be particularly effective for monitoring wellness, preventive, orfollow-up care. For example, if a member is in critical condition, the case manager may beginmonitoring the situation by making on-site visits, but later, when the member's conditionimproves, the case manager may decide that off-site monitoring works just as well.

Some health plans elect to perform most of their case management on site. According to theseorganizations, certain situations require face-to-face visits, particularly those that are morecomplex or catastrophic or that involve members who are likely to ignore or forget self-careinstructions. These health plans value the effectiveness of first-hand observations. For example,by visiting the member rather than merely placing a phone call, the case manager is much morelikely to learn that the member is not taking prescribed medications. Any savings inadministrative expenses that might have been realized by not meeting with the member wouldhave soon disappeared if, because of failure to take the prescribed medications, the member'scondition deteriorated and required additional care.

Health plans also rely upon on-site case management when they run into difficulties obtaininginformation from members, their families, or providers. For instance, a member who does notrespond particularly well to requests for information over the telephone might be more likely toprovide important information when the case manager meets with the member in person. Whenan on-site visit is not possible, the case manager may consult with the caregivers at the healthcarefacility or with home healthcare personnel to obtain additional information.

Both types of case management have advantages and disadvantages, depending on the particularneeds and circumstances of a health plan. As you might expect, each health plan tailors its use oftelephonic and on-site case management to its organizational objectives (including costconsiderations), to its capabilities, and to the nature of its member population. In addition, ahealth plan might base its approach on the preference of the group purchaser.

Information Management Systems

Information management systems are a critical element in the design and operation of casemanagement programs. For example, health plans may develop or purchase software thatintegrates a variety of demographic, clinical, claims, and outcomes data from various locationsthroughout the healthcare delivery system to produce individual profiles. Based on these profiles,a health plan can determine which members are most at risk for major clinical episodes, increasedutilization, or significant medical expenses. Similarly, health plans may use software programs toidentify appropriate medical interventions and to help determine those that produce the bestoutcomes.

When case managers use computers for real-time access to information, they can share clinical,referral, and billing data with various members of the case management team, providing moretimely and accurate services. New medical and telecommunications technologies make it possiblefor case managers to conduct off-site, virtual interviews or examinations and monitor theconditions of chronically ill members who are receiving home care. Once they obtain thisinformation, case managers can analyze and interpret the data, compare outcomes for differenttreatment plans, communicate information to providers, and continue to observe the member'sprogress. Case managers may also take advantage of Internet technology by providing memberswith a list of Internet websites that provide accurate, useful healthcare information.

Risk Management

Case management is a highly visible function that often deals with individuals who are seriouslyill and who, along with their families, can be very emotional. Consequently, case managementactivities are exposed to the risks of negative healthcare outcomes, member dissatisfaction, badpublicity, and lawsuits. In this section, we examine methods that are used to reduce these risks.

Documentation

By documenting all pertinent research, analysis, discussions, and decisions, a case manager isbetter able to understand the member's situation and make appropriate recommendations. Also, inthe event of a complaint or lawsuit, a comprehensive case management file can be used to supportthe health plan's position. For example, if the case management plan calls for discharge from thehospital, the file should include written documentation that the case manager or a qualifiedhealthcare professional conducted an assessment of the risk of discharge using complete medicalinformation and valid review criteria. 13

The case manager should also document any complaints from the member, the member's family,or healthcare practitioners and indicate the steps taken to address the complaints. Alldocumentation should be objective and professional, avoiding any subjective conclusions,speculation, or personal opinions, and should recognize the possibility that the documents mightbe examined by a state insurance department or in a court of law. 14

Confidentiality and Disclosure Policies

Health plans develop confidentiality and disclosure policies and procedures to protect the privacyof patients and to avoid regulatory and legal risks. For example, many health plans have a policythat requires the case manager to obtain the patient's signature (or the signature of a familymember) on a standard consent authorization form before developing a case management plan orbefore implementing a specific action as a result of the plan. A consent authorization form is adocument that provides for the release of information to the case manager and gives the casemanager permission to review case information with the healthcare practitioners and otherapplicable parties. This form usually includes a provision that the case manager will not shareconfidential information inappropriately. By obtaining a signed consent authorization form, thecase manager avoids having to obtain the patient's (or a family member's) signature each timethere is a need to obtain or share information. 15

Having a signed consent authorization form may protect the health plan from allegations ofinvasion of privacy. The use of this form is also consistent with accrediting agency requirementsthat health plans maintain confidentiality about medical care and protect a patient's right toprivacy.

Early Intervention

One way that health plans may reduce the risk of poor medical outcomes and dissatisfaction frommembers, families, and providers is through early case management intervention. When casemanagement begins in the early stages of a medical condition, it is more often perceived asevidence of the health plan's concern for the member's welfare. If, on the other hand, casemanagement does not begin until after the member has incurred substantial medical expenses, itis more likely to be viewed as a tool to cut costs rather than improve outcomes.16

Appropriate Oversight of Delegated Case Management

When health plans delegate case management services, they should follow certain procedures toreduce the risk of legal liability. First, they should use a careful selection process that includes athorough review of the potential delegate's procedures, personnel, and history. Once the delegatehas been selected, the health plan should continue to monitor case management activities becausethe health plan remains accountable for the case management process. Finally, a health plan mayreduce its risk by making sure that all of its plan documents clearly communicate to members,providers, and purchasers that the case management delegate is a separate, independentorganization and not a part of the health plan.

Evaluating Case Management Programs

In addition to evaluating case management activities for individual members, a health plan alsoexamines its case management program as a whole. By evaluating the entire program, a healthplan can

Determine the overall impact of case management on quality and cost-effectiveness Identify opportunities for program improvement Support efforts to convince providers and purchasers of the benefits of case management Justify the continued operation of the programs

When performing these large-scale evaluations, health plans focus on the same types of issuesaddressed in the evaluation of specific case management plans: overall clinical outcomes,utilization management results, financial results, and member and provider satisfaction levels.Some organizations conduct internal audits of their case management programs. In addition,health plans establish specific performance measures such as those described below.

Clinical Outcomes

Health plans sometimes examine measures associated with specific medical conditions to helpgauge the impact of their case management programs. For example, a health plan could measurethe level of functional improvement among spinal cord injury patients enrolled in the casemanagement program. Also, a health plan could measure the length of survival after diagnosisamong AIDS patients receiving case management services.

Utilization Management and Financial Results

Health plans examine hospital days per member per month, average length of hospital stays,emergency department utilization, and medical expenses per member per month to helpdetermine the impact of their case management programs on healthcare services utilized and thecost of those services.

Health plans often document the effects of their case management programs through cost-benefitanalysis. These studies, typically prepared on a monthly, quarterly, and/or yearly basis, establish atarget ratio of medical expense savings to case management administrative costs. The medicalexpense savings are calculated as the difference between the actual medical expenses for patientsunder case management and the projected medical expenses for those same patients if they werenot receiving case management services (Projected expenses without case management - Actualexpenses with case management). For example, a health plan might have as an objective that itscase management program produce an annual medical expense savings ratio of at least $6 savedfor every $1 spent in administrative costs (often expressed as 6/1).17

Suppose that the health plan calculated the following costs for a particular month:

Administrative costs for casemanagement ...............$20,000

Actual medical care expenses for patients under casemanagement ...............$300,000

Projected medical care expenses for the same patients without casemanagement ...............$430,000

The total medical expense savings for this month are $130,000 ($430,000 - $300,000) and theratio of medical expense savings to administrative costs is 6.5/1, that is, $6.50 saved for each $1of administrative cost ($130,000 ÷ $20,000). For this month, the health plan exceeded itsobjective.

Health plans also take into account the indirect savings that result from their case managementprograms. For instance, a case management program often frees up other medical managementpersonnel who would otherwise have spent time, perhaps less efficiently, with members whowere referred to the case management program.

The Stellar Health Plan used the following costs to calculate the medical expense savings ratio forits case management program:

Administrative costs for case management.....................................................................$20,000Actual medical care expenses for patients under case management............................... $175,000Projected medical care expenses for the same patients without case management......... $250,000

Satisfaction Levels

When members believe that a case manager serves as a true advocate for their needs, medicaloutcomes improve and customer satisfaction increases. Similarly, case management programsgain valuable and influential partners when providers feel they have the support of a professionaland competent organization. Through member and provider satisfaction surveys, as well asmember quality-of-life surveys, companies seek to determine the effectiveness of their casemanagement programs from the perspective of these key stakeholders.

Regulation of Case Management

The regulation of case management occurs primarily at the state level and varies greatly from onestate to another. Although all 50 states have at least one law that refers to case management, onlya few states have laws that list specific requirements for a case management program. Some stateshave introduced comprehensive health plan legislation that recognizes and distinguishes betweenactivities such as utilization review, disease management, and case management. However, otherstates view case management as part of utilization review and, therefore, subject to stateregulations for UR. Very few state laws address the quality management aspect of casemanagement. 18

Other state laws and regulations from insurance or health commissions may influence a healthplan's approach to case management. States that require health plans to submit to periodicindependent quality audits are likely to examine case management programs. In addition, statesmay require health plans to demonstrate case-oriented quality monitoring systems used to assessthe care provided to individual members. Such requirements may be satisfied, at least in part, bycase management programs.

Because case managers work closely with members, healthcare providers, and medical records,one of the most important issues surrounding case management is the confidentiality of medicalinformation. Health plans must demonstrate to regulators that their case management policies andprocedures adequately protect the privacy of members. In addition, most states consider casemanagement files to be medical records that must be retained for a specified length of time,typically five years or the period during which lawsuits may be filed in that state, whichever islonger. 20

Requirements that apply to care provided in connection with certain diseases sometimes affectcase management services. For instance, in some states, HIV counseling services, which might bepart of a case management plan, cannot be provided to an individual prior to testing for the

disease, unless the individual receives an explanation of the test and gives informed writtenconsent.

Because case managers often work with seriously ill or injured members, they must also befamiliar with the Americans with Disabilities Act, as well as other federal and state laws thatprotect the rights of certain individuals.

Although there are currently no state laws or regulatory requirements for licensure or certificationof case managers, voluntary certification is available from the Commission for Case ManagementCertification, as described earlier in this lesson. Also, because case managers are often drawnfrom a variety of different professions (e.g., nursing, social work, physical therapy), they may berequired to maintain applicable licensure in their professional areas.

Accreditation Issues for Case Management

Although not all accrediting agencies specifically address the case management process, they doaddress issues that are critical to case management, such as coordination of care, dischargeplanning, and confidentiality. Recognizing the growth and value of case management, URACmaintains specific accreditation standards for organizations that perform case management. Thesestandards, which apply to both on-site and telephonic services, address staff structure andorganization, staff management and development, information management, qualityimprovement, oversight of delegated functions, organizational ethics, and complaints. URAC'scase management organization standards may be applied to any entity that performs casemanagement functions, whether a health plan or an organization that provides only medicalmanagement or case management services. Among other things, URAC's standards requirecompanies to

Establish oversight and reporting requirements Specify the delivery of services, including a description of the delivery model for case

management services, the personnel conducting case management services, and thepopulation served

Establish guidelines for reasonable caseload and employ sufficient personnel to provideservices

Have licensed physicians available for consultations with case managers Employ case managers who have appropriate qualifications that demonstrate their ability

to practice case management Verify licensing and credentials of new hires and re-verify at least every two years Establish a policy for records and information management that addresses storage,

transfer, destruction, accuracy, and confidentiality Disclose to patients information concerning the nature of the case management process,

the circumstances under which information may be disclosed to third parties, and theavailability of a complaint resolution process

Develop for every individual who receives case management services a case managementplan that meets specified criteria

Implement a quality improvement program to monitor and evaluate the effectiveness ofthe case management program21

Conclusion

Case management provides the means for a health plan to link and coordinate a variety of medicalmanagement activities in order to arrange better care for individual members who have extensiveor complicated healthcare needs. The cost savings that may result from case management oftenbenefit both the member and the health plan.

Endnotes

1. Case Management Society of America, Standards of Practice for Case Management(Little Rock, AR: Case Management Society of America, 1995), 8.




5. Novartis Medical Benefit Report: Annual Resource (Novartis: USA, 1999), 8.

6. Gary Wolfe, "Fatigue: Understanding and Treating Depression," The Journal of CareManagement 5, no. 5, (1999), in the Disease Management Digest insert 3, no. 5, 2-3.

7. HMO Workgroup on Care Management, "Planning Care for High-Risk Medicare HMOMembers," in Chronic Care Initiatives in HMOs (Washington, DC: The Robert WoodJohnson Foundation and the American Association of Health Plans [AAHP] Foundation,July 1997), 9.

8. Case Management Society of America, Standards of Practice for Case Management(Little Rock, AR: Case Management Society of America, 1995), 15-17.

9. Maria R. Traska, "Beyond Big-Ticket Items: Case Management Comes of Age,"Faulkner & Gray's Healthcare Information Center (December 16,1993), 6.

10. Mary Sajdak, "Case Management," Medical Management Signature Series, Health PlanResources, Inc. (25 November 1997).

11. Mary Sajdak, "Case Management," Medical Management Signature Series, Health PlanResources, Inc. (25 November 1997).

12. Case Management Society of America, Standards of Practice for Case Management(Little Rock, AR: Case Management Society of America, 1995), 11-12.

13. Commission for Case Manager Certification (Rolling Meadows, IL.)

14. Catherine M. Mullahy, The Case Manager's Handbook (Gaithersburg, MD: AspenPublishers, Inc., 1995), 66.


16. Catherine M. Mullahy, The Case Manager's Handbook (Gaithersburg, MD: AspenPublishers, Inc., 1995), 57-58.


18. George Stuehler, "Case Management: Blue Cross Blue Shield of the Rochester Area,"Best Practices of Health Plans, (Washington, DC: Centers for Medicare and MedicaidServices Office of Health Plan, Division of Policy and Evaluation, 1994), 22-23.

19. Garry Carneal, Case Management States Laws: A 50 State Survey of Health & InsuranceStatutory Codes, ed. Thomas G. Goddard, et al. (Washington, DC: AmericanAccreditation HealthCare Com-mission/URAC, 1999), 8-9, 12.


21. American Accreditation Healthcare Commission/URAC, "Case ManagementOrganization Standards," Overview of URAC Accreditation Programs and Standards,http://www.urac.org/summaries.htm (1 Nov. 1999).

AHM Medical Management: Disease Management

After completing the lesson Disease Management , you should be able to:

Distinguish between disease management and case management Explain why health plans establish disease management programs Describe the types of organizations that provide disease management Explain the decisions a health plan must make to implement a disease management

program Describe four approaches to integrating information for disease management programs

Introduction

During the late 1980s and early 1990s, health plans noticed that healthcare costs were rising onceagain in spite of their efforts to achieve cost-effectiveness while delivering high-qualityhealthcare. Looking more closely at these healthcare costs, health plans realized that a largepercentage of costs came from a small percentage of their enrolled populations-membersdiagnosed with one or more chronic conditions.

A recent estimate indicates that costs for the care of patients with chronic diseases account for 50percent of total healthcare expenditures. 1 Most often, these costs result from emergencydepartment visits, inpatient hospital care, or other interventions performed when an illness is in anadvanced stage or when complications (possibly preventable) of a chronic condition arise. Suchcosts take a toll on the purchaser, the health plan, and most importantly the patient.

To address these costs and improve the health of members with chronic conditions, health plans,pharmaceutical companies, and other organizations developed disease management programs.Today, over 160 companies offer some form of disease management. 2

What is Disease Management?

Disease management, sometimes called disease state management, is a coordinated system ofpreventive, diagnostic, and therapeutic measures intended to provide cost-effective, qualityhealthcare for a patient population that has or is at risk for a specific chronic illness or medicalcondition. The goal of disease management is to provide comprehensive management of achronic disease across all healthcare delivery settings and providers to improve a patient's healthstatus. Note that the term disease management is somewhat misleading because diseasemanagement programs may focus on medical conditions that are not diseases, such as high-riskpregnancy, severe burns, and trauma, in addition to diseases.

Disease management is not the same tool as case management. As you learned in the lesson CaseManagement, the focus in case management is on responding to the needs of individual membersfor extensive, customized healthcare supervision. Disease management focuses the needs of apopulation for healthcare supervision. Disease management is a form of population-basedhealthcare as discussed in the lesson Quality Management.

Many tools that have been previously discussed in this course manual, such as preventive care,self-care, decision support programs, and case management, are used in disease management. Forexample, a health plan member in a depression disease management program who attempts tocommit suicide probably needs intense care supervision that addresses his or her individual

situation. Such a patient would be a candidate for urgent case management under the diseasemanagement program.

Some disease management programs originated from pharmaceutical manufacturers' efforts tomarket drugs for specific diseases, but most of today's disease management programs go farbeyond marketing initiatives. A wide variety of disease management programs are available,ranging from those that focus primarily on patient education to comprehensive programs that seekto influence the behaviors of patients, providers, and purchasers to reduce the occurrence andseverity of diseases.

Why Do Health Plans Use Disease Management Programs?

Disease management programs may serve to improve both clinical and financial outcomes forhealthcare services related to chronic conditions. Disease management also helps support a healthplan's continuity of care and primary care efforts.

By identifying members at the highest risk for developing a particular disease or members whoalready have a particular disease and then implementing a disease management program, healthplans can help patients and providers manage chronic conditions effectively to avoid acute,sometimes life-threatening, episodes. For example, diabetic patients are at increased risk foramputation and blindness. Clinical practice guidelines (CPGs) for diabetes disease managementprograms may recommend that primary care providers (PCPs) perform foot and eye examinationsannually for diabetic patients. Detecting clinical changes early may prevent (or at least delay) theneed for drastic treatment and the possible permanent impairment that often occurs after acomplication has progressed significantly.

Disease management programs help health plans manage the health risks present among theirmember population. A disease management program for coronary artery disease (CAD) illustratesthe concept of health risk management. A CAD disease management initiative focuses on theportion of a health plan's population that has or will develop CAD, which often causes patients toneed extensive medical services. To reduce the health risks for these members, the health plancan identify susceptible members before the disease appears and encourage those members tomodify their health-related behaviors. Hopefully, such behavior modification will reduce theoccurrence of the disease. For example, people with high cholesterol levels are at increased riskfor CAD. By proactively identifying members with high cholesterol levels who have other riskfactors for CAD, a health plan can help those members and their providers manage theircholesterol levels and encourage them to make other lifestyle changes that may prevent themfrom developing CAD. In this way, the health plan may help reduce the risk that their memberswill need medical services for the care of CAD.

On the other hand, plan members who are identified with existing CAD can receive the care theyneed to slow the progress of their disease, thus reducing the need for expensive medical servicesto treat the acute manifestations of the disease. Such identification and prevention initiatives formembers with established chronic conditions or diseases are considered tertiary prevention, asdefined in the lesson Preventive Care Programs.

Some health plans have reported that disease management programs also pay off in terms of (1)overall reductions in the utilization of medical resources and (2) dollars saved by health plans andpurchasers. For instance, as we discuss in Insight 7A-5 later in this lesson, a pediatric hospital inAtlanta has experienced an 85 percent decrease in emergency department visits and a 78 percent

decrease in unscheduled hospital admissions for children with asthma who participated in adisease management program. As an example of cost savings, one health plan expects to realizeannual net savings between $250,000 and $500,000 from its disease management programs forasthma and chronic obstructive pulmonary disease for its HMO members. 3

Insight 7A-1 discusses how one healthcare system attempts to measure the costs and benefitsfrom its disease management programs.

Although conclusive results demonstrating the impact of disease management on patientoutcomes and cost management are not currently well established, disease management programshold the promise of improved outcomes and lower costs in the long run. Disease managementprograms may realize success in lowering costs and increasing patient, provider, and purchasersatisfaction because they can

Encourage and enable patient self-management of a chronic condition Help providers by supplying information about specific diseases and effective treatment

methods Save purchasers money by reducing the amount or intensity of healthcare services

required and, for purchasers who are employers, reduce absenteeism and improveproductivity

Disease management may seem very intuitive and some people may ask, "Don't physiciansalready perform disease management for patients with chronic conditions?" The answer to thisquestion is yes and no. Yes, physicians and other providers have been managing individualpatients' chronic conditions for years. However, providers vary in their approaches to a particularchronic disease. For example, in 1995, the Agency for Health Care Policy and Research(AHCPR, now the Agency for Healthcare Research and Quality) issued CPGs for CAD thatrecommend cardiac rehabilitation as a standard of care. Cardiac rehabilitation is a medicallysupervised preventive program incorporating exercise, dietary changes, and medications to limit

heart damage, thereby reducing the risk of death and helping patients resume normal lives. Yet,despite this recommendation, less than one-third of the patients who could benefit from cardiacrehabilitation participate in a rehab program. 4 Further, not all providers are able to offer patientsa full range of disease management support services, such as diabetic education or pneumoniavaccine reminders for congestive heart failure patients.

Of course, each patient is unique and some variation in care by providers is necessary toaccommodate the needs of individual patients. But health plans seek to support the consistent useof basic treatment patterns that have been proven to produce the best outcomes for chronicillnesses, thereby reducing unnecessary variation in the treatment approaches of individualpractitioners.

Disease management programs may also satisfy regulatory requirements. For example, somestates require that health plans cover diabetes management including insulin, glucose-monitoringdevices, and other supplies. At least one state requires that educational information about diabetesbe supplied to diabetics. A diabetes disease management program may be a useful tool to help ahealth plan deliver the required services and supplies to its diabetic members.

A health plan's disease management programs may help the organization meet accreditationagency standards for quality improvement initiatives. For instance, the Joint Commission onAccreditation of Healthcare Organizations (JCAHO) has standards relating to the continuum ofcare, education and communication, and health promotion and disease prevention. The NationalCommittee for Quality Assurance (NCQA) has a specific standard related to disease managementfor chronic conditions and high-risk pregnancy.

The initiatives included in disease management programs can also affect evaluations of a healthplan's performance by other external entities. For example, the Health Plan Employer Data andInformation Set (HEDIS) compiles health plans' results for effectiveness of care measures such aseye exams for diabetics, beta blocker treatment after a heart attack, and prenatal care in the firsttrimester. 5

Health plans, hospitals, external organizations that specialize in disease management,pharmaceutical manufacturers, and pharmacy benefit managers may all offer disease managementservices. Some health plans establish and maintain their own disease management programs,while others delegate some or all aspects of disease management to network providers or otherexternal entities.

Hospitals sometimes develop disease management programs to improve the quality of care fortheir communities, to meet accreditation standards, and to demonstrate to health plans the qualityof care they provide. One strength of hospital-based disease management programs is that theyinterface with members when they are ill, rather than when they are feeling more healthy, whichmay result in members being more receptive to ways to become healthy, including diseasemanagement efforts. Health plans sometimes choose to delegate disease management activities toa hospital, particularly if the hospital's disease management program already has a goodreputation in the community.

Who Provides Disease Management?

Companies whose main business is conducting disease management programs also offer diseasemanagement services to health plans and employers. These disease management companies may

accept the financial risk and the responsibility for clinical and administrative management fordisease populations. A health plan that uses a disease management company basically transfersthe authority to care for a population with a specific disease to the external company. This type ofdelegation is often referred to as a carve-out.

The term carve-out carries several different meanings in the healthcare industry. In a generalsense, a carve-out refers to the separation of a medical service (or a group of services) from thebasic set of benefits in some way, either through the use of a separate network or delivery systemor through a different compensation method for providers. For example, a health plan may carveout its HIV/AIDS disease management program from its other medical services by contractingwith an external company to develop and manage the HIV/AIDS program. The health plan stillretains accountability for the HIV/AIDS program. This type of carve-out is the one that isrelevant to our discussion of disease management.

In another form of carve-out, a purchaser carves out a type of service from its main contract witha health plan. For this type of carve-out, the purchaser contracts with the health plan for a basicmedical benefit package, but also contracts with another entity for specified services, such as amanaged behavioral healthcare organization (MBHO) for behavioral healthcare services. Thehealth plan has no involvement with the delivery of services under a purchaser carve-out.

Often under a carve-out arrangement, patients with a chronic condition do not visit their ownPCPs for treatment of the disease. Because the PCP is typically not involved in the care processwith a carve-out, some industry observers express concern that primary care cannot be aseffective because the disease management program interferes with the continuity of care.

One new approach to arranging disease management that may address concerns about thecontinuity of care is called a carve-in. A disease management carve-in is a partnership between aspecialty disease management company and a health plan in which the disease managementcompany acts as a consultant to the health plan's network providers who treat a particularcondition. 6 With a carve-in, a patient maintains his or her existing relationship with a PCP for allcare, including disease management. For example, Diabetes Treatment Centers of America offersa carve-in program that supplies nurses, dietitians, and health educators to work within healthplans and other healthcare organizations to improve diabetic care. 7 In addition to improvedcontinuity of care, a carve-in approach may result in greater provider buy-in and increased patientsatisfaction with the concept of disease management. However, some providers are concernedthat under a carve-in arrangement, a health plan might ask PCPs to provide additional carewithout adjusting their existing workloads and without providing additional support resources. 8

Pharmaceutical manufacturers offer different levels of disease management. Some diseasemanagement programs developed by pharmaceutical manufacturers involve the use of theirproducts, but this trend is changing as manufacturers develop programs that focus on managingdiseases instead of using specific products. In some instances, pharmaceutical manufacturers'disease management program offerings consist largely of educational materials provided at noadditional charge to the members of any health plan that is a national account client for themanufacturer's drugs. Such offerings are not true disease management programs but value-addedservices. A few pharmaceutical manufacturers have created separate subsidiaries to performdisease management services. Such companies indicate that disease management is a businessunrelated to their pharmaceutical manufacturing. These subsidiaries charge customers for anydisease management services provided to the health plan. Often, the subsidiary and thecontracting health plan share in the savings generated by the disease management program. 9

Pharmacy benefit managers (PBMs) also offer disease management services to health plans. Forexample, PBMs may assist in managing chronic conditions by developing formularies,performing drug utilization review, and providing other services to manage drug use by healthplan members.

The disease management programs offered by PBMs are similar to those offered bypharmaceutical manufacturers. One important asset PBMs offer related to disease management isa comprehensive database that captures almost all prescription transactions of a health plan'smembership. Prescription data is entered into the database directly from the pharmacy. Thesystem can then deliver patient precautions and reminders that the pharmacist can print out forpatients when they pick up their prescriptions.

Establishing a Disease Management Program

Many activities are necessary to the establishment of a disease management program. Forexample, a health plan must:

Determine the medical condition to be targeted Determine the type of disease management program it will establish (i.e., coordinated

outreach model or case management model) Examine any legal considerations that may affect the program (e.g., state privacy laws,

licensing requirements, etc.) Determine infrastructure necessities (e.g., information management needs and financial

resources) Develop a plan for the program Implement the disease management program

In the following sections, we discuss each of these activities in more detail. Note that the planningfor the program (the fifth item in the list above) may include the decision to delegate some or allaspects of the disease management program to a provider or other external organization thatoffers disease management services. In this situation, the delegate may plan and execute thespecific steps for implementation. We explore issues related to delegation (sometimes called"build or buy" issues) for disease management after the discussion of the six basic activities.

Choosing Conditions to Target

Most health plans select a chronic condition for a disease management program based on theprevalence of a condition or high utilization and costs associated with the condition. Some healthplans may use criteria such as a high degree of unnecessary practice variation in the treatment asa factor in choosing a particular condition to target with a disease management program. Otherhealth plans may examine the disease management industry's results in managing a particularcondition to choose conditions appropriate for disease management.

The list of diseases and conditions for which disease management may be effective is constantlyexpanding. Many health plans have disease management programs in place for common, costlydiseases such as asthma, diabetes, and congestive heart failure. Figure 7A-1 shows some diseasesand conditions for which disease management programs are currently available.

Sometimes a health plan will initially plan to target one particular disease, but further researchmay reveal that another disease is a better candidate for disease management. For example, Blue

Cross Blue Shield of Georgia (BCBSGA) wanted to be sure that its disease management effortsyielded the greatest possible return on its investment. Initially, BCBSGA wanted to expand anexisting asthma disease management program; however, a quantitative analysis of BCBSGA'spopulation and data showed that the company would have a greater impact if it concentrated onany one of five other diseases. BCBSGA adjusted its disease management efforts to incorporatethe results discovered by the quantitative analysis.10

One disease management company suggests comparing data concerning utilization patterns forphysician, hospital, and ancillary resources for different conditions to identify the diseasemanagement programs that will have the greatest effect on clinical, financial, and membersatisfaction outcomes. This company poses the following questions in its data analysis:

How many people in a member population does a disease affect? What is the demographic profile of these patients? What morbidities and comorbidities are associated with the disease? How much do the disease and related morbidities cost to treat? What preventive measures are available, how effective are they, and how much do they

cost? How much healthcare expenditure savings would be realized by taking preventive

measures? What will improve patient outcomes and functional status?11

Comorbidity can have a huge impact on the effective implementation of disease managementprograms. Comorbidity refers to the presence of a chronic condition or added complication otherthan the condition that requires medical treatment. 12 One of a health plan's greatest challenges indisease management is designing programs that will address members' comorbidities. Forexample, a member with diabetes may also have coronary artery disease. A health plan mustdetermine whether this member will be enrolled in two separate disease management programs orone disease management program that addresses both diseases.

Some industry analysts stress the importance of choosing a disease for which the diseaseprogression and cost drivers are well understood. 13 Another important factor in choosing adisease for disease management is an evaluation of the health plan's capabilities, strengths, andcompetitive business situation. Any disease management program must fit in with theorganization's strategic mission. Competition may also play a role in selection of diseases totarget. If other health plans in a particular market offer a disease management program forpediatric asthma, a health plan without such a program may decide to add a pediatric asthmadisease management program to make its services more comprehensive and appealing to localpurchasers. Health plans should also consider purchaser concerns when choosing diseases tomanage. The management of diseases or medical conditions that typically contribute to employeeabsenteeism or low productivity may be attractive to purchasers.

Types of Disease Management Programs

Disease management programs to prevent or reduce the severity of a chronic condition often takeone of two forms: the coordinated outreach model or the case management model. A coordinatedoutreach model program assembles and coordinates existing resources (such as educationalprograms and network providers) to establish a standard, comprehensive course of care for apopulation of patients with a particular chronic disease. The elements of this type of diseasemanagement program include

Identification of all plan members who have or are likely to have the disease or condition Classes or written materials to educate members about the disease and to improve patient

compliance with treatment CPGs for providers treating the disease Methods for tracking the progress of patients with the disease Telephone or mail outreach programs that seek to improve the utilization and quality of

services provided aimed at providers and members

Home visits for individualized follow-up with patients are not a typical component of this model.15

The case management model program is a disease management program that includes regular,periodic monitoring and management of individual patients' health status in their homes by ahealthcare professional (typically a nurse). The nurse may make home visits or communicate viatelephone with patients. Home visits allow the nurse to examine the patient, administertreatments, and assess needs for changes in the overall care plan. In this model, patients helpdetermine their own long-term care plan, including an action plan if symptoms become worse.Based on the severity of the symptoms, the action plan may call for the patient to performspecified self-care measures, call a telephone health information line, or seek emergency care. 16

The case management model program is most appropriate for patients whose disease type andseverity often result in acute episodes in which emergency care and/or hospitalization arerequired. The home intervention component may either prevent acute episodes or treatexacerbations before they worsen to the point that the patient must be hospitalized. Congestiveheart failure is an example of a condition that may be appropriate for a case management modelapproach. 17

Both the coordinated outreach model and the case management model incorporate strategiesaimed at providers and members. Strategies directed toward providers include provider education,the provision of CPGs, and provider profiling. Strategies for members include education on self-care such as instruction on compliance with drug therapy instructions, performance of clinicalmonitoring tests at home, and modification of diet and other behaviors. 18

Legal Considerations

Establishing a disease management program has a variety of legal implications. Health plans mustsee that they or their providers have appropriate licenses for the services they offer under adisease management program. For example, a pediatric asthma disease management program thatuses telephone triage lines staffed by nurses must verify that the nurses are appropriately licensedin all the states in which the disease management program participants reside. Because diseasemanagement incorporates case management, regulatory requirements that affect casemanagement may also impact a disease management program.

Earlier in this lesson we discussed how some state regulatory requirements can be met by diseasemanagement programs. Health plans' disease management programs must also comply withfederal laws and regulatory requirements. For example, as you will recall from the lessonEnvironmental Influences on Medical Management, a federal law called the Newborns' andMothers' Health Protection Act of 1996 (NMHPA) requires that health plans cover hospital staysfor childbirth for both the mother and the newborn for at least 48 hours for normal deliveries and96 hours for cesarean births. Disease management programs targeted to manage pregnancy must

not interfere with or discourage members from availing themselves of this mandated coverage.State and federal laws also guarantee the confidentiality of medical information and should bescrutinized before a health plan sets up its information management system for its diseasemanagement program.

In addition, health plans that contract with federal or state governments to cover Medicare orMedicaid populations must comply with increasingly specific quality improvement requirements.For example, Medicare health plans must follow the performance measurement and improvementstandards outlined by the Centers for Medicare and Medicaid Services's (CMS) QualityImprovement System for Health Plans. Some of these standards impact health plans' diseasemanagement programs.

Infrastructure Requirements

A health plan that decides to establish its own disease management programs must be certain thatit has the necessary infrastructure to develop and support its programs. Infrastructurerequirements include

A firm commitment from the health plan's upper management for support of the diseasemanagement program

Financial resources to absorb the typically high start-up costs of a disease managementprogram and ongoing operational costs

Information management systems and support staff to meet the information needs of thedisease management program or outside information management vendors to providesuch services

Information Management Needs

Information management is a core requirement for a disease management program. Diseasemanagement programs need information to

Identify populations at risk for diseases or who are known to have the disease Stratify at-risk populations into high-risk, low-risk, and other risk categories for

management Track cost, utilization, and types of services provided Determine patient satisfaction using surveys and other tools Determine the clinical and financial outcomes of the disease management program

To meet their information needs for disease management, many health plans are using one of thefollowing four approaches to integrate the information that is housed in separate databases or inseparate organizations: (1) an integrated data warehouse, (2) a dual database, (3) a hub-and-spokemodel, and (4) outsourcing. 19

Integrated Data Warehouse. An integrated data warehouse seeks to combine all existinginformation from all data sources (e.g., medical, laboratory, pharmaceutical) into onecomprehensive system. An integrated data warehouse can support many disease managementfunctions; unfortunately, it may take years for a health plan to develop such a system. Otherpotential drawbacks to the data warehouse approach include the sluggishness of a system that hasto sort through masses of information for a simple disease management query.

Dual Database Approach. A dual database approach involves creating a separate database that(1) pulls from the claims database only the information necessary to respond to queries and (2)formats the information for easy analysis. In effect, the health plan now has two databases-itsexisting claims database and the new analytical database. For example, a health plan might obtainmedical coding and encounter data from the claims database and build a new database in order toidentify or stratify populations at risk for diseases.20

Hub-and-Spoke Model. The hub-and-spoke model involves connecting multiple databases witha central interface engine that acts as an information clearinghouse. The multiple databases arethe spokes, and the interface engine is the hub. The interface engine can query multiple databasesto assemble a virtual clinical record that includes information on prescription use from apharmacy database, diagnosis codes from a claims database, and lab and radiology reports fromtheir respective databases.21

Outsourcing. Outsourcing, which involves hiring outside vendors to provide data integrationservices, is another information management option. Plans that outsource their informationmanagement processes for disease management provide vendors with pertinent data that thevendor then compiles into an integrated database. Often, the vendor provides the integration inconjunction with clinical analysis and risk-stratification services.22

Because most health plans are just beginning to focus on disease management, few haveinformation management systems that span across all care settings and include electronicencounter data, and the costs of establishing new, comprehensive systems such as those describedabove are high. A health plan must consider the cost of developing a disease managementinformation system in relation to the potential medical cost savings and clinical improvementexpected from the proposed disease management program.

Planning a Disease Management Program

Ideally, disease management will be a strategic initiative in the company's corporate businessplan. Including disease management in the business plan emphasizes the organization'scommitment to the process and its belief in the benefits that disease management can produce.

An organization that decides to offer a disease management program needs a plan for introducingand implementing that program. Planning a disease management program may include thefollowing activities:

Setting clearly defined, achievable goals and benchmarks for the program Performing background literature reviews and research on effective programs and

treatment regimens Identifying network providers to be involved in the disease management program design Determining how the disease management program will interface with providers in the

local community (e.g., Will PCPs perform disease management functions? Will outsideproviders with special training for the particular disease perform disease management?Will there be some combination of caregivers to administer the disease managementprogram?)

Identifying local resources to partner with, such as hospitals or advocacy groups Seeing that information management resources are available across all care settings to

track patients' clinical progress, providers' adherence to CPGs, financial results, andsatisfaction measures

Allocating resources for hiring staff for the disease management program (includingclinical staff, program management staff, and marketing managers)

Designing the program itself (e.g., the processes and procedures that will be used tomanage the disease including establishment of quality assessment and improvementmeasures, creation of patient educational materials, identification of outcomes measuresto track)

Setting timelines for introducing the program to providers, purchasers, and patients Determining criteria to be used in evaluating the success of the disease management

program Determining how the disease management program will work with existing preventive

care, self-care, case management, utilization review, and quality management initiatives

Another essential element of a disease management program is a communications plan. Healthplans need to plan how they will inform providers, purchasers, patients, caregivers, and othersupport staff about the disease management program and any program changes that occur. Healthplans may use newsletters and conduct informational meetings at providers' offices tocommunicate disease management program goals and processes. A health plan's communicationsplan will also include ideas for a marketing strategy. The communications plan is importantbecause it is the vehicle the health plan uses to obtain provider and patient buy-in into the diseasemanagement program.

Depending on which, if any, disease management activities that the health plan delegates toproviders or other external entities, most of the planning activities listed above may be performedby a delegate rather than by the health plan itself. However, the health plan sets the overall goalsand may establish other parameters for the delegate to follow in planning the program.

Steps in Implementing a Disease Management Program

The major steps required to implement a disease management program are

Determining the population to target with disease management Developing the CPGs to be used by providers in caring for disease management patients Building providers' knowledge and support of the disease management effort Educating patients and encouraging patient self-management of the disease

We discuss these elements in the following sections.

How Health Plans Determine the Disease Management Population

Health plans use a variety of information sources to identify members with a particular diseaseand to stratify those members into risk categories for disease management purposes. Typically,health plans use enrollment data, claims data, pharmaceutical data, and diagnostic test results toidentify chronic disease populations. Some health plans also review handwritten provider datacontained in member medical records to obtain more information on their chronic diseasepopulations.

Identifying populations with chronic diseases is easier with comprehensive, integratedinformation management systems; however, to date, few health plans have such systems in place.One stumbling block to such integration is patient privacy and confidentiality concerns. Anotherproblem is lack of automation of provider information. Although more and more provider

practices are automating their encounter data, the number of physician offices with computerizedinformation that can be shared electronically with the health plan and other players in diseasemanagement is still low.

Once a health plan has developed a way to integrate its databases, it can identify members whoare most likely to benefit from disease management by using an electronic clinical logic program.An electronic clinical logic program is a type of retrospective claims analysis tool that "relies ona series of user-defined clinical rules and algorithms to identify-based on patterns in availabledata-patients with (or at risk for) a particular chronic condition." 23 Not only can these programsidentify members with a disease and those at risk, but they can also stratify the identifiedpopulation into categories based on the severity of the disease. Stratification of members withchronic diseases is useful because it allows health plans to tailor their disease managementprograms to different target populations using different levels of interventions. For example, amember with a mild form of a chronic disease may benefit by receiving an educational mailingexplaining methods to manage the disease. Direct contact by a disease management specialist andongoing monitoring to help prevent acute manifestations of the disease may be more beneficial tomembers with a severe form of the disease. 24

Developing Clinical Practice Guidelines for a Disease Management Program

Developing and implementing CPGs is a core component of disease management programs.Some health plans create their own practice guidelines based on their review of past successeswith courses of care. Others adopt CPGs created by the Agency for Healthcare and PolicyResearch (AHCPR, now known as AHRQ) or other organizations, then customize those CPGs tolocal needs with the input of local providers.

CPGs typically recommend specific clinical services that may be appropriate for a particular typeof patient. Because disease management encompasses services from various types of providersdelivered in various care settings, a CPG for disease management may also includerecommendations on who (e.g., physician, nurse, physical therapist) should deliver a particularservice and where (e.g., in the hospital, in the provider's office, in the member's home).

Educating Providers and Building Provider Support

Successful disease management programs often involve providers in the disease managementprocess from the very beginning. They seek providers' ideas about how to structure the programand, after implementation, ask for feedback on changes to be made. Such disease managementprograms communicate the goals of the program clearly and early to providers. One health planvice-president explained the relationship between disease management and physicians in thisway:

Physicians are rightly suspicious when someone wants to change the way care isdelivered. It's important to help physicians understand that disease management programsare not replacements but supplements and complements to the services they alreadyprovide. 25

Most disease management programs provide some form of provider orientation early in thedisease management development process. Some programs conduct a pilot program beforeinstituting a system-wide disease management effort. Pilot programs can help convince providersof the results that disease management programs can produce.

One of a disease management program's most challenging tasks is convincing providers tomodify their practice patterns. Health plans may benchmark providers' behavior and care methodsagainst best practice performance data. Health plans can show providers if a gap exists betweenthe most effective clinical course of care for a condition and the course of care the provider hasfollowed in the past. Scientific evidence demonstrating that one therapy yields better outcomesthan another is a great persuader for providers to change their practice patterns. 26 Two effectiveways to achieve buy-in and continuing participation in a disease management program are

To inform providers about ways to change their practice patterns to benefit the healthstatus of the chronic disease patient

To supply data to providers on outcomes that illustrate the impact of the suggestedchanges in the treatment of the patient

Insight 7A-2 describes how a disease management company supplies providers with tools to helpthem implement disease management procedures.

Many health plans use financial incentives to encourage provider participation and compliancewith disease management program initiatives. For example, a health plan might pay a flat fee toPCPs for appropriate referrals into a disease management program for congestive heart failure.

Educating Providers and Building Provider Support

Providers who participate in a disease management program may realize the potential positiveeffects that disease management may have on health outcomes, patient satisfaction, and theirpractices. One approach to streamlining care that has emerged is called the group clinic, which isa medical appointment for a group of people who share similar medical and psychosocial issues.For example, group clinics have been used successfully with diabetic patients. The group clinicappointment is usually 90 minutes in length and is co-led by a physician and a behavioralhealthcare professional. During the appointment, the physician writes or changes prescriptions formedications, orders tests and discusses test results, reviews charts and documents each patient'svisit, answers medical questions, and discusses treatment options in the group setting.

As needed, the group clinic may involve a brief, private medical examination or individualdiscussion during group time. Patients can benefit from the group clinic by sharing similarexperiences, learning about healthy lifestyles, and receiving support from peers with similarmedical, emotional, and lifestyle concerns. Physicians benefit in terms of time by having fewerindividual office visits and being able to deliver information about drug side effects oreducational material to several people at once. 28

Educating Patients and Encouraging Patient Self-Management

Patient participation and compliance with program efforts are crucial for effective diseasemanagement. If a patient does not comply with a care regimen designed by a provider or diseasemanagement program, the disease cannot be managed. One industry source identifies four goalsthat a disease management program should ask members to strive toward in order to manage achronic disease:

1. Recognize and report symptoms to their providers or case managers and participate in planningor revising treatment plans2. Comply with providers' instructions concerning medications or other forms of care3. Make lifestyle changes as needed to affect the progression of the disease4. Follow up as scheduled with their providers or case managers to monitor compliance withtreatment instructions or lifestyle changes29

To be successful in getting members to adopt and follow these four goals, members mustunderstand the disease they have, its typical course of progression, and the impact lifestylechanges and medications can have on the severity of the disease. Patient education about specificdiseases has proven successful in encouraging member participation in and commitment todisease management.

Health plans use various tools to educate members about diseases, including

Mailing educational information directly to a member identified as having a disease orbeing at risk for a disease, or mailing such information to PCPs for distribution

Conducting group classes led by a nurse or other healthcare provider concerning self-management of a disease in locations such as providers' offices, schools, or places ofemployment

Establishing telephone information lines staffed by nurses to answer members' questionsabout the disease

Providing self-management kits that may include educational videotapes or pocketreference guides as well as daily diaries and other tools useful for managing the particulardisease

Facilitating direct contact with providers who explain the disease verbally and providemembers with written material that gives more detail about the disease

Providing information over the Internet and/or suggesting reliable Internet resources fordisease-specific information

Facilitating membership in local or national support groups for particular diseases orconditions

Co-sponsoring educational events with local organizations or chapters of nationalorganizations such as the American Cancer Society

Insight 7A-3 describes a unique method of educating children about chronic diseases using videogames.

Once members have been educated about the disease, they need motivation to address thecomponents of the disease over which they can exercise some control. This process is called self-management. Some members are self-motivated to participate in a disease management programand follow the regimen outlined under the program. These members see the benefits tothemselves in terms of their sense of regaining control of their health, improving the quality oftheir lives, and saving money by avoiding deductibles and copayments for acute services. 30

However, not all members are intrinsically motivated to participate in or follow the course oftreatment prescribed by disease management programs. For these members, external incentivesand information on the potential benefits of self-management and the consequences of notmanaging the disease may help sway them to participate in a disease management program.

Some disease management programs use negotiated contracts that outline the roles of the patient,caregivers, providers, or others involved in the disease management process. Patients formallysign the contract, agreeing to a particular series of actions to combat the disease. Either included

in the negotiated contract or set forth in another contract can be a series of rewards for patientswho comply with their course of treatment. The rewards can be small gifts or "good behavior"commendations from the provider.31

Sometimes the influence of family, friends, spouses, co-workers, or significant others mayencourage a member to enroll in a disease management program. These groups of people canbecome coaches and support resources for the member in following the disease managementregimen.

Delegation Issues for Disease Management

Once a health plan decides to establish a disease management program for a particular condition,the health plan must decide whether to develop its own disease management program or delegatethe program to a provider or other supplier of disease management services. To make thisdecision, a health plan should examine its strategic mission and answer the following questions:

Is unified, all-inclusive care a core concept of the health plan? What effect will the delegation have on continuity of care for members? Does the health plan have the human, information management, and monetary resources

needed to develop its own disease management program? Many disease managementprograms require the hiring of additional staff, such as nurse educators, physicians whoseprimary function is to implement disease management programs, and psychosocialsupport staff.

Does the health plan have the time required to develop its own program when competinghealth plans may already have a program in place?

If a health plan decides to delegate all or part of a disease management program, it needs toconsider the following qualifications in selecting a disease management delegate:

What sort of financial arrangement will the delegate accept?o Will the delegate accept capitation as a payment method for disease

management?o Will the delegate accept a risk-sharing arrangement under which the delegate

agrees to manage a group of chronic disease patients? In this type ofarrangement, the delegation contract sets forth an estimated total cost formanaging the group and the delegate receives no payment until a predeterminedreduction in medical costs is achieved. If the delegate's disease managementprogram does not result in medical cost reduction, it loses money or has areduced profit.32 These risk-sharing arrangements are sometimes referred to asfinancial performance guarantees. Sometimes a disease management delegatewill agree to a performance guarantee under which payment for services is basedon clinical results. Note that improved clinical outcomes may not immediatelytranslate into medical cost savings.

How much experience does the delegate have with disease management in general andwith the particular disease for which the health plan is seeking a disease managementdelegate?

What are the quantitative and qualitative results (e.g., financial, clinical, and member andprovider satisfaction outcomes) the delegate has achieved with similar diseasemanagement programs for other clients?

What information does the health plan have about the quality of the delegate's work andthe qualifications of its staff?

What processes does the delegate use for sharing clinical information with the healthplan?

What CPGs does the delegate use? Are those CPGs current and how were theydeveloped?

Health plans that delegate disease management must also understand their liability with respect tothe actions of the delegate. The health plan is ultimately accountable for any delegated diseasemanagement activities. In many cases, the health plan can be held liable in a court of law for theactions of its disease management delegate even if the delegate appears to assume full risk for theprogram.

Evaluating Disease Management Program Results

Measuring outcomes allows a health plan to obtain information on the results of its diseasemanagement program as well as some idea of how well certain processes are working. Outcomescan be classified into three categories: clinical outcomes, member satisfaction outcomes, andfinancial outcomes. For example, did the disease management program improve the physicalhealth or quality of life for members who participated in the program? A cost/benefit analysismay reveal if the disease management program saved money by reducing the overall number ofemergency department visits or hospital admissions, for instance, due to acute asthma attacks ordiabetic ketoacidosis. Were the savings offset by the start-up costs the health plan paid toestablish the program?

Some clinical outcomes are labeled as true outcome measures while others are viewed asintermediate outcome measures. True outcome measures "demonstrate whether the intendedresults of the patient's care processes have been achieved." 33 Intermediate outcome measuresdemonstrate progress toward the intended results. To illustrate the difference between a trueoutcome measure and an intermediate outcome measure, consider a specific disease managementprogram. A true outcome measure for a diabetes disease management program would be thepercentage of diabetic patients who undergo foot amputations. An intermediate diseasemanagement outcome measure for this program would be the percentage of members who receivefoot exams from their providers according to the recommended guidelines of the diseasemanagement program.

An example of a clinical true outcome measure for an asthma disease management program is thenumber of emergency department visits for acute asthma attacks. A clinical intermediate outcomemeasure for asthma may be the number of asthma patients who are appropriately using peak flowmeters.

Outcome measures and process measures together help a health plan identify best practices. Anexample of an important process measure for a disease management program is the level ofproviders' adherence to CPGs. Once the health plan has this information and measures of clinicaloutcomes, it can determine whether the guidelines have impacted patient care. If the clinicaloutcomes do not reflect the projected improvements in participants' health status, the CPGs forthe disease management program may need to be revised. Note, however, that some clinicaloutcomes of disease management, such as lowering the number of foot amputations for diabetic

patients, may take years to show noticeable results and the health plan should factor suchconsiderations into its expectations for outcomes. The process of reviewing and testing CPGs tosee if they improve the care of patients with chronic diseases is called outcome validation. 34

Insight 7A-4 suggests some meaningful outcome measurements for a diabetes diseasemanagement program.

Providers, members, employers, and the health plan can all be involved in measuring outcomes.Providers report changes in the health status of their patients to the health plan. Members mayrespond to satisfaction surveys. Employers may be asked to provide information on days of workmissed. The health plan collects, analyzes, and develops reports using its own data plusinformation received from the other players.

Information management tools play a key role in the evaluation of a disease managementprogram. Computers can assist in analyzing quality and cost information to develop acomparative analysis looking at outcome measurements before and after the implementation of adisease management program. Health plan executives then use this information to determine ifthe disease management program is achieving its goals, and, if not, what steps need to be taken toaddress program inadequacies. Computer models can help health plans pinpoint certain elementsof their disease management program that may be generating higher costs than were initiallyassumed.

Challenges and Limitations of Disease Management Programs

While some disease management programs have proven successful in keeping patients healthierand saving money, disagreement exists concerning the overall effectiveness of diseasemanagement. For example, in many cases, patients with existing chronic conditions have morethan one chronic disease. A person with hypertension may also have congestive heart failure(CHF) and chronic obstructive pulmonary disease. A disease management program that targetsonly the patient's hypertension does not address the comorbidities. Because many diseasemanagement programs available today are designed to focus only on one disease, the individualwith hypertension would have to be enrolled in three separate disease management programs toaddress each chronic disease or the health plan would have to choose one of the chronic diseasesto target. Skeptics on the effectiveness of disease management programs argue that such anapproach fragments the care to an individual and does not supply a unified, preventive regimenthat addresses all of an individual's illnesses in one program. However, a recent trend in diseasemanagement is to expand disease management programs to handle comorbidities.

Another initial challenge in establishing a disease management program is the expense of startup.Delegates often offer money-back guarantees on their disease management results; however, ahealth plan must still find the funds to engage a delegate or start its own program. Both prospectscan be prohibitively expensive to some health plans.

To date, disease management programs identify members of a certain population at risk andinvite those members to participate in the disease management program. Participation isvoluntary, and not all at-risk members choose to participate in disease management programs.Because participation is voluntary, the health plan is unable to implement true population-baseddisease management. For example, most CHF disease management programs target onlymembers with severe cases of the disease-about 15 percent of a health plan's population withCHF. Of that 15 percent, only about half are actively managed because other members with CHFchoose not to participate in the program or have comorbidities or pre-existing conditions thatexclude them from the program's eligibility.35

Getting patients to participate in a disease management program is not the only hurdle for a healthplan contemplating a disease management program. Patient turnover is also a challenge. Whenpatients switch providers or change health plans, the patient may drop out of or become ineligiblefor the disease management program in which they were participating. Such turnover makes itdifficult for health plans to accurately assess the results of their disease management efforts.

As we discussed earlier in this lesson, managing information related to a patient's condition is acornerstone of most disease management programs. Being able to automate patient informationand make it available to all care providers in all settings is a definite advantage for diseasemanagement. However, patient information privacy and confidentiality laws and regulatoryrequirements may present barriers to making automated information available to all careproviders. While efforts are underway to create electronic medical records that are secure, neitherthe public nor the medical community has embraced these concepts yet.

Automating patient information is only one step in the information management systems andprocesses that make a disease management program a success. Historically, health plans' data ontheir members have been scattered in multiple databases that often are not connected to eachother. Health plans have enrollment information and claims data, providers have encounter data(often handwritten), and pharmacies that participate in the health plan have data on prescription

drug use. As we discussed earlier, many health plans are addressing these disparate sources ofinformation and working to create information systems that house all member information in onelocation or use sophisticated information technology to pull information from separate systemlocations. Obtaining and managing data on a health plan's members is a costly proposition andquite a challenge for health plans in implementing a disease management program.

Finally, lack of provider support can result in the failure of a disease management program. Inaddition to obtaining provider support, disease management programs often encounter difficultywhen trying to modify providers' clinical practice patterns to reflect the disease managementprogram methods.

Although most healthcare players would probably agree that managing diseases is a positivestrategy to improve the health status of plan members, establishing disease management programsfor every chronic disease is not economically feasible. Earlier in this lesson we explained howBlue Cross Blue Shield of Georgia reevaluated the diseases it had chosen to target with diseasemanagement after performing a data analysis of its membership's health status. Health plans mustexamine the costs, which may be quite high, in starting a disease management program versus theanticipated benefits of the program.

Conclusion

How does a health plan or disease management delegate bring together its resources andinformation to develop and then analyze the effectiveness of a disease management program? Asmight be expected, the answer varies according to a variety of factors including the organization'sgoals and resources for disease management, the targeted disease, applicable regulations andaccrediting standards, and expectations of members, providers, and purchasers.

We conclude this lesson with an insight that illustrates one approach to establishing a new diseasemanagement program. Insight 7A-5 describes a hospital-based disease management program inAtlanta and explains how the hospital progressed through the steps of planning, implementation,and evaluation in creating its pediatric asthma disease management program.

Endnotes

1. Thomas Bodenheimer, M.D., "Sounding Board: Disease Management-Promises andPitfalls," The New England Journal of Medicine 340 (15 April 1999): 1203.

2. The 2004 Disease Management Directory. National Health Information, Atlanta, GA,2004.

3. "High Start-Up Costs of Disease Management Programs Offset by Improved Outcomes,Lower Utilization, Reduced Costs," Health Plan Week (21 June 1999): 7.

4. William N. Tindall, Ph.D., R.Ph., "Cardiac Rehab: Movement and Medication," Business& Health (February 1998): 49.

5. National Committee for Quality Assurance, Accreditation '99: Standards for theAccreditation of Health Plans (Washington, DC: National Committee for QualityAssurance, 1998), 13.

6. Matt Mahady, "Carving-in Care: Evolving Tactics for Chronic Care Management,"Managed Healthcare News (June 1999): 15.

7. Thomas Bodenheimer, M.D., "Disease Management-Promises and Pitfalls," The NewEngland Journal of Medicine (15 April 1999): 1204.

8. Matt Mahady, "Carving-in Care: Evolving Tactics for Chronic Care Management,"Managed Healthcare News (June 1999): 16.

9. Karen Southwick, "To Partner or Not to Partner?" Health Forum Journal,http://www.amhpi.com/thfnet/th960104.htm (13 April 1999).

10. Aidan N. Farrell, Kenneth L. McDonough, M.D., and John H. Meyers, "Session 61:Creating the Information Roadmap for Chronic Disease Management," 1999 HIMSSProceedings 2 (The Healthcare Information and Management Systems Society, 1999),137.

11. Adapted from Aidan N. Farrell, Kenneth L. McDonough, M.D., and John H. Meyers,"Session 61: Creating the Information Roadmap for Chronic Disease Management," 1999HIMSS Proceedings 2 (The Healthcare Information and Management Systems Society,1999), 137. Used with permission.

12. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd ed. (Gaithersburg, MD:Aspen Publishers, Inc., 1998), 153.


14. Karen Southwick, "To Partner or Not to Partner?" Health Forum Journal,http://www.amhpi.com/thfnet/th960104.htm (13 April 1999).

15. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,MD: Aspen Publishers, Inc., 1997), 183-184.

16. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,MD: Aspen Publishers, Inc., 1997), 181, 183-184.

17. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,MD: Aspen Publishers, Inc., 1997), 181, 183-184.

18. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,MD: Aspen Publishers, Inc., 1997), 184-187.

19. John Meyers, "Beyond Intervention: Data Warehousing and the New DiseaseManagement," Managed Healthcare (January 1998): 30.

20. Carl Peterson, "The Technology of Disease Management," Healthplan (March/April1999): 80.

21. Carl Peterson, "Using Technology to Target Disease Management Approaches,"Healthplan (May/June 1998): 16

22. Ed Rabinowitz, "Seeing the Big Picture: Expanded Views of Disease Management HoldPromise for the Future of Health Plan," Managed Healthcare News (August 1999): 24.

23. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,MD: Aspen Publishers, Inc., 1997), 180.

24. "Developing and Implementing Provider and Practice Support Tools," The Health PlanYearbook, 4th ed., Melanie A. Matthews, ed. (Manasquan, NJ: The Health PlanInformation Center, 1998), 242.

25. "About Lovelace Healthcare Innovations," Lovelace Healthcare Innovations, 1998,http://www.lhiweb.com/LHI.htm (7 October 1999).

26. "Developing and Implementing Provider and Practice Support Tools," The Health PlanYearbook, 4th ed., Melanie A. Matthews, ed. (Manasquan, NJ: The Health PlanInformation Center, 1998), 242.

27. Edward B. Noffsinger, Ph.D., "Increasing Quality of Care & Access while ReducingCosts through Drop-In Group Medical Appointments," Group Practice Journal (January1999): 12-18.

28. Scott MacStravic and Gary Montrose, Managing Health Care Demand (Gaithersburg,MD: Aspen Publishers, Inc., 1998), 480.






34. Lisa Ketner, "Population Management Takes Disease Management to the Next Level,"Healthcare Financial Management (August 1999): 38.

AHM Medical Management: Medical Management Strategies for Acute Care

After completing this lesson you should be able to:

Describe the potential benefits and drawbacks of using hospitalists for the management ofinpatient acute care

Explain why the utilization of emergency services is an ongoing concern for health plansand describe some approaches that health plans may use to improve UM for emergencycare

Explain how clinical pathways may be useful for medical management and how a healthplan can facilitate the development of these tools

Define the term center of excellence and describe how the use of centers of excellencemay benefit a health plan's medical management programs

Introduction

Most of our discussion of medical management up to this point has focused on primary care andsecondary care (care delivered by specialists). We have also described medical managementapproaches for preventive care and for the management of chronic conditions. However, a healthplan also needs medical management programs for levels of care that involve more extensiveservices.

This lesson explores medical management strategies and tools that a health plan may use tosupport the quality, appropriateness, and cost-effectiveness of care delivered in acute caresettings.

What is Acute Care?

Acute care refers to healthcare services for medical problems that require prompt, intensivetreatment by healthcare providers in order to restore a previous state of health or prevent theworsening of an existing condition. Acute care typically addresses healthcare needs that areexpected to be of limited duration, usually no more than 30 days.1 In many instances, the need foracute care arises suddenly, as in the case of myocardial infarction or injuries from a motor vehicleaccident; however, acute care may also be necessary for a chronic condition that has graduallyworsened over time. The utilization of resources, including provider time and expertise,medications, supplies, equipment, and facilities, is usually quite substantial for acute care. Acutecare is typically the most costly level of care.

The settings where acute care most often takes place are acute care hospital inpatient units andemergency departments. Many health plans have developed medical management initiativesspecifically for hospital inpatient care and for emergency department (ED) services, as describedin the next sections. After the discussion of emergency services, we explore two additionalmedical management strategies that may be useful for improving the delivery of acute care:clinical pathways and centers of excellence.

Management of Inpatient Acute Care

The management of care for members admitted to acute care hospitals is critical to bothhealthcare quality and cost-effectiveness. Hospitalized members are typically suffering from aserious illness or injury or are at risk of significant complications related to a medical condition.

Their well-being depends in great part on the quality of the care they receive. Further, manyinpatients have multiple medical problems that require the attention of various medical specialistsand ancillary providers. The resulting recommendations for care are often complex and evenconfusing.

Coordination of the care from the different providers is needed to prevent the delay, omission, orduplication of medically appropriate services and to protect patients from unnecessaryinterventions. The physician in charge of coordinating inpatient care for a patient is called theattending physician.

Effective management of inpatient care not only improves clinical outcomes, it also enhances theefficient utilization of inpatient facilities and associated medical resources. Because inpatient carerepresents a large proportion of a health plan's total costs for care, health plans need attendingphysicians who understand the importance of managing both the quality and cost of inpatientservices.

The Role of the Attending Physician

Ideally, an attending physician visits each inpatient at least once a day to (1) assess progresstoward recovery and provide emotional support, (2) see that appropriate tests and treatments areordered and delivered, and (3) perform concurrent utilization review (UR) and participate indischarge planning. The attending physician should also communicate regularly with otherproviders involved in the patient's care. Health plans may need to educate specialists and otherproviders on the attending physician's role as care coordinator. 2

Health plans should require specialists to provide regular updates and to direct care back to theattending physician when appropriate. Specialists should not initiate new courses of care withoutconsulting with the attending physician. The attending physician may have already ordered therecommended test or treatment or know additional information that indicates a different approachto care. 3

For complex inpatient cases, the attending physician often receives assistance from a health planor hospital case manager, as we discussed in lesson Case Management . Case managers may helpwith preauthorization of the hospital admission and specific procedures, concurrent UR, anddischarge planning.

PCPs as Attending Physicians

Health plans that rely on primary care providers (PCPs) for the coordination of care typically takeone of two approaches to the management of inpatient care. Under the first, more traditionalapproach, each member's own PCP acts as the attending physician, even if specialists or ancillarycare providers actually deliver most of the healthcare services. (In Healthcare Management: AnIntroduction, we described how members' PCPs act as attending physicians.) Management ofinpatient care by a member's PCP has several potential benefits:

Continuity of care during the inpatient stay because of the PCP's previous knowledge ofthe member

Emotional support for the hospitalized member in the form of regular visits from afamiliar provider

Participation of a PCP who knows the patient, as well as the patient's medical history, inconcurrent review and discharge planning

Continuity of care after discharge from the hospital because the PCP will be familiar withthe inpatient course of care

In addition, a PCP who has knowledge of a member's capabilities and support systems may be abetter judge of the level of care required and the most appropriate care setting than a physicianwho is not familiar with the member. 6

As an alternative approach to using members' PCPs to manage inpatient care, a health plan mayinclude hospitalists in its provider network to address the needs of hospitalized patients.Hospitalists, also known as inpatient specialists or designated attending physicians, arephysicians who spend at least one-quarter of their time in a hospital setting where they serve asthe attending physicians for patients who have been temporarily transferred to their care bycommunity PCPs. The patients return to the care of their original PCPs after discharge. 7

A hospitalist may manage inpatient care on behalf of a health plan, the hospital, or a providergroup. Although some hospitalists practice exclusively in a hospital setting, others maintainoutpatient practices as well.

Hospitalists are usually internal medicine physicians, although many have specialties orsubspecialties in fields such as pulmonology, cardiology, or critical care medicine. They typicallyhave extensive experience with the most common illnesses and injuries that lead tohospitalization, such as pneumonia and myocardial infarction. In some instances, hospitalistsparticipate in the assessment and treatment of health plan members who come to a hospital'semergency department for care. However, they generally do not manage obstetric, pediatric, oroncology cases.

The use of hospitalists is a recent development in the healthcare industry in the United States. Theoverall impact of hospitalists on the cost-effectiveness and quality of inpatient care has yet to bedetermined and the practice remains controversial. In the following sections, we explore potentialbenefits and drawbacks of the hospitalist approach (as summarized in Figure 8A-1) and possiblestrategies for health plans that use a hospitalist system.

Potential Benefits of the Hospitalist Approach

Having a physician dedicated to inpatient care may benefit the health plan, its members, and thecommunity PCPs who contract with the health plan. A hospitalist's presence on site, knowledgeof conditions requiring inpatient care, and familiarity with the hospital's procedures can expeditethe delivery of appropriate diagnostic and therapeutic services. As a result, patients may havefaster recoveries and shorter stays in the hospital. Management of care by hospitalists maysignificantly reduce the length of stay and the total costs of care for a hospital admission. 8 Theefficient use of resources may also benefit a hospital that is compensated on a case rate orcapitation basis.

Hospitalists are often more accessible to hospitalized members and their families than a PCP whomakes rounds on inpatients only once or twice a day. Increased interaction with the member andfamily allows the hospitalist to monitor the patient's evolving needs and to actively participate inpatient education.

In addition, a hospitalist is likely to be more familiar with a health plan's utilization management(UM) and quality management (QM) standards for inpatient care than the average communityPCP, so the use of hospitalists may reduce unnecessary variations in care and improve clinicaloutcomes. A hospitalist who participates in emergency care can facilitate notification of thehealth plan and the member's PCP and see that the member is directed to the appropriate level ofcare, such as acute inpatient care, follow-up with a PCP or specialist, or home care. A hospitalist

in the ED eliminates the need for community PCPs to rush to the hospital each time one of theirpatients visits the ED.

As more and more healthcare services shift to outpatient settings, community PCPs often haveonly a few patients in a hospital at any given time. Traveling to the hospital once or twice a day tovisit a limited number of patients is generally not an efficient use of PCP time. For PCPs in ruralareas with a limited number of healthcare practitioners, time management is often a significantconcern. Further, some PCPs may not have the range of knowledge to be the most effective carecoordinators for hospitalized members with complex conditions. As a result, many busy PCPsappreciate being able to turn their hospital patients over to an inpatient specialist so that they canfocus on their ambulatory patients.

A hospitalist can also support the appropriate use of resources and discuss any problems relatedto healthcare quality or resource use with the health plan's medical director. Further, a hospitalistsystem may facilitate communication with a health plan's medical management staff. The healthplan's UM and QM personnel can contact the hospitalist for all questions and issues related tohospitalized members rather than having to contact each member's own PCP.

Although the use of hospitalists has grown rapidly since the mid 1990s, health plans, physician,and patient reaction to this practice has been mixed. Some health plans and PCPs believe that theuse of hospitalists may disrupt the continuity of care because the hospitalist is not familiar withthe patients, their health histories, personal preferences for healthcare, and support systems. Thesehealth plans and PCPs feel that the interests of patients are better served through the continuousparticipation of community PCPs across all care settings than through inpatient management by ahospitalist.

Some PCPs are concerned that a busy hospitalist who oversees the care of many patients will nothave enough time for individual patients and their families. 10 Further, if a patient is dissatisfiedwith care from a hospitalist or is simply unhappy about having care managed by an unfamiliarphysician, the PCP-member relationship may suffer.

In addition, PCPs may want regular involvement with hospital care in order to maintain theirinpatient management skills and stay up-to-date with advances in pharmaceutical treatment andmedical technology. Some PCPs fear that they might lose hospital-admitting privileges if theirskills and knowledge are not current.

Strategic Considerations for a Hospitalist System

The selection of experienced, respected physicians as hospitalists is crucial to the acceptance ofthe hospitalist concept by community PCPs. 11 Regular communication between hospitalists andPCPs can enhance the quality and continuity of care and PCPs' comfort levels. Communicationwith the hospitalist allows a community PCP to have input into the care plan for a particularpatient, monitor the patient's progress, and prepare for the transfer of the member's care back tothe PCP after discharge from the hospital.

For QM and risk management purposes, the health plan should regularly assess clinical outcomesand satisfaction among plan members whose inpatient stays have been managed by a hospitalist.If hospitalist care appears to compromise clinical or satisfaction outcomes, the health plan mustdevelop and implement a plan of corrective action to improve these outcomes.

One of the main controversies related to hospitalists is the use of mandatory hospitalist programsby health plans. In a mandatory program, PCPs must transfer responsibility for the care ofhospitalized patients to a hospitalist. Clear advantages of mandatory programs over the voluntaryuse of hospitalists have yet to be established. In addition, many physicians have indicatedopposition to a mandatory hospitalist system. Because community PCPs may not be comfortablewith inpatient care management by hospitalists, most health plans that use hospitalists offer theirPCPs the option of managing inpatient care themselves or turning their hospitalized patients overto a hospitalist.

Health plan members may also be apprehensive about having their course of hospital caremanaged by a physician with whom they are unfamiliar. A PCP's approach to explaining thehospitalist process and its benefits to the member can influence the member's acceptance of andsatisfaction with the hospitalist, so a health plan may benefit by working with its PCPs on thepresentation of the hospitalist concept to members. 12

Medical Management for Emergency Services

The purpose of emergency services is to provide immediate access to acute care for patients whoare not currently hospital inpatients. The availability of emergency services is often essential tothe successful diagnosis and treatment of critical conditions such as myocardial infarction,appendicitis, and severe injuries.

A health plan must support the quality of the emergency services delivered to its members byregularly reviewing the outcomes and QM processes of emergency service providers. A healthplan should investigate deaths and other adverse outcomes related to emergency care for anydeficiencies in the provider's quality of care. Figure 8A-2 lists some factors that a health plan maymonitor to evaluate the quality of emergency services.

Appropriate care in the emergency department typically improves clinical outcomes and reducesthe overall utilization of resources for an episode of care. For example, prompt, appropriatetreatment for a member suffering a severe asthma attack may result in a shorter hospital stay forthe member or even eliminate the need for hospitalization. In addition, convenient access to high-quality emergency care improves members' overall satisfaction with a health plan.

However, emergency services carry a high cost to health plans because of:

The intensity of the resources (personnel, supplies, medications, and high-technologydevices) utilized

Overhead charges associated with maintaining the facility and its resources for immediateuse

Cost-shifting for unreimbursed services delivered to individuals who lack healthcarecoverage13

The delivery of duplicate services or unnecessary services by providers who are notfamiliar with the patient or the patient's history

The high cost of emergency services is compounded by the fact that, in many instances, healthplan members who seek care from emergency care providers (typically EDs in hospitals) do notneed this level of care. Members with nonemergency situations often visit EDs for the followingreasons:

Inability to determine if a health problem is life- or limb-threatening Lack of access to immediate care in another setting (e.g., PCP office is closed or no

appointment is available on that day) Lack of knowledge about appropriate use of the ED and other care settings Convenience of the ED compared to other settings

In addition to generating high costs, members who seek nonemergency care in the ED may createcongestion and interfere with the unit's ability to provide immediate treatment for realemergencies. Further, these members may be dissatisfied with the length of time they have towait for care because EDs treat patients based on the results of triage. Triage is the classificationof patients into categories according to the severity of the illness or injury and the resulting needfor acute care. Cases classified as more severe take priority over less severe conditions, eventhough the less severe cases may have arrived first at the ED. Ideally, a triage examinationfollows evidence-based guidelines that were developed specifically for emergency care.

The challenge for health plans is to support the delivery of emergency services for legitimateemergencies while directing members with nonemergency conditions to primary care settings orurgent care centers. An urgent care center is a healthcare facility that provides immediate care toambulatory patients for minor illnesses and injuries. Urgent care centers often have hours thatextend beyond the office hours of most PCPs and may even be open 24 hours a day. The costs ofurgent care are higher than the costs for primary care delivered in a provider's office, but aresignificantly less than those for emergency services because urgent care typically requires lessintensive and less expensive facilities, personnel, or equipment than an ED.

Health plans have tried a variety of approaches to manage the utilization and costs of emergencyservices, as we describe in the following sections.

Authorization Systems for Emergency Care

Authorization requirements for emergency services vary greatly from one health plan to another.Some health plans have required preauthorization for emergency services; however, this approachmay pose risks to members' well-being if the authorization process results in the delay ornonauthorization of care for conditions that are truly life- or limb-threatening. Some health plansperform retrospective review on claims for emergency services and base payment decisions onthe final diagnosis of the condition rather than on the member's symptoms at the time of the visitto the ED. Both preauthorization requirements and diagnosis-based retrospective review ofemergency services have come under critical scrutiny by legislative, regulatory, accreditation, andhealthcare industry entities, and by the media and the general public.

The majority of health plans follow the prudent layperson standard or a similar rule fordetermining coverage of emergency services. The prudent layperson standard (as described inthe Balanced Budget Act of 1997) defines an emergency as "a medical condition manifestingitself by acute symptoms of sufficient severity (including severe pain) such that a prudentlayperson, who possesses an average knowledge of health and medicine, could reasonably expectthe absence of immediate medical attention to result in placing the health of the individual inserious jeopardy, serious impairment to body functions, or serious dysfunction of any bodilyorgan or part." 14

Twenty-six states have adopted the prudent layperson standard (or a variation of that standard) fordefining emergencies and require health plans to reimburse care according to that standard. 15

The Balanced Budget Act of 1997 (BBA) established the use of the prudent layperson standardfor Medicare and Medicaid health plans. The BBA also prohibits preauthorization requirementsfor Medicare and Medicaid plan members.

The federal Emergency Medical Treatment and Active Labor Act (EMTALA) of 1986, asdescribed in Figure 8A-3, requires hospitals that receive Medicare reimbursement to screen and,if necessary, stabilize all patients who come to their emergency departments. To reduce theamount of unreimbursed care provided by EDs, some states place restrictions on health planrequirements for preauthorization of emergency services and retrospective nonauthorization ofpayment for those services. For example, the New York Health Plan Reform Act of 1996stipulates that health plan members do not need prior authorization for emergency treatment.

Most health plans, including those in states that have not adopted the prudent layperson standard,have moved away from strict authorization requirements for emergency services and are usingother methods to decrease the delivery of nonemergency services through the ED.

Other Strategies for Managing ED Utilization

As we discussed in lesson Self-Care and Decision Support Programs, some health plans havetelephone triage lines to help members determine what level of care is needed for a medicalproblem. However, many health plan members do not have access to a telephone triage service,or in their distress about the illness or injury, they forget to call the triage line. A health plan thatis attempting to reduce inappropriate utilization of emergency services may need additionalstrategies such as

Educating all members on the appropriate use of the ED and other care settings Identifying members who repeatedly use the ED in order to provide them with additional

education and, perhaps, access to other medical management programs Improving access to primary care and urgent care settings

Education for the Member Population

Many consumers simply do not understand the concept of different levels of care and appropriatesettings for care delivery. Typically, these consumers seek healthcare only after a problem isapparent and do not have an established relationship with a PCP. Whenever a healthcare needarises, their automatic response is to go to the ED at a nearby hospital.

To help members access the appropriate level of care, a health plan may take a proactiveapproach and distribute information describing different care settings (such as PCP offices, urgentcare centers, and emergency departments) and the purpose of each of those settings to allmembers of a health plan. This type of information may be included with the provider directory.A health plan that uses a telephone triage system may encourage members to use this service bydecreasing the ED copayment for members who call the triage line prior to going to the ED.

Focused Strategies for Individual Members

Instead of providing instruction about appropriate care settings to all members, a health plan maytarget its messages about inappropriate utilization of emergency services to members who havedemonstrated a pattern of using the ED for primary or urgent care. Health plan members may alsoreceive education about appropriate use of care settings from providers in the ED, such as thehealth plan's hospitalist or an ED nurse. In some instances, the ED personnel assist the memberwith making an appointment for follow-up care with a PCP.

Repeated use of the ED, for primary care, urgent care, or real emergencies, should alert the healthplan to the possibility that a member's condition may warrant additional medical managementmeasures. For example, a member with complex needs due to multiple medical conditions maybenefit from case management. A member who repeatedly visits the ED for exacerbations of achronic illness may be a candidate for disease management.

Improved Access to Primary and Urgent Care

A health plan must not only inform its members about appropriate care settings; the health planmust also make sure that care in those settings is accessible. For example, a health plan maycontract with local urgent care centers that have extended service hours. Some health plans offerfinancial incentives to PCPs who have evening or weekend hours. A provider group may bewilling to contract to cover urgent care needs within the group 24 hours a day, seven days a week.Ideally, health plans prefer to arrange for members to see their own PCPs (or at least a provider inthe same medical group) whenever possible in order to support the continuity of care.

However, many health plans have concluded that, regardless of health plans' attempts to directcare to alternative settings, a significant number of members will still visit an ED fornonemergency care. As a result, some of these health plans have begun to focus on other ways toreduce the costs associated with delivering this care. In some instances, health plans increasemembers' access to nonemergency outpatient care by contracting with hospitals that, in additionto emergency care, offer other levels of care designed to address the needs of ambulatory patients.Examples of outpatient care that may be provided at a location within the hospital or even withinthe ED include

Urgent care Observation care

Urgent Care. Having an urgent care center nearby or connected to the ED can benefit planmembers, health plans, and the healthcare facility. Members with immediate needs know thatthey can go to the ED even if their conditions are not life- or limb-threatening. When membersarrive in the ED's receiving area, the triage nurses there can direct them to the appropriate level ofcare. As a means of supporting quality care, a health plan should see that the triage nurses use up-to-date, evidence-based decision support tools when routing patients to the different levels ofcare. Members with urgent care needs such as fevers, cuts, and sprains may receive attentionmore quickly in an urgent care center than in a traditional ED because the urgent care staff is notpreoccupied with emergency cases.

The facilities, equipment, and staffing required for an urgent care center are much less costly thanthose needed to maintain an ED. For example, an urgent care center's staff may include nursepractitioners and physician assistants who provide many of the same services as physicians, but

usually at a lower cost. As a result of lower costs, the hospital will likely agree to provide urgentcare to a health plan's members at a cost that is substantially lower than that for services deliveredin the ED. In exchange for the lower rates, the health plan may agree to forego retrospectivereview on cases treated in the urgent care center. 17

In addition, providing access to urgent care through the ED may allow a health plan's hospitalistto become involved in the member's care. The hospitalist can improve both UM and QM bymatching healthcare needs with plan resources and seeing that plan members receive theappropriate discharge instructions and follow-up.

An urgent care center near the ED can lessen the congestion in a busy ED's waiting room asurgent care needs are triaged to a different area. The ED personnel can then focus their attentionon emergency cases without creating dissatisfaction among patients with less severe problems.Close proximity of the ED to the urgent care center allows the two units to share clinical staffaccording to current needs. For example, if an ED receives several victims from a motor vehicleaccident at one time, the urgent care center may send some of its staff to assist the ED personnel.If the ED has very few patients and the urgent care center is overwhelmed with influenza cases,ED personnel may help the urgent care staff. A similar staff-sharing arrangement may be usedwith an observation unit that is near the ED.

Observation Care. A hospital may also offer observation care for patients who need healthcareservices beyond primary care, but do not currently require the resource-intensive services of theED or inpatient acute care. Observation care is the aggressive evaluation and management ofpatients who have a reasonable chance of stabilizing to the point of being released to a non-acutelevel of care within 24 hours. Observation care provides a monitored environment for thesepatients to wait for their conditions to improve or to be diagnosed. A hospital that offersobservation care may have a unit specifically for this purpose. Alternatively, a health plan'scontract with a hospital may indicate that members in need of observation care should beadmitted to regular medical-surgical units at a lower rate than that for acute care. Figure 8A-4shows some examples of patients for whom observation care may be appropriate.

Like hospital-based urgent care, observation care may offer quality and cost advantages.Observation care staffing may include nurse practitioners and physician assistants with a limitednumber of physician supervisors. An ED physician, a hospitalist, or a patient's personal physicianmay oversee the observation care. If the patient's condition does not resolve in a given timeperiod, the patient can be admitted for inpatient care.

Because observation care is much less resource-intensive than ED or inpatient care, health planmembers who receive observation care can obtain the immediate attention they need withoutincurring unnecessarily expensive charges. 18 Observation care allows more opportunity forclinical staff to determine if a patient is well enough to go home or if the condition requireshospitalization. Observation care patients do not occupy ED space and do not require personnelwho may be needed for more severe illnesses or injuries. In many instances, an additional benefitis that the observation unit or bed is apart from the busy, noisy atmosphere often found in EDs, sopatients can rest undisturbed.

Clinical Pathways

A medical management approach that providers frequently apply to acute care is the use ofclinical pathways. A clinical pathway, also known as a critical pathway, is "an optimalsequencing and timing of interventions by physicians, nurses, and other disciplines for aparticular diagnosis or procedure, designed to minimize delays and resource utilization and tomaximize the quality of care."19 A clinical pathway outlines not only the services that will bedelivered, but also who will deliver each service, when, and where, as well as the expected resultsof the interventions.

Clinical pathways typically incorporate one or more sets of standing orders. The term standingorders refers to a set of physician orders (often available on a pre-printed form) for tests,medications, procedures, and supplies that have been designated as standard practice for specificmedical diagnoses or conditions.20 Standing orders in a clinical pathway are often organized as achecklist that facilitates documentation and reduces the likelihood of omission, substitution, oraddition of orders by the caregiver executing the orders.21 Ideally, clinical pathways standardizecare enough to decrease unwarranted variation while allowing enough flexibility to accommodatethe needs of individual patients. Before implementing a clinical pathway for a particular patient,the attending physician must evaluate each component of the clinical pathway to avoid renderingservices that are unnecessary or inappropriate for that patient.

Although the most frequent use of clinical pathways is for inpatient acute care, a pathway maycover other care levels or settings. Figure 8A-5 lists some examples of the scope of activities for aclinical pathway.

Clinical pathways address medical conditions that affect a significant proportion of the populationin a particular area. Common medical topics for clinical pathways include pregnancy, painmanagement, and stroke as well as chronic conditions such as asthma, diabetes, hypertension,back pain, and depression. Types of surgeries and procedures for which providers often useclinical pathways are biopsy, angioplasty, cardiac surgery, hysterectomy, and total joint surgery.22

Advantages of the Clinical Pathway Approach

Clinical pathways serve multiple purposes for healthcare providers. The pathways are generallyan effective means of planning the care to be delivered, organizing the human and other resourcesthat will be required, and communicating the care plan to patients, caregivers, and health plans. Aclinical pathway is also helpful for scheduling and coordinating the care from different providersand different settings. Clinical pathways often result in reduced lengths of inpatient stays andlower total usage of resources. 23

The interventions and timeframes included in a clinical pathway are typically drawn fromevidence-based medicine, so the use of clinical pathways should serve to

Reduce unnecessary variation in care Eliminate interventions that offer no significant benefit Increase the efficiency of care delivery Improve clinical outcomes

Because clinical pathways include anticipated outcomes, these tools are useful for evaluating thequality of care. A health plan or healthcare facility can track its own outcomes over time as wellas compare its clinical and financial results to those of other similar entities. 24 Health plan claimsadministration personnel may also use clinical pathways as a guideline for determining whichservices to pay for.

Development of Clinical Pathways

Although individual hospitals or hospital affiliations often develop their own clinical pathwaysand may use very different approaches for pathway development, the following steps arerepresentative of the basic process: 25

1. Select a diagnosis, condition, or procedure for the pathway. The choice of topic typicallydepends on the perceived need to reduce costs and/or variation for the condition or procedure. Forexample, if the clinical or financial outcomes of a particular surgical procedure vary, thedevelopment of a clinical pathway for the procedure may be indicated.

2. Examine the typical diagnosis and treatment steps for possible ways to reduce cost orvariation. Then define the scope of the pathway (e.g., inpatient care only or episode of care).For instance, does the variation primarily occur during inpatient care or outpatient care, or is carevariable across all settings? Which aspects of care are associated with the highest costs?

3. Based on the chosen scope for the pathway, select a development team that represents thekey clinicians involved in the pathway. The development team typically includes a variety ofhealthcare professionals (e.g., PCPs, specialists, nurses, pharmacy, and relevant ancillary serviceproviders) as well as representatives from other hospital departments (e.g., finance, informationsystems, and medical records), and, perhaps, health plans. PCP involvement is essential becausePCPs often manage the patient's care after the acute episode. Pharmacy input is very important tothe process because pharmaceutical management can have a great impact on the patient's progressand length of stay.26 Health plans can provide helpful information about their benefit plans,medical policies, and CPGs so that clinical pathways will not conflict with a health plan'scoverage of services or clinical practice parameters. Costs and coverage are important issues forclinical pathways. If an intervention is not covered, many patients will refuse the service becausethey cannot or will not pay for it on their own.

4. Document the current process and outcomes for the pathway. Look for possible areas ofvariation in the current approach and identify the results (either positive or negative) of thosevariations. Record the time required for each of the steps in the process.

5. Examine the current practices for consistency with evidence-based best practices asdescribed in the current medical literature. Look at current activities to determine which stepsare unnecessary or could be performed in a less intensive setting. For example, could certainaspects of preoperative care be shifted to an ambulatory care setting? Note which activities aremost important to the achievement of desired outcomes. Benchmark clinical pathways from otherhospitals for goals and check the practices that they have identified as best. Unless a new clinicalpathway follows evidence-based best practices, it may only serve to reinforce currentinefficiencies and unnecessary activities. The development team can often adapt an existingclinical pathway for their own use.

6. Identify the ultimate desired clinical outcomes for the pathway, such as discharge homeor return to a specific level of function. Describe outcomes in objective, quantifiable termswhen possible.

7. Identify intermediate objectives that must be met before the final outcome can beachieved. An example of an intermediate goal is the transfer of a patient from the intensive careunit to a general medical-surgical floor.

8. Identify the activities and events that must occur in order to reach the intermediate andultimate objectives. In this context, an event is a milestone and an activity is an intervention thattakes time and resources to complete. For instance, the successful removal of a cardiac surgerypatient from a mechanical respirator is an event. Examples of activities include tests, treatments,

medications, and education. In this step, the team can also identify the resources that will beneeded to complete the activities as well as the most appropriate care settings. 27

9. Determine which steps must be completed before others can start, then formalize theoptimal sequence. For example, an oncologist needs the results of a biopsy before planningcancer treatment. Determine which steps can or should be conducted concurrently. Draw or atleast list the steps in order to help with the sequencing.

10. Create a formal tool that depicts or at least describes the clinical pathway. Thedescription of the clinical pathway may include written descriptions, charts, or both. The type ofchart most commonly used to depict a clinical pathway is a matrix that lists the different activitiesto be performed according to the time period in which they should occur. Figure 8A-6 shows anexample of a template for an activity/time matrix.

The matrix organizes activities into categories such as treatments, activity level, diet, patient andfamily education, medications, and tests. The time periods listed depend on the type of servicebeing delivered. For instance, emergency services and surgeries are typically timed in minutes,while intensive care is timed in hours, and other care is generally timed in days, weeks, ormonths.

Activity/time matrices are usually concise and easy to understand, but the sequence and durationof individual activities may not be readily apparent. In addition, complex cases involving many

different providers and activities may be difficult to depict on or understand from this type ofmatrix.

In many cases, the clinical pathway development team utilizes project management computersoftware to expedite pathway development; to display the pathways for patients, providers, andhealth plans; and to document the use and effectiveness of the pathways.

Health Plan Participation in Pathway Development

Because clinical pathways offer cost and quality benefits, some health plans are becoming moreinvolved in the development process. Participation on the development team may allow a healthplan to improve the continuity of care for its members by combining care from different settings(such as ambulatory care and acute care) into a single clinical pathway. Hospitals may also bewilling to incorporate health plan initiatives such as preventive care, self-care, and diseasemanagement programs into their clinical pathways.

Health plans may also assist their network hospitals with pathway development in several otherways. A health plan might gather existing clinical pathways and create a library of currentpathways for hospitals to customize to their own type and size of facility. Having such a library ofpathways reduces the duplication of effort and decreases the research burden on individualhospitals. Other forms of assistance that a health plan might offer hospitals include

Sharing past experience and expertise with the development team Providing computer software to aid in the development process Sponsoring instructional meetings on clinical pathway development Providing medical literature resources on best practices and outcomes research Compiling outcomes information from network hospitals to identify the clinical pathways

that yield the best results in a particular region or for a particular type of hospital28

Implementation and Evaluation of Clinical Pathways

After a clinical pathway tool has been disseminated to the caregivers at a hospital, the pathwaymay be placed into use as a guide to daily care for most patients with the condition addressed bythe pathway. A health plan may have case managers or utilization review personnel whocontinuously monitor the use of clinical pathways for outcomes and variances. For clinicalpathways, a variance is an activity that differs from the one listed on the clinical pathway or thefailure of an event to occur as planned. For example, a test may not be performed as planned dueto equipment failure. A patient's recovery may be delayed due to an infection or an adversereaction to a medication. Concurrent monitoring of clinical pathways allows for correction of avariance before it impacts outcomes or adjustment of the clinical pathway to accommodate a newsituation. All variances, the clinical reasons for the variances, and the results of the variancesmust be documented. 29

If a physician chooses to modify a clinical pathway before care begins or not to use the pathwayfor a particular patient, the reasons for and the results of the physician's action should bedocumented. Nonuse or modification of a clinical pathway may indicate the need to revise thepathway or to educate the provider on the intent and use of the pathway. However, health plansand hospitals must bear in mind that clinical pathways may not be appropriate for every patientwith a particular condition, particularly if a patient has other serious medical problems. In

addition, the pathway development team should regularly review pathways and revise them asnecessary based on advances in medical knowledge or technology.

Tracking both clinical and financial outcomes is essential for a health plan's evaluation of clinicalpathways. An effective pathway must improve quality without increasing cost or reduce costswithout lowering quality. Ideally of course, it should improve quality and decrease costs. Thehealth plan should document and investigate all variations from the expected clinical andfinancial outcomes to determine if corrective actions should be taken to modify a clinicalpathway.

Risk Management for Clinical Pathways

A health plan and its network hospitals should take appropriate precautions to see that the use ofclinical pathways does not increase their exposure to financial liability as a result of harm topatients. Risk management for clinical pathways often includes the following approaches:

Developing evidence-based pathways that reflect a thorough review of relevant medicalliterature and documenting the specific sources of information

Making clinical pathways flexible enough to accommodate multiple health problems andpatients' preferences for care

Including a written policy that the purpose of the pathway is to enhance quality or cost-effectiveness rather than to establish a new standard of care and that medicallyappropriate variances will be accommodated

Establishing a process for documenting the rationale for any variances in case thevariances are questioned

Reviewing pathways regularly and updating them as needed, based on documentedvariances or changes in medical knowledge

Attaching a disclaimer similar to the one shown in to each clinical pathway30

Centers of Excellence31

In order to provide its members with access to appropriate, high-quality acute care services, ahealth plan may contract with one or more centers of excellence. A center of excellence is a

healthcare institution that, because of its combination of clinical expertise, equipment, and otherresources, has the ability to provide specific medical procedures or treatments more effectivelyand efficiently than other providers in the same region. 32 A center of excellence typically focuseson complex, costly procedures and conditions such as organ transplants, bone marrow transplants,open heart surgery, cancer, neurological diseases and injuries, trauma, total joint replacements,and high-risk obstetrical cases. A center of excellence may be located within a hospital or in aseparate facility and may provide inpatient care, outpatient care, or both.

The perceived value of a center of excellence is based on the relationship between the center'sclinical outcomes and its level of experience with a particular disease or condition. Multiplestudies have shown that, for many surgical procedures and medical diagnoses, better outcomesoccur when a provider treats a large volume of patients who have the specific condition. Forexample, in a study conducted for the Office of Technology Assessment, researchers validatedthe volume-outcomes relationship for a variety of procedures, including cardiac catheterization,coronary artery bypass graft surgery, and total hip replacements, as well as for medical diagnosesincluding acute myocardial infarction and newborn diseases.33 One explanation for the improvedoutcomes is that increased experience with a medical problem results in superior knowledge andskills for a facility's clinical staff.

When a health plan contracts with a center of excellence for the evaluation and treatment of aselected condition, the health plan usually refers all plan members who suffer from that problemto the center of excellence.34 However, members (or their families) may be reluctant to go tothese centers. In many cases, the center of excellence is unfamiliar to the member and may belocated far away from the member's family and friends. The health plan may offer richer benefits,such as reduced or eliminated copayments, deductibles, or coinsurance, to members who use thepreferred centers rather than another provider.

Because members' needs vary greatly according to their medical conditions, each health planestablishes quality standards for its centers of excellence according to the particular medical focusof each center. Figure 8A-8 lists some of the issues that are typically addressed in qualitystandards for a center of excellence.

A health plan should conduct a careful examination of the quality management program of acenter of excellence, both as part of the process to select a center and periodically thereafter, tosee that the center's quality initiatives meet the health plan's standards. The center should alsopromptly notify the health plan of any unexpected deaths or other significant adverse events sothat the health plan may perform its own investigation of the situation.

Endnotes

1. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd ed. (Gaithersburg, MD:Aspen Publishers, 1998), 4.

2. Michael B. Brouthers, "Health Plans Move Hospitalist Programs to the Next Phase,"Managed Healthcare (July 1999): 38.

3. Peter R. Kongstvedt, M.D., "Managing Basic Medical-Surgical Utilization," in BestPractices in Medical Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher,M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 169.

4. Peter R. Kongstvedt, M.D., "Managing Basic Medical-Surgical Utilization," in BestPractices in Medical Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher,M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 169-170.

5. Peter R. Kongstvedt, M.D., "Managing Basic Medical-Surgical Utilization," in BestPractices in Medical Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher,M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 169.

6. Robert M. Wachter, M.D., "Hospitalists Fan Winds of Change and Inpatient Care Won'tBe the Same," Managed Healthcare (January 1998): 37.

7. John R. Nelson, M.D., and Winthrop F. Whitcomb, M.D., "The Case for Hospitalists,"Healthplan (November/December 1999): 21.

8. David W. Plocher, M.D., Jean Stanford, and Bruce Meltzer, "The Hospitalist Model: AMethod for Managing Inpatient Care," in Best Practices in Medical Management, ed.Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: AspenPublishers, Inc., 1998), 181-182.

9. Neil Chesanow, "When Hospitalists Take Over…Who Wins? Who Loses?" MedicalEconomics (28 December 1998): 102.

10. Neil Chesanow, "When Hospitalists Take Over…Who Wins? Who Loses?" MedicalEconomics (28 December 1998): 109-110.

11. David W. Plocher, M.D., Jean Stanford, and Bruce Meltzer, "The Hospitalist Model: AMethod for Managing Inpatient Care," in Best Practices in Medical Management, ed.Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: AspenPublishers, Inc., 1998), 183.

12. Neil Chesanow, "When Hospitalists Take Over…Who Wins? Who Loses?" MedicalEconomics (28 December 1998): 110, 115.

13. James Augustine, M.D., and Ann M. Dietrich, M.D., "Emergency Medicine in a HealthPlan Environment," Health Plan Interface (February 1998): 59.

14. Sally K. Richardson, "State Medicaid Director Letter (Emergency Services)," Centers forMedicare and Medicaid Services, 20 February 1998,http://www.hcfa.gov/medicaid/bba2208c/htm (28 March 2000).

15. Molly Stauffer, 1999 State by State Guide to Health Plan Law, ed. Donald R. Levy(Gaithersburg, MD: Aspen Publishers, Inc., 1999), 3-4-3-10.

16. American Association of Health Plans (AAHP), Code of Conduct (Washington, DC:American Association of Health Plans, Summer 1998), 3.

17. Angela Zotos, "The Fast-Track Emergency Department," in Best Practices in MedicalManagement, ed. Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg,MD: Aspen Publishers, Inc., 1998), 136, 138.

18. Angela Zotos, "The Fast-Track Emergency Department," in Best Practices in MedicalManagement, ed. Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg,MD: Aspen Publishers, Inc., 1998), 135-136.

19. Richard J. Coffey, et al., "An Introduction to Critical Paths," Quality Management inHealth Care 1, no. 1 (1992): 45.

20. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd ed., (Gaithersburg, MD:Aspen Publishers, Inc., 1998), 193.

21. Mary B. Kilmer, "Clinical Pathways Can Help Manage Health Plan," HealthcareFinancial Management (Fall 1997),http://wilsontxt.hwwilson.com/pdfhtml/03028/PV385/VSI.htm (15 September 1997).

22. Lawrence B. Lehman, M.D., et al., "Critical Pathways: A Program Description in aNational Health Plan," Health Plan Interface (June 1998): 56.

23. Richard J. Coffey, et al., "Critical Paths: Linking Care and Outcomes for Patients,Clinicians, and Payers," in Best Practices in Medical Management, ed. Peter R.Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers,Inc., 1998), 233.

24. Richard J. Coffey, et al., "Critical Paths: Linking Care and Outcomes for Patients,Clinicians, and Payers," in Best Practices in Medical Management, ed. Peter R.Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers,Inc., 1998), 221, 236.

25. Richard J. Coffey, et al., "Critical Paths: Linking Care and Outcomes for Patients,Clinicians, and Payers," in Best Practices in Medical Management, ed. Peter R.Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers,Inc., 1998), 223-230.



28. Lawrence B. Lehman, et al., "Critical Pathways: A Program Description in a NationalHealth Plan," Health Plan Interface (June 1998): 56, 63.

29. Richard J. Coffey, et al., "Critical Paths: Linking Care and Outcomes for Patients,Clinicians, and Payers," in Best Practices in Medical Management, ed. Peter R.Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers,Inc., 1998), 226-227.

30. Suzanne M. Mitchell, et al., "Legal Issues Associated with the Use and Development ofPractice Guidelines," in Managing the Risks of Health Plan, ed. Barbara J. Youngberg(Gaithersburg, MD: Aspen Publishers, 1996), 56, 59.

31. Adapted from Academy for Healthcare Management, Network Management in HealthPlans, (Washington, DC: Academy for Healthcare Management, 1999), 6-9-6-11. Usedwith permission; all rights reserved.


33. Daniel Dragalin and Philip Goldstein, "The Centers of Excellence Phenomena," in ThePhysician's Guide to Health Plan, ed. David B. Nash, M.D. (Gaithersburg, MD: AspenPublishers, Inc., 1994), 163-166.

34. Sheryl T. Dacso and Clifford C. Dacso, M.D., Health Plan Answer Book, 4th ed. (NewYork, Panel Publishers, 2000), 16-44.

AHM Medical Management: Medical Management Strategies for Post-Acute Care

Objectives

After completing lesson Medical Management Strategies for Post-Acute Care, you shouldbe able to:

Identify and describe the purposes of four types of post-acute care Explain how subacute care differs from skilled care Explain two types of advance directives Describe the role of a health plan in end-of-life care

Introduction

In many instances, patients have medical conditions that require services beyond primary andsecondary care, but do not warrant acute care. Rather than unnecessarily using acute careresources and facilities, health plans often arrange for the delivery of post-acute care for suchpatients.

This lesson addresses several different types of post-acute care, situations in which these differenttypes of care may be appropriate, and medical management considerations for each type.

What is Post-Acute Care?

Post-acute care generally refers to healthcare services delivered after a course of acute care orinstead of acute care. Post-acute care involves less intensive resources than acute care, so ittypically is less costly than acute care.1 Despite the apparent contradiction ("post" means after),post-acute care may also be used in place of acute care. Originally, this type of care wasimplemented following hospitalization; however, with the increased availability of post-acutecare services, health plans and their providers can often reserve acute care settings for patientswhose conditions require the highest level of care.

Within the category of post-acute care, the type and intensity of services rendered to patients varygreatly. The most appropriate type of post-acute care for a health plan member depends on thefollowing factors:

The member's medical condition The amount and type of support available from family and community resources Services covered by the member's benefit plan and the availability of those services in a

geographically accessible location Member and family preferences

When a plan member needs post-acute care, personnel from the health plan, such as utilizationreview (UR) staff, case managers, or hospitalists, may work with the member and the member'sprimary care provider (PCP) to (1) determine the most appropriate level of care, (2) definerealistic goals for that care, (3) design a care plan to achieve the goals, (4) plan for the member'sdischarge, and (5) assess when discharge is appropriate. Among the specific types of post-acutecare that health plans may provide to plan members are subacute care, skilled care, homehealthcare, and end-of-life care.

Subacute Care

Some patients in need of ongoing medical and rehabilitative services do not require the level ofcare and resources typically offered by acute care hospitals, but they are so ill or debilitated thatthey do need significant amounts of medical care on a 24-hour basis. In order to provide theseplan members with the appropriate care in the most cost-effective setting, health plans arrange forthe delivery of subacute care.

According to the National Subacute Care Association (NSCA), subacute care is acomprehensive, cost-effective, inpatient level of care for patients who

Have had an acute event resulting from injury, illness, or exacerbation of a diseaseprocess

Have a determined course of treatment Though stable, require diagnostics or invasive procedures but not intensive procedures

requiring an acute level of care

The severity of the patient's condition requires

Active physician direction with frequent on-site visits Professional nursing care Significant ancillary services An outcomes-focused interdisciplinary approach utilizing a professional team Complex medical and/or rehabilitative care

Typically short term, subacute care is designed to return patients to the community or transitionthem to a lower level of care. 2

The ultimate goal of subacute care is to optimize a patient's medical condition, functional ability,and sense of well-being within a reasonable timeframe so that the patient can be discharged homeor to a lower level of care. Rehabilitation typically plays a prominent role in subacute care.Rehabilitation is the process of restoring patients with functional impairments to their maximumlevels of function (physical, mental, and vocational) in order to enhance their independence andproductivity. 3 The most commonly used forms of rehabilitation are physical therapy (PT),occupational therapy (OT), speech language pathology (SLP), and recreational therapy. Patientsmay also receive rehabilitation in other care settings, such as acute care hospitals, skilled nursingfacilities, ambulatory care centers, and at home.

Because many recipients of subacute care have ongoing medical conditions or persistentimpairments, self-care education for patients and families is an essential component of subacutecare. Otherwise, the patient's condition may deteriorate after the patient returns home.

Subacute care relies on the coordinated efforts of a multidisciplinary team of healthcarepractitioners that generally includes several types of rehabilitation specialists. Figure 8B-1 liststhe disciplines that are commonly represented on a subacute care team.

Subacute Patients

Subacute patients are typically elderly; however, many younger patients are also candidates forsubacute care. Subacute patients vary greatly in terms of the types of disease or injury, treatmentsrequired, and length of stay. 5 Figure 8B-2 lists some examples of patients for whom subacutecare may be an appropriate option.

Utilization Management

Because the medical needs of subacute patients are often extensive, case management is a usefulcomponent of a health plan's approach to utilization management (UM) for subacute care. Thehealth plan's case management and UR personnel typically work with the member's physician to

determine the type of subacute care required and the most appropriate setting for that care. Thehealth plan's case manager can then facilitate the member's admission to the subacute care setting,coordinate care and monitor progress, and plan for the member's discharge from that setting.Many subacute care facilities or units have their own case managers. In this situation, a healthplan's case managers may share responsibilities for case management with the subacute careprovider, or the health plan may choose to delegate case management activities to the provider.

Even if a health plan does not formally apply case management methods to subacute care, thehealth plan's utilization review personnel can improve utilization through prospective andconcurrent review. Conducting preauthorization for a subacute inpatient stay helps a health planmatch member needs to the subacute care facility best suited to meet those needs. Throughconcurrent review, the health plan can monitor a member's progress and changes in needs andthen respond accordingly. For example, if a member's condition does not improve as much or asrapidly as originally anticipated, the health plan can work with the subacute provider to revise thecare plan. Concurrent review also allows the health plan to participate in discharge planning. Thehealth plan can then arrange for the resources that the member will need at home, such as medicalequipment or home healthcare.

Financial outcomes indicators for subacute care are generally similar to those used for acute care,such as the length of inpatient stay, costs per day, total cost of the stay, number of treatment unitsdelivered, the type and costs of other resources, and the amount and costs of resources requiredafter a member is discharged.

Quality Management

One way in which a health plan can support the quality of the subacute care delivered to itsmembers is by contracting with subacute care providers that meet the standards of the appropriateaccrediting agency. The Joint Commission on Accreditation of Healthcare Organizations(JCAHO) accredits subacute care providers on a variety of criteria including staff qualifications,patient education, and, if applicable, comprehensive rehabilitation.

If the subacute care provider offers rehabilitation, accreditation under the medical rehabilitationstandards of the Commission on Accreditation of Rehabilitation Facilities (CARF) is alsodesirable. CARF standards emphasize

Designing services around the needs of patients and their families Involving patients and their families in decision making Continuously improving quality through outcomes management7

A health plan may establish its own set of quality measures for subacute care providers to be usedin place of or in addition to those from accrediting agencies. For example, the health plan mayrequire providers to offer a specific set of services and establish minimum qualifications for theclinical staff who will provide those services. In addition, a health plan may also measure thequality of provider processes such as

Admissions Patient assessment and care planning Clinical procedures Interdisciplinary management of patients Education of patients and their families

UM and quality management (QM) programs8

For example, does the clinical staff complete a care plan within 72 hours of admission? Does thatcare plan include adequate information on the types and amounts of care that will be rendered andthe goals for that care? Does the provider have evidence-based clinical pathways, or at leastclearly defined care tracks, for the conditions most often treated?9

A health plan must also manage subacute care outcomes. Clinical outcomes measures forsubacute care focus on both the resolution of medical problems (e.g., wounds, infections) andfunctional improvement (e.g., mobility, ability to perform hygiene and grooming). Althoughstandardized instruments for measuring subacute care clinical outcomes exist, most health plansdevelop their own measurement tools.10

Because family members are often very involved in subacute care and rehabilitation, health plansoften solicit the opinions of patients and their families when evaluating satisfaction with subacutecare. Common satisfaction indicators for subacute care include member and family perceptions ofthe

Healthcare services and education received, including the level of courtesy, respect, andprofessionalism shown by the provider's staff

Member's health status and ability to function in society after discharge Level of service provided to the member and family by the health plan

Skilled Care

The whole field of subacute care is still evolving, and similarities exist between subacute care andskilled care. Skilled care involves the regular (e.g., daily, three times per week, or weekly)delivery of healthcare services, such as medication, treatments, or procedures from a licensednurse and, as required, respiratory, physical, occupational, and speech-language therapy topatients who are not in an acute state of illness or injury. Skilled care often includes both medicalcare and rehabilitation and may include personal care, such as meals and daily hygiene.

The primary distinction between skilled care and subacute care relates to the extent and medicalcomplexity of the patient's needs. Generally subacute patients require more medical services(medications and treatments) from physicians and nurses than skilled care patients need.Rehabilitation services are generally more extensive for subacute patients than for skilled carepatients. In most cases, skilled care is also less costly than subacute care.

Skilled care may be short term or long term. For short-term skilled care, the goal is to improve thepatient's health and function to the point where the patient no longer needs professionalhealthcare services. Generally, in long-term skilled care situations, the main purposes of the careare to (1) maximize functional abilities, (2) prevent deterioration of the medical condition, and (3)provide personal care.

Most skilled care patients, particularly those in long-term care situations, are senior citizens.Skilled care patients' diagnoses and needs vary greatly, so a health plan's case management andUR personnel may assist their members and members' PCPs with determining the types of careneeded and the most appropriate setting for that care, and with the processes necessary to accessthe care. Figure 8B-3 shows some examples of patients who are potential candidates for skilledcare.

For short-term skilled care, health plan personnel may also assist with care coordination, performconcurrent utilization review, and participate in discharge planning. Whether the skilled care is tobe short term or long term, the health plan's personnel should discuss the plan for care deliverywith the member and the member's family well in advance of switching the member from adifferent level of care to skilled care.

Quality Management

Patients may receive skilled care on an inpatient, ambulatory, or home healthcare basis. Inpatientskilled care is typically delivered in a free-standing skilled nursing facility (SNF) or in an SNFlocated within a hospital. SNFs are subject to state and federal regulation. One important federallaw that affects SNFs is the Omnibus Budget Reconciliation Act (OBRA) of 1987, whichmandated that SNFs have formal programs for quality improvement and established keystandards to be monitored under those programs. These key standards address issues such as

Healthcare quality Resident rights Assessment of residents' needs Quality of life Resident satisfaction Staff qualifications and training11

JCAHO accredits SNFs and many SNFs adhere to that agency's quality standards for skilled care.12

In addition to requiring accreditation from an appropriate accrediting body, a health plan usuallyhas its own QM initiatives for skilled care. These initiatives generally include standard measuresof healthcare quality, patient safety, and service quality as well as specific issues frequentlyencountered in skilled care, such as

Changes in medical status or functional abilities Nutrition and hydration management The utilization of antipsychotic and antidepressant medications The use of restraints Management of bladder or bowel incontinence Management of skin integrity, including wound care

The health plan may also have specific initiatives for preventive care and disease managementthat address illnesses and injuries commonly experienced by elderly or disabled patients.

For SNFs, a health plan should also monitor the safety and comfort of the general livingenvironment. For example, what type of security systems does the SNF have to protect patientsfrom fire, natural disasters, or criminal activity? Are the patient rooms and public areas attractive?Are patients treated with respect and sensitivity for their individual situations? Is the food good?What types of physical and recreational activities are offered? These issues have a great impacton patients' quality of life and can influence members' and families' overall satisfaction with thehealth plan.

Regular visits to an SNF by a UM nurse, QM personnel, and/or the member's physician are oneway for a health plan to support the appropriateness and quality of skilled care delivered to itsmembers. This practice also reassures members and their families that the health plan is stillinvolved in care coordination and quality management.

Home Healthcare

Home healthcare offers health plans and their members another alternative for the delivery ofpost-acute care. Home healthcare encompasses a wide variety of medical, social, and supportservices delivered at the homes of patients who are disabled, chronically ill, terminally ill, or whoare recovering from an acute illness or injury. Figure 8B-4 lists the services that are commonlyprovided through home healthcare. Home healthcare serves the needs of patients who require careintermittently (rather than on a 24-hour everyday basis), but are unable to travel to a provider'slocation for the needed services.

The use of home healthcare steadily increased during the 1980s and 1990s. The growth in the useof home healthcare can be attributed to several factors, including:

Patients' preferences for the added comfort and convenience of home healthcare overinpatient care

Medical technology advances that facilitate the delivery of services in private homes,such as portable ultrasound; improved systems for the intravenous infusion of antibiotics,chemotherapy, and pain medications; and home monitors for cardiorespiratory function

Cost advantages of home healthcare over similar services delivered in an inpatient setting

FIGURE 8B-4. COMMON HOME HEALTHCARE SERVICES.

Nursing care (e.g., monitoring vital signs, obtaining blood or other specimens forlaboratory tests, wound care, administration of medications)

Pharmaceutical care (e.g., the infusion of intravenous medications and nutrients) Respiratory care (e.g., direction of oxygen support, breathing treatments) Rehabilitation (PT, OT, SLP) Nutrition counseling Social work assistance with financial, transportation, housing, nutrition, and

vocational rehabilitation issues Assistance with hygiene and other personal care issues

Provision of home oxygen support and hospital beds, walkers, and other durablemedical equipment

Although the majority of home health patients are in the Medicare population (either elderly,disabled, or both), the use of home healthcare for younger patients recovering from acuteepisodes is also growing.

Because care takes place in individual members' homes rather than in settings specificallyintended for healthcare delivery, managing utilization and quality for home healthcare presentssome unique considerations, as we explore in the following sections


Health plans may use home healthcare in place of inpatient care or in conjunction with inpatientcare to shorten the length of the inpatient stay. A patient whose condition improves to the pointthat only intermittent care is required may be discharged to home healthcare. A health plan mayalso use home healthcare prior to a hospital admission. For example, a home healthcare nursemay visit a homebound patient who is scheduled for hip surgery to obtain blood for preoperativetests, educate the patient about the surgery, and teach the patient how to use crutches. Shorterinpatient stays typically result in lower total costs of care and improved member satisfaction.

Home healthcare may be a means of providing disease management or self-care instruction.Home healthcare that maintains the health of disabled and chronically ill patients may decreasethe number of emergency department (ED) visits and hospital admissions for these patients.Home healthcare may also enable these patients to avoid or delay admission to an SNF.

The determination that a health plan member is an appropriate candidate for home healthcare isusually based on input from the member, the member's family, the member's physician, andhealth plan UR or case management personnel. A physician plans and orders the various servicesthat a member receives through home healthcare. The treatment plan may follow a clinicalpractice guideline (CPG) specifically designed for home healthcare. One source of homehealthcare CPGs is the Agency for Healthcare Research and Quality (AHRQ).

The health plan then transmits the authorization for home healthcare services to a homehealthcare agency (HHA) in its provider network. To support the appropriate delivery of care andutilization of resources, the authorization should specify the number of visits and the types oftreatments that a member is to receive. Under this type of authorization, any additional care needsidentified by HHA personnel must be submitted to the health plan for review and possibleauthorization.

A care manager from the HHA assumes responsibility for coordinating and monitoring the care.Depending on the member's needs, the care manager may be a nurse or a social worker. The goalof the case manager is to facilitate access to the medical services and community agency servicesnecessary to allow members to stay in their homes despite their medical problems

Quality Management

Medicare certification and accreditation status are two indicators that health plans typicallyconsider when selecting HHAs to deliver care to their members. Most federal regulations forhome healthcare are through Medicare's requirements for quality. Title 42 of the Code of FederalRegulations describes Conditions of Participation (COPs) that HHAs must meet to be certified byMedicare.14 Among the issues addressed by the COPs are

Protection of patients' rights Compliance with federal, state, and local laws, and with accepted professional standards

and principles Organizational structure, scope of services, and administration of the HHA Types of professional personnel who provide services for the HHA Acceptance of patients, plan of care, and medical supervision of care delivery Delivery of skilled nursing services, rehabilitative therapy, medical social services, and

home health aide services Clinical record keeping Evaluation of the HHA's program15

Specific standards and requirements must be fulfilled to satisfy each of the conditions. One COPrequirement is the use of Medicare's Standardized Outcome and Assessment Information Set(OASIS) for most adult patients. OASIS provides a standardized format for a comprehensiveassessment for an adult home healthcare patient. OASIS also furnishes data for case mix-adjustment and clinical outcomes measurement. 16 The requirement to use OASIS does not applyto (1) patients under the age of 18, (2) patients receiving maternity services, or (3) patientsreceiving only chore or housekeeping services.17

JCAHO and the Community Health Accreditation Program (CHAP) are the primary accreditingagencies for home healthcare. CHAP has four core standards that apply to all home healthcareorganizations: structure and function; quality of services and products provided; human, financial,and physical resources; and long-term viability. CHAP also has service-specific standards thatmay apply depending on the specific services and products provided by the HHA. Medicareaccepts accreditation by either of these accrediting agencies in lieu of government inspection.

In addition to examining external indicators of quality, a health plan should have its own qualityrequirements for contracted HHAs. Figure 8B-5 lists some of the indicators that are typicallyexamined under a health plan's QM initiatives for home healthcare.

End-of-Life Care

When a patient has an incurable medical problem and death is imminent, a health plan and itsproviders may need to offer a different approach to medical care. Although some terminally illpatients and their families choose to prolong life as long as possible through acute care measures,other patients opt for palliative care. Palliative care refers to healthcare services that focus on therelief of pain and other symptoms rather than attempting to cure the underlying illness or injury.The purposes of palliative care are to (1) decrease physical, mental, and emotional distress inorder to improve the quality of life for terminally ill patients and (2) allow patients and theirfamilies to determine the intensity of medical intervention to be delivered. Palliative care does notattempt to either hasten death or prolong life.

Most palliative care is provided on an outpatient basis or in patients' homes. Many patients preferto remain in their homes with their families as long as possible, and ambulatory and homehealthcare make this possible. In addition, these settings are typically more cost-effective thanproviding the same level of care in a hospital. However, when a patient requires around-the-clockcare, inpatient palliative care may be a more logical option.

The primary therapies included in palliative care are medications for symptom relief, relaxationtherapy, massage, and nursing care. In some instances, more intensive therapies, such as radiationtherapy to reduce the size of a tumor for pain management or surgery to correct a bowelobstruction, may be appropriate palliative measures.

One form of palliative care is hospice care, which is a set of specialized healthcare services thatprovide support to both terminally ill patients and their families. Hospice care typically includes avariety of services to address medical, nutritional, social, psychological, and spiritual needs.These services are available 24 hours a day, 7 days a week. Hospice care typically involves amulti-disciplinary team including physicians, nurses, pharmacists, social workers, clergy, andcommunity volunteers. A company or facility that delivers hospice care must be specificallylicensed or certified to provide this type of care

The majority of patients who receive hospice care are cancer patients; however, hospice care mayalso be appropriate for patients with other terminal illnesses such as advanced cases of congestiveheart failure (CHF), chronic obstructive pulmonary disease (COPD), AIDS, and neurologicaldiseases such as Parkinson's disease and amyotrophic lateral sclerosis (ALS). 19

Not all health plans cover hospice care, and among those that do, many have patterned theirhospice care benefits after Medicare's coverage. Under the Medicare program, hospice care iscovered only for patients who have a life expectancy of six months or less. Because of thelimitation on coverage, providers tend to be conservative and try to avoid hospice care referralswhen life expectancy cannot be determined to be less than six months.

Decisions Regarding Palliative Care

Only patients or their families can make the decision to forego more aggressive curativetreatments in favor of palliative care. Healthcare providers typically use all of their medicalcapabilities to prolong a patient's life unless instructed otherwise by the patient or the patient'sfamily. However, in many cases of terminal illness, patients become physically or mentallyincapable of making decisions about medical care as their diseases progress.

Consumers may use advance directives to see that their wishes regarding healthcare services areobserved even after they are no longer able to participate in decisions. An advance directive is alegal document that communicates a person's wishes about future medical care should that personbecome incapacitated. The two most commonly used types of advance directives are a living willand medical power of attorney. A living will documents a patient's preferences for end-of-lifemedical treatment and is intended to be a guide for family and providers should the patientbecome unable to understand the medical situation or to communicate.20 A living will oftendescribes the extent of pain management and life-support measures that a person wishes toreceive. Figure 8B-6 describes three commonly used forms of life support that are oftenreferenced in living wills.

A medical power of attorney, also known as a healthcare proxy or a durable power of attorneyfor healthcare, is a document in which a person appoints another individual to make healthcaredecisions on his or her behalf in the event that the first person becomes incapacitated.21 Advancedirectives allow patients to avoid unwanted, often futile interventions and reduce the decision-making burden on the patient and family near the time of death. With an advanced directive, ahealth plan and the patient's physician have less concern about over- or under-treating a patient.Because many consumers do not want to receive all possible life-support measures, advancedirectives often result in reduced utilization of intensive medical resources.22

Despite the potential advantages of palliative care for patients, providers, and health plans, thistype of care is not used as widely as might be expected. Many terminally ill patients who mightbenefit from palliative care are not even aware that this option exists. Some dying patients choosehospitalization because they believe that they have no alternative other than death at homewithout care from healthcare providers. They often do not understand the meaning of advancedirectives or the life-support measures that may be implemented in an acute care setting.

In other instances, the patient and the family refuse to think about the best options for death untilthe patient's condition reaches a crisis point. If the patient is incapacitated, the family may beunwilling to forego any available medical resources even if there is no hope of significantimprovement.

Providers are sometimes unable to observe patients' wishes for end-of-life care because advancedirectives are not readily available to them. In addition, many providers lack the necessarymedical training to deliver effective pain management and other forms of palliative care.

Physicians who are not familiar with the role of hospice care may be reluctant to refer patients forhospice care, or in their efforts to be conservative with referrals, make the hospice care referraltoo late for the patient and family to gain the full benefit of hospice services.

The Role of a Health Plan in End-of-Life Care

Decisions regarding end-of-life care are the right and responsibility of the patient and the patient'sfamily. Although providers may counsel and advise terminally ill patients on treatment options,health plans should not be involved in making such decisions. The main role of a health planregarding end-of-life care is one of education and decision support about palliative care, advancedirectives, and if applicable under the health plan's benefit plan, hospice care.

The health plan should research best practices for clinical measures for palliative care (e.g., painmanagement), the reduction of services (e.g., situations in which CPR is not appropriate), andhospice services that fall outside traditional clinical care (e.g., grief counseling). The health planmay also wish to obtain input from various disciplines of palliative care providers, such as nurses,social workers, bereavement counselors, and geriatricians, to learn more about hospice care.

The health plan can then make this information available to providers. The education of providersabout palliative and hospice care may increase their likelihood of discussing these options withplan members. Based on the information discovered through its research, the health plan may alsoneed to review and revise its own medical policies and CPGs to be consistent with these bestpractices. 23 Additional training on these issues may also be beneficial for health plan staff such asmedical directors, UR managers and staff, case managers, and disease management personnel. 24

CMS regulations require all Medicare and Medicaid health plans to support patient participationin end-of-life decisions and to comply with federal and state laws concerning the use of advancedirectives. 25 For example, federal law (the Patient Self-Determination Act) requires healthcarefacilities that receive Medicare and Medicaid reimbursement to inform patients about their rightsto use advance directives. All of the states and the District of Columbia also have laws thatrecognize the use of advance directives. 26

Because health plan members typically have more contact with their physicians than with thehealth plan, the responsibility for discussing advance directives has traditionally fallen tophysicians. Most health plans have no initiatives to promote advance directives other thaninforming new enrollees about advance directives through printed material as required under thePatient Self-Determination Act. However, some health plans have begun to recognize that theirmembers value participation in decisions about their healthcare and that advance directives mayresult in improved quality of life for terminally ill members. These health plans may use one ormore of the following approaches to support the use of advance directives:

Sending out periodic reminders to members about the purpose and value of advancedirectives

Sending information packets about advance directives to physicians for distribution totheir patients

Including physicians' discussions of advance directives with patients (as documented inpatients' medical records) as a measure of quality for profiling and recredentialingpurposes27

A health plan should also explore ways to make advance directives more available to hospital andED physicians who may be called upon to care for a terminally ill member. For example, thehealth plan might place members' advance directives on the computer systems of networkhospitals or into a community-based directory that is available to all local providers.28

Health plans need to help members understand their options by directing them to informationabout palliative care and acute care life-support measures. Instructional materials such as printedinformation, videotapes, and CD-ROMs on end-of-life issues may be useful aids for members asthey make decisions about their future healthcare.

A health plan must always exercise caution when conducting any initiatives related to end-of-lifecare. The health plan's programs should focus on member choice and the potential for improvedquality of life. The health plan also needs programs to measure and improve the quality of thepalliative care delivered to its members. Otherwise, members, purchasers, and providers mayperceive the health plan's palliative care and advanced directive programs only as efforts toreduce the costs of healthcare.

When members do choose palliative care, a case management approach may be useful to see thatthe needs of the individual are considered. The case manager can also facilitate access to theappropriate services.29

Conclusion

Post-acute care options can play an important role in medical management. By channeling thepatient to the most appropriate level of care, a health plan can support the delivery of neededhealthcare services without incurring unnecessarily high costs.

Endnotes


2. Tammy Weiss and Don MacNeill, "Coordinating Care: An Interdisciplinary TeamApproach Enhances Positive Outcomes in Subacute Care," Continuing Care (April 1998):29.

3. National Subacute Care Association, Bethesda, MD, 1994. Used with permission.


5. Kathleen M. Griffin, "Subacute Care," in Best Practices in Medical Management, ed.Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: AspenPublishers, Inc., 1998), 284, 286.

6. Kathleen M. Griffin, "Subacute Care," in Best Practices in Medical Management, ed.Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: AspenPublishers, Inc., 1998), 286.

7. "Blueprint for Quality," CARF…The Rehabilitation Commission, Commission onAccreditation of Rehabilitation Facilities (CARF), 1999,http://carf.org/MedicalRehab/BluePrint.htm (19 November 1999).

8. Kathleen M. Griffin and Debra J. Gillett, "Improving Quality in Subacute Care," inImproving Quality: A Guide to Effective Programs, ed. Claire Gavin Meisenheimer, 2nded. (Gaithersburg, MD: Aspen Publishers, Inc., 1997), 662.

9. Kathleen M. Griffin, "Subacute Care," in Best Practices in Medical Management, ed.Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: AspenPublishers, Inc., 1998), 292.

10. Kathleen M. Griffin and Debra J. Gillett, "Improving Quality in Subacute Care," inImproving Quality: A Guide to Effective Programs, ed. Claire Gavin Meisenheimer, 2nded. (Gaithersburg, MD: Aspen Publishers, Inc., 1997), 666-667.

11. Centers for Medicare and Medicaid Services (CMS), "Executive Summary: Study ofPrivate Accreditation (Deeming) of Nursing Homes, Regulatory Incentives, and Non-Regulatory Initiatives, and Effectiveness of the Survey and Certification System,"updated 21 July 1998, http://www.hcfa.gov/medicaid/exectv2.htm (23 February 2000).

12. 1Mary E. Cohan and Sandra M. Mareno, "Improving Quality in Long-Term Care," inImproving Quality: A Guide to Effective Programs, ed. Claire Gavin Meisenheimer, 2nded. (Gaithersburg, MD: Aspen Publishers, Inc., 1997), 507.

13. Centers for Medicare and Medicaid Services (CMS), "Testimony: Kathy Buto, DeputyDirector, Center for Health Plans and Providers, Centers for Medicare and MedicaidServices, on Home Health Care Payment Reforms before the Senate Permanent

Subcommittee on Investigations," 10 June 1999,http://www.hcfa.gov/testimony/1999/homcar1.htm (23 February 2000).

14. Peggy H. Rodebush, Kathleen M. L. Popper, and Barry K. Morrison, "Home HealthCare," in Best Practices in Medical Management, ed. Peter R. Kongstvedt, M.D., andDavid W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 275.

15. General Accounting Office, Medicare Home Health Agencies: Certification ProcessIneffective in Excluding Problem Agencies, 16 December 1997,http://www.access.gpo.gov/cgi-bin/…cgi?dbname=gao&docid=f:he98029.txt (23February 2000).

16. Centers for Medicare and Medicaid Services (CMS), "OASIS Overview," 7 December1999, http://www.hcfa.gov/medicare/hsqb/oasis/hhoview.htm (23 February 2000).

17. Centers for Medicare and Medicaid Services (CMS), "OASIS Applicability," 7 December1999, http://www.hcfa.gov/medicare/hsqb/oasis/hhqcat01.htm (23 February 2000).

18. Peggy H. Rodebush, Kathleen M. L. Popper, and Barry K. Morrison, "Home HealthCare," in Best Practices in Medical Management, ed. Peter R. Kongstvedt, M.D., andDavid W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 275-276.

19. Peter D. Fox, End-of-Life Care in Health Plans (Washington, DC: AARP, 1999), 10-11.

20. Partnership for Caring, Inc.: America's Voices for the Dying™, Talking About YourChoices (Washington, DC: Partnership for Caring, Inc.: America's Voices for the Dying,1999), 11-12.

21. Partnership for Caring, Inc.: America's Voices for the Dying, Talking About YourChoices (Washington, DC: Partnership for Caring, Inc.: America's Voices for the Dying,1999), 12.

22. Scott MacStravic and Gary Montrose, Managing Health Care Demand (Gaithersburg,MD: Aspen Publishers, Inc., 1998), 464-465.

23. Peter D. Fox and Teresa Fama, End-of-Life Care in Health Maintenance Organizations(Report on a workshop sponsored by the Robert Wood Johnson Foundation's program forChronic Care Initiatives in HMOs), 1994, 2, 7-8.

24. Peter D. Fox, End-of-Life Care in Health Plans (Washington, DC: AARP, 1999), 14.

25. Centers for Medicare and Medicaid Services, "Quality Assessment PerformanceImprovement (QAPI)," 28 September 1998, http://www.hcfa.gov/quality/docs/qismc-2g.htm (10 March 2000).

26. "Advance Directives," Choice in Dying, 14 February 2000,http://www.choices.org/ad.htm#About (10 March 2000).

27. Peter D. Fox, End-of-Life Care in Health Plans (Washington, DC: AARP, 1999), 9-10.

28. Peter D. Fox, End-of-Life Care in Health Plans (Washington, DC: AARP, 1999), 10.

29. Jan Ziegler, "Money Is No Obstacle to End-of-Life Care," Business & Health (November1997): 31.

AHM Medical Management: Medical Management for Pharmacy Services - Part IObjectives

After completing lesson Medical Management for Pharmacy Services - Part I, you should be ableto:

Describe some of the advantages and disadvantages of using pharmacy benefit managers(PBMs) to develop and manage pharmacy benefit programs

Identify strategies that health plans can use to manage the way medications are priced andprescribed

Describe three factors that impact prescription drug utilization Explain the difference between a two-tier and a three-tier copayment structure Describe five different types of analyses that are conducted in pharmacoeconomic

research

Introduction

Pharmaceuticals are an important component of quality healthcare services, especially in healthplan programs, where over 93 percent of HMO enrollees have access to prescription drugbenefits. 2 Pharmaceuticals are also an important component of healthcare costs. Pharmacy costsrank third, behind hospital and physician costs, in total healthcare expenditures; they rank first inannual rate of growth. In 1993, the annual rate of growth in prescription drug expenditures in theUnited States was 8.7 percent. By 1997, the rate had increased to more than 14 percent. Duringthis same period, spending for prescription drug benefits by health plans and other third partypayors had increased 123 percent. 3 The need to control the spiraling costs of prescription drugswhile maintaining the quality of pharmaceutical care has made pharmacy benefits management animportant element of health plans' medical management functions.

In this lesson, we describe the components of pharmacy benefits management that have a directimpact on medical management and discuss various strategies that health plans can use to managethe quality and cost of pharmacy benefits programs. We end the lesson with a discussion of theimportance of evaluating the outcomes of pharmaceutical management efforts.

In lesson Medical Management for Pharmacy Services - Part II, we continue our discussion ofmedical management of the pharmacy benefit by examining in more detail two of the medicalmanagement strategies introduced in this lesson-formularies and drug utilization evaluation. Wealso discuss the regulatory requirements that affect medical management of pharmacy services aswell as ethical issues that may arise in connection with management of the pharmacy benefit.

What is Pharmacy Benefit Management?

For many years, pharmacy benefits and costs were accepted as part of medical care. A patientwould visit a physician who would prescribe whatever drugs were deemed necessary by thatphysician. The patient would then have the prescription filled at a pharmacy and pay for thedrugs, sometimes sharing part of the expense with major medical insurers.

Concerns over rising drug costs and resulting decreases in patient access to pharmacy services ledto the introduction of third party prescription programs and pharmacy networks. Third partyprescription programs are programs in which someone other than the patient pays some or all ofthe pharmacy expenses. A pharmacy network consists of a group of individual pharmacies orpharmacy chains that provide pharmacy services to the members of a designated health plan or

other payor.4 Although third party prescription programs and pharmacy networks increasedpatient access to pharmacy services and reduced drug costs through such techniques as bulkclaims processing and contract negotiation, they did little to manage either quality or cost-effectiveness.

With the advent of health plans, health plans began to develop pharmacy benefit managementprograms. Pharmacy benefit management refers to all the procedures and techniques thathealthcare entities use to manage the quality and cost of pharmaceutical products and servicesdelivered to consumers. Pharmacy benefit management encompasses a wide range of activitiesdesigned to influence the way manufacturers price, providers prescribe, pharmacists dispense, andpatients use prescription drugs.

Developing and Managing Pharmacy Benefit Programs

Pharmacy benefit management can be a part of a health plan's internal medical managementfunction; it can offered by an independent, external organization; or it can be a combination of in-house and external components. 5 A health plan that chooses to perform its own pharmacy benefitmanagement has full authority over program design and ongoing operation. It can tailor programbenefits, products, and services to meet the specific needs of its members. The health plan,however, must also assume full responsibility for the costs associated with developing theprogram and maintaining its quality.

Health plans that choose to contract with external organizations for pharmacy services typicallycontract with pharmacy benefit managers (PBMs). As you learned in Healthcare Management:An Introduction, pharmacy benefit managers (PBMs), or pharmacy benefit managementcompanies, are specialty health plans that seek to manage the costs of prescription drugs whilepromoting more efficient and safer drug use. PBMs perform all the same functions as health plansfor pharmacy benefit management, except determining internal management responsibilities.

Health plans that use a hybrid approach to pharmacy benefit management often perform overallbenefit management in-house and contract out certain major functions such as claims processingand pharmacy network development and management to external organizations.

The following sections describe some of the factors a health plan considers in deciding whether tobuild a pharmacy benefit management program internally or "buy" pharmacy benefitmanagement services from a PBM.

Program Development and Operation

In order to develop and operate an effective pharmacy benefits management program, a healthplan must make decisions regarding

Pharmacy benefit design Pharmacy network development and management Drug formulary development and management Claims administration Information management

These decisions affect both the quality and the cost-effectiveness of the health plan's pharmacybenefit program.

Benefit Design

Economically, health plans cannot provide coverage for every drug available from everymanufacturer. Health plans use the purchaser contract and pharmacy benefit administrationpolicies to explain what drugs will be covered, in what amounts, for how long, and from whatsources. For example, purchaser contracts typically include provisions specifying that specificdrugs or drug types will not be covered. These provisions are referred to as exclusions. Typicalpharmacy benefit exclusions include

Over-the-counter (OTC) or nonprescription drugs: drugs that are available to patientswithout a prescription at a reasonable cost, but whose safety, effectiveness, and medicalnecessity may not have been proven

Drug efficacy study implementation (DESI) drugs: drugs that have been classified bythe Federal Drug Administration (FDA) as safe, but that have not been proven fullyeffective

Experimental drugs: drugs that have not been tested for safety and efficacy in largeclinical trials as required by the FDA

Limitations, or restrictions, are contract provisions that place a cap on the amount of coverage insome way, usually in terms of time, money, or amount. For example, a contract clause thatspecifies a maximum outpatient pharmacy benefit of $2,000 per member per calendar year is alimitation. A contract clause that restricts the amount of drug dispensed per prescription, forexample, a 30-day supply of capsules, tablets, or liquid, is also a limitation. How a health planincorporates such limitations into its pharmacy benefit design can have a significant impact onprogram quality, cost, and member and provider satisfaction.

Network Management

Although network development and management are often viewed as part of a health plan'sefforts to manage prescription drug costs, they are also an important component of pharmacybenefit management program development. Pharmacy benefits are different from a health plan'sother basic healthcare benefits in the following ways: (1) they include products as well asservices, (2) they require sophisticated, specialized information management support, (3) they aredelivered to plan members by nonphysician providers, and (4) they are reimbursed according tonationally accepted standards. Pharmacy benefits, as a result, cannot be delivered by the healthplan's existing provider networks, making it necessary to establish specialized networks andspecialized distribution procedures.

Contracting with an established PBM can reduce or even eliminate the costs of networkdevelopment. For example, PBMs typically offer pharmacies a much larger patient base than anindividual health planlth plan can offer. Whereas a large HMO may serve up to 1 millionmembers, a large PBM may serve as many as 50 million customers. 6 PBMs can use thisextensive patient base to attract pharmacies or pharmacy chains into the network that might notbe interested in contracting with a small health plan. In addition, many PBMs already have well-established networks of their own that include community and national retail pharmacies, mail-order pharmacies, and online pharmacy services. Mail-order pharmacies and online services offerpotential cost savings by eliminating the dispensing fees and administrative charges required byretail pharmacies.

Formulary Management

Most benefit plans call for the creation of a drug formulary in conjunction with the pharmacynetwork. As you recall from lesson The Role of Medical Management in a Health Plan, aformulary is a listing of drugs, classified by therapeutic category or disease class, that areconsidered preferred therapy for a given managed population and that are to be used by a healthplan's providers in prescribing medications.

A health plan that manages pharmacy benefits in-house typically establishes its own formularyunder the guidance of a pharmacy and therapeutics (P&T) committee. A pharmacy andtherapeutics (P&T) committee is a group of providers, pharmacists, and health plan personnelthat recommends the safe and effective use of prescription medications and administers astandard drug formulary. The P&T committee oversees the content of the formulary and meetsregularly to make sure the formulary is current. Because the health plan has control over thecontent of the formulary, it also has maximum control over the quality and cost of pharmaceuticalproducts delivered to plan members. Developing and managing a formulary in-house, however,also generates costs. As is the case with network development, contracting with a PBM can oftenreduce these costs.

PBMs usually provide a master formulary, developed by an in-house P&T committee, along withtheir pharmacy network. Health plans can adopt this formulary or negotiate with the PBM toinclude the health plan's formulary as a subset of the PBM's master formulary. Using anestablished PBM formulary offers health plans definite cost advantages over developing aformulary internally. As we noted earlier, PBMs serve a much larger population than do mostindividual health plans. Drug manufacturers, attracted by the large volume of prescriptionsgenerated by this population, are often eager to have their products included in PBM drugformularies. Because PBMs have developed strong relationships with pharmacies and drugmanufacturers as a result of their experience and focused operations, suppliers are often willing tonegotiate price discounts and rebates for their products as well.

Use of a PBM formulary has disadvantages as well. For example, if the master formulary doesnot meet the unique needs of the health plan's population, then the health plan may not beobtaining the best value for its money by contracting with the PBM. The strong relationshipsPBMs have with pharmacies and manufacturers can also be problematic. Although industryownership of PBMs varies widely, some of the nation's largest PBMs are owned by or financiallylinked to drug companies or pharmacy chains. These relationships may lead to preferentialnetwork contract agreements or selection of less cost-effective drugs for formularies. Overlyaggressive price discounts may even cause concern among consumers and health plans over thequality of products and services available through PBMs.

Claims Administration

In traditional indemnity plans, patients paid for prescription drugs at a pharmacy and thensubmitted a direct claim to the plan for reimbursement. In contrast, most health plans rely on cardsystems, which require plan members to present a card encoded with patient and plan informationeach time a prescription is filled. The information, which may be embossed on the card orcontained on a magnetic strip, is relayed by the pharmacy to the plan's claims administrator forpayment.

Most pharmacy networks process direct or card system claims through sophisticated informationsystems, called point-of-service (POS), or point-of-sale, systems that deliver real-timeinformation to the pharmacist and the plan at the time a prescription is filled. POS systems allowpharmacists and claims administrators to exchange information regarding

Patient demographics and eligibility Plan benefits, including coverage and cost-sharing requirements Medications being dispensed to the patient Other prescriptions the plan member has filled within the pharmacy network

In addition, pharmacy information system software typically includes drug edits, which aremessages or warnings that appear on the dispensing pharmacist's computer screen as thepharmacist transmits information for a prescription to be filled to the health plan's claimsprocessing system. These messages or warnings are designed to notify the dispensing pharmacistof possible side effects and drug interactions or to encourage the pharmacist to obtain additionalinformation related to the patient's medical history before filling the prescription. Electronic POSsystems also facilitate strategies such as prior authorization and the use of generic drugs. (Thesestrategies are discussed in lesson Medical Management for Pharmacy Services - Part II.)

By contracting with PBMs, health plans can take advantage of systems and expertise that arealready in place. A large number of PBMs began operation as claims processors, and claimsprocessing and administration is still a major component of their business. In fact, a large PBMmay process as many as 1 million claims transactions per day. This level of operation generateseconomies of scale in claims processing and other administrative services that most individualhealth plans would be unable to achieve.

Information Management

As you recall from Quality Assessment, health plans generate, process, and disseminate anenormous amount of information in the course of delivering healthcare services to plan members.The same is true of delivering pharmacy services.

In order to share the data generated by network pharmacies, program managers must havecommunication systems that are capable of accurately capturing, storing, and reporting completedata in standardized form. Systems must also be able to merge prescription claims data withmedical claims and clinical data to produce integrated outcomes information.

Most health plans do not currently have the systems required to handle these informationmanagement demands and the costs of developing new systems can be prohibitive. Most PBMshave a broad base of financial, technological, and human resources that allow them to supportmultiple products (e.g., commercial, Medicaid, Medicare risk plans), multiple services (e.g.,claims processing, customer service, formulary management), and multiple systems applications(e.g., POS drug edits, electronic medical records, data warehousing).

A health plan that contracts with a PBM, however, must review and update its own systems, ifnecessary, so that information gathered by the PBM is accessible to the health plan. In addition,health plans must take steps to maintain the confidentiality of patient information and mustmonitor PBM adherence to internal and legally mandated protocols and standards for electronicdata interchange (EDI).

Strategies for Managing the Quality and Costs of Pharmacy Benefits

So far in this lesson, we have described how health plans can use "build" or "buy" strategies toaddress the development and ongoing operation of pharmacy benefit programs. In the followingsection, we focus on strategies health plans can use to manage the quality and cost-effectivenessof pharmacy benefits. Strategies for managing quality and costs are designed to address howpharmaceutical products are priced, prescribed, paid for, and used.

Managing How Drugs Are Priced

Pharmacy reimbursement under virtually all health plan prescription drug plans is based on anamount related to the cost of the drug plus a specified dispensing fee charged by the pharmacistfor each prescription. Drug costs are controlled primarily by drug manufacturers and are based onmanufacturing costs, research and development costs, and marketing and distribution costs.Manufacturing costs include ingredient costs and production costs. Research and developmentcosts cover the costs of developing and testing new drugs. Because of the time and resourcesneeded to secure government approval for the sale of new drugs, research costs are generally veryhigh.

Efforts to market and distribute new drugs add another layer to prescription costs. In addition topromoting their products to healthcare practitioners, pharmaceutical companies now aggressivelyadvertise their products to consumers by brand name on television, on billboards, on mass transit,in popular magazines, by direct mail, and through other advertising venues. This type ofadvertising by pharmaceutical manufacturers is known as direct-to-consumer (DTC) advertising.In 1998, pharmaceutical manufacturers spent $1.3 billion on DTC advertising.9 Likemanufacturing and development costs, advertising costs are passed on to purchasers.

Health plans and PBMs that purchase prescription drugs directly from pharmaceuticalmanufacturers and distribute the drugs to plan members through their own pharmacies can helpmanage the high costs of pharmaceuticals by negotiating with manufacturers to receive discountsor rebates on their products.

Price Discounts

Price discounts are reductions in the price of a particular pharmaceutical obtained from thepharmaceutical manufacturer based on the volume of the drug purchased by the health plan orPBM. Because PBMs represent multiple health plans, PBMs can usually obtain deeper discountsfrom pharmaceutical manufacturers than can individual health plans.

Price discounts are typically expressed as a percentage of the prescription cost. For example, ahealth plan or PBM that receives a 15 percent discount under its contract with a drugmanufacturer can purchase a drug with a market cost of $20.00 for only $17.00 ($20.00 - $3.00 =$17.00). Price discounts are not dependent on actual prescribing patterns.

Rebates

A rebate is a reduction in the price of a prescription drug based on the prescribing patterns ofnetwork providers and the market share of the product. Unlike price discounts, which are

calculated when drugs are purchased from the manufacturer, rebates are calculated after the drugsare purchased by plan members. Insight 9A-1 describes how a pharmacy rebate program works.

Pharmaceutical manufacturers began offering rebates to PBMs and health plans to make inclusionof the manufacturers' drug products on PBM and health plan formularies more attractive. Becausespace on drug formularies is limited and competition among manufacturers is often fierce, therebate business is booming.

PBMs frequently offer to share a portion of the discounts and rebates they receive frommanufacturers with the health plans that contract with the PBMs for pharmaceutical managementservices. In this way, price discounts and rebates serve as a marketing incentive for health plansto sign up with a particular PBM. However, rebates may not always result in cost savings to thehealth plan. In fact, a rebate attached to a very expensive drug placed on the formulary may resultin a higher drug cost than a less expensive generic with no rebate. For example, the cost to ahealth plan or PBM of a brand-name antibiotic might be as high as $72. Even with a $10manufacturer rebate, the cost of the drug per prescription is still $62. The cost of a genericantibiotic in the same drug class may be under $10.

Managing How Drugs Are Prescribed

One of the primary goals of pharmacy benefits management programs is to see that appropriatemedications are prescribed and used in a clinically effective manner. Appropriate medicationshave been shown to reduce the severity of and complications from a wide variety of illnesses andto help patients maintain optimum health and function. Appropriately prescribed pharmaceuticalsalso contribute to positive economic outcomes.

Inappropriate drug prescribing, on the other hand, can lead to serious and costly adverse effects.For example, in a study of the severity of injury caused by adverse drug events, researchers foundthat 43 percent of avoidable adverse drug events resulted in serious injuries; 20 percent resultedin life-threatening injuries.12 Researchers estimate that the direct cost of adverse drug events inthe United States is more than $76 billion per year.13

It is important to recognize that appropriateness is not equated with expense and that newer andmore expensive prescription drugs are not always better. In some cases, health plans and patientsmight benefit from a new, expensive drug, especially if that medication expenditure lowers othercosts such as hospitalization. In other cases, less expensive drugs may offer a safer, more cost-effective way to treat a particular disease or condition.

Because providers play a key role in determining which medications are prescribed, they have asignificant impact on pharmacy benefit quality and costs. According to one source, by changingthe prescribing patterns of 1 percent of its contracted physicians, a health plan could realize 50percent savings on its drug costs. 14 In order to support providers' clinical decisions and to modifyprescribing patterns among individual providers and provider groups, health plans and PBMstypically use a variety of medical management tools.

Provider Profiling

One of the most effective tools that health plans and PBMs have for assessing and improvingprovider prescribing patterns is provider profiling. As you recall from Quality Improvement,provider profiles are descriptions of provider practice patterns, including prescribing patterns.Profiles can describe the prescribing patterns of individual providers, all providers within aparticular medical group or practice specialty, or all providers in a network. Profiles can alsocompare the prescribing behavior of any or all of these groups.

Health plans typically use provider profiles to support the following organizational goals:

To improve the quality of care provided through the use of prescription drugs To measure providers' performance in reducing pharmaceutical costs To assess providers' performance for reimbursement purposes (i.e., if part of the financial

risk that providers accept is based on their use of pharmaceuticals, providers' prescribingpatterns may affect the amount of reimbursement they receive)

Health plans and PBMs may also share the information they compile in provider profiles withtheir providers as a means of motivating providers to reevaluate their overall use ofpharmaceuticals, their use of certain drug classes, or their use of drugs to treat specific diseases.The health plan or PBM may share profile information with plan members or the general publicto provide additional motivation for change.

Profiles affect individual prescribing patterns by identifying outliers-that is, prescribers who falloutside the normal range revealed by the profiles. Once outliers are identified, the health plan orPBM can provide feedback to these prescribers and make suggestions for ways to improveperformance. The feedback presented to an outlying prescriber might include reports on specificpatients, noting the drugs that were prescribed and possible substitutions or alternativetherapies.15

Profiles can also be used to modify group prescribing patterns. For example, a comparison of anaggregate profile of a particular health plan's network providers with similar profiles from otherhealth plans, industry standards, or benchmarks, might reveal that the health plan's providerswrite unusually high numbers of prescriptions for a particular antibiotic that the medical literaturedescribes as often misused. The health plan or PBM could provide feedback to providers in the

form of provider education or amend its medical policy to promote more appropriate use ofantibiotics.

Provider Education

A second tool health plans and PBMs can use to help providers prescribe medications effectivelyis provider education. In some cases, provider education is designed to balance the promotionalinformation provided by pharmaceutical manufacturers with more objective information aboutdrugs. Pharmaceutical manufacturer representatives frequently visit physicians' offices to marketnew drugs and provide educational information about the drugs, including the research andtesting performed to develop the drug and determine its efficacy and safety. This process isreferred to as detailing. However, because pharmaceutical manufacturers have a vested interest inhaving their drugs prescribed, much of the information provided during detailing visits ispromotional.

To counteract the biases that can occur in detailing, some health plans and PBMs practicecounterdetailing, which involves devoting resources to gather objective clinical informationabout recommended uses and dosages of prescription drugs. For example, health plans or PBMscan use counterdetailing to supply providers with information about the appropriate use of certainclasses of frequently prescribed or expensive drugs, such as antidepressants, antibiotics, andangiotensin-converting enzyme (ACE) inhibitors.

Health plans and PBMs can also teach providers to use the Internet to find information about newmedications or alternative treatment options. Sometimes the health plan or PBM will arrange fora pharmacist to contact individual providers by phone or in person to discuss prescribing patternsor to answer questions concerning the appropriate use of certain drugs. Explaining to providerswhy a particular lower cost drug is more clinically effective therapy than other more costly drugsusually affects providers' prescribing behavior more dramatically than cost information alone.Insight 9A-2 describes one health plan's approach to provider education.

Drug Utilization Management

Drug utilization review (DUR), also know as drug utilization evaluation (DUE), is a programthat evaluates whether drugs are being prescribed and used safely, effectively, and appropriately.Currently, most health plans and PBMs practice DUR and use it as an integral strategy in medicalmanagement of pharmacy services. However, many health plans are beginning to reevaluate theirrole in DUE. Some health plans are considering transferring DUR responsibilities to providergroups and eliminating the health plan's involvement in review and preauthorization of drug use.We discuss DUR in detail in Medical Management for Pharmacy Services - Part II.

Case Management and Disease Management

Earlier in this course, we discussed the use of case management and disease management as toolsfor managing the delivery of healthcare services. Both case management and disease managementare also effective in managing the delivery of pharmaceutical products and services. From apharmacy standpoint, case management for a particular patient is typically indicated for

Chronic conditions that require a large amount of healthcare resources and for whichmedications play a significant role (e.g., asthma, diabetes, HIV/AIDS, rheumatoidarthritis)

Conditions that involve the use of several medications simultaneously Conditions that are addressed by multiple providers, multiple prescribers, and multiple

pharmacies16

Pharmaceuticals also play a prominent role in disease management. In fact, drugs are often usedto manage certain chronic diseases because the overall medical costs per chronic patient of drug

therapy for tertiary prevention are typically lower than the costs of acute care that may berequired if the patient's condition worsens.

The use of case management and disease management for pharmacy services, however, is not allabout cost. The most cost-effective drug for a particular condition may well be the mostexpensive drug but the least expensive therapy in the long run. The purpose of these strategies isto implement total cost-effective, quality healthcare for members.

Managing How Drugs Are Purchased

Health plans include member cost-sharing features in their pharmacy benefits programs to sharethe burden of the cost of pharmaceuticals with the person receiving the benefit, to make themember more aware of the cost of pharmaceuticals, and to discourage overutilization of drugs.Cost-sharing features include copayments, deductibles, and coinsurance.

Historically, health plans had one set amount for a copayment for all covered pharmaceuticals;however, in the last few years the copayment feature has been modified by many plans. Toaddress market demand and to better manage costs, health plans have begun developing two-tierand three-tier copayment structures

Managing How Drugs Are Purchased

Some plans use coinsurance as a cost-sharing design feature to combat rising pharmaceuticalcosts. With coinsurance, a member might be required to pay a certain percentage (e.g., 20percent) of the cost of a prescribed drug while the health plan pays for the remainder of the cost.Plans sometimes use copayments for most drugs but require coinsurance for more expensive orless frequently used drugs.

Deductibles are another cost-sharing feature that health plans sometimes use for pharmacybenefits. Deductibles are not a common feature in pharmacy benefits; however, some plans dorequire a deductible of between $50 and $100 that applies to pharmaceutical costs.17

In some cases, cost-sharing features can lead to behavior that is detrimental to both the plan andits members. For example, a plan member with a limited income might stop taking prescribedmedicine if he or she considers the plan's cost-sharing feature to be a financial burden. Thisdiscontinuation of therapy might, in turn, lead to a more serious condition that could endanger theplan member and require the health plan to pay for treatments that could have been avoidedthrough the continuation of the original drug therapy. More often, however, cost-sharing featuresencourage a more responsible use of drug therapy among plan members.

Managing How Drugs Are Used

Although physicians play an important role in determining how prescription drugs are used,utilization is also affected by consumer demand, compliance with recommended drug therapy,and patient education. In order to manage pharmacy benefits effectively, health plans need toaddress each of these factors.

Consumer Demand

The following factors have contributed to dramatic increases in the number of prescriptionswritten:

Increased incidence of acute and chronic illnesses brought about by the aging of thepopulation

Evidence confirming the benefits of aggressive preventive drug therapies for suchconditions as hypertension, hypoglycemia, and high cholesterol

Patient and physician expectations that all symptoms can be relieved by medications Development of new drugs and new types of drugs Increased use of direct-to-consumer (DTC) advertising for new and brand name drugs

Consumer Demand

Many of the drugs demanded by consumers are expensive and are not included in drugformularies. In some cases, these drugs may not be covered under a health plan's benefitsadministration policy.

One way that health plans can address consumer demand for expensive, brand-name,nonformulary drugs is by educating physicians and members about the purpose and benefits of aformulary. Well-defined administrative policies for handling exceptions, which are authorizationsby a health plan to cover a nonformulary drug after evidence is presented to support the need for

the drug, and external review of denied appeals are also effective in addressing requests fornonformulary drugs. Health plans also have to establish coverage policies to handle requests forauthorization of experimental drugs.

Drug Compliance

Another important issue that arises in connection with prescription drug use is patient compliancewith recommended drug therapy regimens. Patient noncompliance is wasteful in terms of money,resources, and the negative effects on the patient. Again, education is key to convincing patientsof the necessity of taking drugs prescribed by their providers.

Providers and their staffs can play an important role in educating patients and persuading them tofollow drug therapies by explaining the need for the drug and the consequences of not taking thedrug as directed. The provider and staff can answer questions about side effects or other concernsthe patient may have about the drug.

Pharmacists also play an important role in educating patients about the appropriate use ofprescription drugs. Pharmacists who take the time to read the online edits about possible sideeffects, drug interactions, and patient cautions and who share that information with the patienthave a considerable impact on drug therapy compliance. Pharmacists can also provide valuablecognitive services, that is, services that the pharmacist identifies as necessary for the safe andeffective use of prescription drugs. Cognitive services include patient counseling regarding drugtherapy, review of patient profiles to monitor drug use and drug interactions, and documentationof pharmaceutical care in patient records.

Even drug packaging can have an impact on drug compliance. For example, manufacturerssometimes encase individual tablets or capsules in clear plastic compartments attached to aplastic, foil, paper, or cardboard backing, called a blister card. In some cases, blister cards containcombinations of different types of drugs wrapped together and color coded to indicate doses fordifferent times during the day. Instructions in bold print may also improve patient compliancewith drug therapy. 20 Electronic compliance management technology has also been proposed as away to increase patient compliance with drug therapies.

Such technology is already being used to track blood sugar monitoring in diabetic patients.Additional applications, however, will require close supervision in order to protect theconfidentiality of patient information.

Member Education

At one time or another, most people have left a physician's office with a prescription in hand andquestions about the need for, possible side effects from, or directions for taking that medication.Patients sometimes do not understand what ailment a drug is intended to treat, the importance ofcarefully following the instructions for taking the medication with food or at certain times of day,and the need to take all of the medication prescribed as directed by the doctor. Health plans andPBMs can address these questions and concerns by educating members about drug therapies.

One approach health plans and PBMs can take to educate plan members is to print informationalhandouts that physicians can give to patients during the office visit or pharmacists can hand outwhen a prescription is filled. These handouts reinforce the doctor's instructions and answerfrequently asked questions concerning the particular drug therapy. Some health plans and PBMs

use case management or disease management personnel to further educate members abouteffective prescription drug use.

Advances in technology are also affecting the ways that health plans and PBMs communicatewith members. In addition to drug information delivered by mail, some health plans and PBMsuse interactive voice response systems to provide information about frequently used drugs ordrugs about which the health plans or PBMs frequently receive questions. Such information mayinclude drug interactions, possible side effects, and appropriate use of the drug.

Many health plans provide information by specific drug name, accessible on their company Websites, that includes the purpose/uses of the drug, possible side effects, drug interactionprecautions, dosage information, etc. Some PBM and health plan Web sites can customizeinformation about specific drugs based on the member's age, the member's gender, and thepresence of certain conditions, such as pregnancy or diseases.22

Health plans may also provide plan members with general educational material related tomedication use. Such material may stress

The importance of complying with drug therapy, as directed by a physician or pharmacist The need for members to inform their physicians and pharmacists at each visit about all

over-the-counter, complementary and alternative therapies, and prescription drugs theyare currently taking and diseases or conditions with which they have been diagnosed

Pharmacoeconomic Research

One of the primary goals of pharmacy benefit management is to improve healthcare outcomes.Although health plans often focus on cost-conscious measures to manage benefits, cheaper is notalways better. In fact, disease management, which relies heavily on the use of pharmaceuticals,may require the use of greater quantities of drugs or more expensive drugs.

One of the most popular ways to evaluate the costs versus benefits of pharmacy services today isby using pharmacoeconomics. Pharmacoeconomics is "the study of cost implications andoutcomes related to pharmaceutical therapy" to determine value. 23 In other words,pharmacoeconomics provides a measure of the impact, desirable and undesirable, of variouspharmaceutical products and services on healthcare systems and society. For example,pharmacoeconomics helps health plans determine the true value of new drugs in comparison toexisting formulary drugs that treat the same condition or disease.

Health plans are not the only organizations that conduct pharmacoeconomic research.Pharmaceutical manufacturers, academic institutions, private research companies, and not-for-profit medical research organizations also conduct such studies. 24 Such research sponsorstypically use either prospective or retrospective data to perform their studies. Prospective studiesmay use either or both of the following approaches:

Economic modeling, in which a theoretical model is used to predict expected financialresults by manipulating information about costs, methods of treatment, or other factorsrelated to drug therapy

Randomized controlled trials (RCTs), in which controlled clinical research usingrandomly selected participants is conducted on drug therapies and their outcomes

Retrospective studies use data obtained from claims information, previously conducted RCTs, orother information the health plan has about the drug. Researchers can use the prospective orretrospective data they obtain to analyze the relationship between the costs of pharmaceuticalsrelated to their values in several different ways. Figure 9A-1 describes the four types ofpharmacoeconomic analysis most often recognized by researchers.

A fifth economic evaluation, cost of illness analysis (COI), or the cost consequence model,measures the economic impact of a particular disease, illness, or condition on individuals,organizations, and society.

Health plans can use pharmacoeconomic research data to answer questions related to formularydecision making, evaluation of clinical practice guidelines (CPGs), effectiveness of diseasemanagement programs, effectiveness of marketing strategies, and member satisfaction with theirpharmacy benefits and overall healthcare.

Conclusion

So far in this assignment, we have described some of the basic approaches that health plans use tosupport the quality and cost-effectiveness of pharmacy benefit programs. In lesson MedicalManagement for Pharmacy Services - Part II, we focus on two of the most effective of theseapproaches: drug formularies and drug utilization review (DUR).

Endnotes

1. Robert P. Navarro, Health Plan Pharmacy Practice (Gaithersburg, MD: Aspen Publishers,Inc., 1999), 30.

2. Dan Thornton, "The Rising Costs of Prescription Drugs," Healthplan (September/October1999): 71.

3. "News Briefs," Managed Healthcare News (August 1999): 1.

4. Chester S. Hejna, "Pharmacy Networks: Origins, Functions, and Future Directions," in APharmacist's Guide to Principles and Practices of Health Plan Pharmacy, ed. Susan M. Itoand Suzanne Blackburn (Alexandria, VA: Foundation for Health Plan Pharmacy, 1995),199.




8. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd edition (Gaithersburg,MD: Aspen Publications, Inc., 1998),173.

9. Vicki Bladassano, "Lead Report: Pharmacy Benefit Management," BNA's Health PlanReporter 4, no. 19 (1998): 471.

10. Pharmaceutical Research and Manufacturers of America, "The Myth of 'Rising DrugPrices' Exposed," http://phrma.org/facts/bkgrndr/myth.html (27 October 1999).

11. "For-Profit Sector: Factors Affecting the Growth of Prescription Drug Expenditures,"Healthcare Trends Report (August 1999): 5.

12. Jan Greene, "Anatomy of a Medication Error," Hospitals & Health Networks (February2000): 46.

13. Pete Penna, "Drug Misadventures: Unrecognized Opportunities for Cost Savings andQuality Improvement," Health Plan Interface (September 1999): 61.

14. Michael Barberi, "Understanding and Addressing Rising Drug Benefit Costs," HealthInsurance Underwriter (November 1999): 72.


16. Conference Proceedings Manual, UM/CM Best Practices Conference & Expo, Nov.19-20, 1999, Orlando, FL.

17. "Pharmaceutical Benefit Concepts," Health Plan On-Line, Inc. (monthly E-Newsletterproviding tips on Health Plan methodologies) @HOW TO, no. 9 (September 1999).

18. Michael D. Dalzell, "Pharmacy Copayments, A Double-Edged Sword: The IntricateRelationship Between Costs and Compliance," Health Plan (August 1999): 29.


20. David L. Bloom, "High-Tech Drug Packaging Can Boost Patient Compliance," HealthPlan (June 1997) http://www.managedcaremag.com/archiveMC/9706/9706.comply.shtml(22 October 1999).

21. David L. Bloom, "High-Tech Drug Packaging Can Boost Patient Compliance," HealthPlan (June 1997),http://www.managedcaremag.com/archiveMC/9706/9706.comply.shtml (22 October1999.

22. Merck-Medco, "Merck-Medco Launches Online Prescription Drug InformationServices," (July 15, 1999), http://www.merck-medco.com/news/nr1999/1999_07a.htm,(29 October 1999).

23. Carl Peterson, "Pharmacoeconomics: Determining the Value of Drug Therapy,"Healthplan (May/June 1998): 45.

24. Barbara Hesselgrave and Fred M. Cox, "Pharmacoeconomics: Principles for Today'sHealth Plan Executive," Managed Healthcare (January 1998): 56.

AHM Medical Management: Medical Management for Pharmacy Services - Part II

Objectives

After completing lesson Medical Management for Pharmacy Services - Part II, you should beable to:

List several functions that a health plan's pharmacy and therapeutics committee performs List the five steps in performing DUR Describe the three types of DUR Explain the state laws related to mail-order pharmacies and generic substitution

Introduction

In Medical Management for Pharmacy Services - Part I we introduced you to various strategiesthat health plans and PBMs use to manage pharmacy benefit programs. This lesson describes twoof those strategies-the use of formularies and drug utilization review-in more detail. We begin thelesson with a discussion of the development, structure, and operation of drug formularies, anddescribe some of the challenges that health plans face in establishing formularies. We thendiscuss how health plans use drug utilization review programs to support the safe, effective, andappropriate use of prescription drugs. We end the lesson with a description of the regulatoryrequirements and ethical considerations that affect pharmacy benefit management.

Drug Formularies

As we mentioned in lesson Medical Management for Pharmacy Services - Part II, drugformularies are lists of drugs approved for use within a healthcare setting. Health plans use drugformularies as part of a formulary system that determines the methods the organization uses toevaluate and select drugs and the guidelines and protocols the organization uses to operate theformulary. Such guidelines and protocols include physician prescribing guidelines, drugadministration protocols, drug dispensing protocols, purchasing guidelines, and drug utilizationsuggestions.1 A formulary system may also develop and distribute educational material toproviders, pharmacists, and patients.

Formulary System Development

In most health plans, the formulary system is developed and managed by a pharmacy andtherapeutics (P&T) committee composed of primary care and specialty physicians, pharmacists, ahealth plan's medical director(s), and other healthcare professionals, such as nurses. Becausecertain specialties (e.g., internal medicine, family practice, oncology, geriatrics,obstetrics/gynecology, psychiatry, and pediatrics) prescribe a large percentage of the prescriptionswritten, those specialties usually have representatives on the P&T committee. Some nonclinicalhealth plan representatives, such as legal, administrative, or financial experts, may also serve onP&T committees. In addition, some health plans include health education managers,pharmacology experts, or others with particular expertise that can enhance the effectiveness of thecommittee. One study reported that the average number of members on a P&T committee is aboutten.2

P&T committees may meet monthly, every other month, quarterly, or on a schedule that mostclosely meets the needs of the particular health plan. In most organizations, the P&T committee

has the ultimate responsibility for formulary management and development; however, the P&Tcommittee may establish subcommittees to help with these tasks.

PBMs that offer drug formularies usually have their own P&T committees. The P&T committeeof a PBM typically develops a master formulary and then works with a contracting health plan todevelop a customized formulary for the health plan. Typically, the health plan's customizedformulary is a subset of the master formulary. For health plans that do not have their own P&Tcommittee, the PBM's P&T committee functions as the health plan's decision maker with regardto formulary policies with input from the health plan. 3

P&T committees perform some or all of the following functions for a health plan:

Evaluation and selection of drugs for inclusion in the formulary based on each drug'seffectiveness, safety, ease of use, and cost

Development and implementation of policies for periodically updating the formulary andfor making additions, deletions, or modifications

Development and implementation of prior authorization policies for certain drugs or drugclasses

Development of policies for generic and therapeutic substitution Development of policies and procedures for handling requests for nonformulary drugs,

including exceptions and appeals Oversight of drug utilization review and feedback to prescribers and pharmacists Provision of prescriber, pharmacist, and patient education regarding the formulary; the

health plan's philosophy for choosing drugs for inclusion in, or exclusion from, theformulary; and the safe and effective use of prescription drugs

Development of policies for accepting/rejecting rebates or discounts from pharmaceuticalmanufacturers for inclusion of their products in the formulary

Development of policies to support compliance with the formulary

The P&T committee also participates on other health plan committees to facilitate thedevelopment or revision of clinical practice guidelines (CPGs), the use of drugs in diseasemanagement programs, and other medical management initiatives in which pharmaceuticals playa key role.

Drug Evaluation and Selection

One of the most important functions of the P&T committee is the evaluation and selection ofdrugs to be included in the formulary. Figure 9B-1 outlines some key factors that P&Tcommittees typically consider when evaluating a new drug for inclusion in its formulary.

The P&T committee typically relies on information from the Food and Drug Administration(FDA) to determine the clinical safety and efficacy of a proposed drug. The Food and DrugAdministration (FDA) is an agency of the federal government that regulates the manufacture,distribution, and marketing of drugs. Prescription drugs cannot be produced or sold without FDAapproval. The committee gathers additional information about proposed drugs from peer-reviewed clinical literature and information from the pharmaceutical manufacturer. Thecommittee is especially interested in whether it has been conclusively proven that a new, moreexpensive drug produces better clinical outcomes than does an existing, therapeutically equivalentformulary drug.

Drug Evaluation and Selection

Issues such as patient and provider compliance and drug acceptability also influence P&Tcommittee drug selections. For example, a decision to add a new drug to the formulary or replacean existing drug should address the following questions:

Is the new drug easier or more difficult for the patient to use appropriately than acomparable existing drug? Does it require fewer or more treatments? Does it have feweror more side effects?

What is the rate of utilization? If a drug that many providers routinely prescribe is deletedfrom the formulary, will that deletion result in provider confusion and the need for anexpensive campaign to change their prescribing patterns? Would it be better overall toleave the drug in the formulary?

What effect, from a public image standpoint, will deletion of a heavily used, popular drughave on the health plan?

Are there patients for whom the current drug is contraindicated and for whom the newdrug would be acceptable? Are there specific indications for the new drug that the currentdrug does not cover?

Formulary Structure and Operation

Drug formularies can be broadly classified as open formularies or closed formularies. An openformulary is one in which use of the drugs on the preferred list developed by the P&T committeeis voluntary. Formulary compliance is encouraged, and the health plan or PBM may even developcertain incentives to support compliance, but nonformulary drugs are also covered to some extent.In a closed formulary, compliance is mandatory and only those drugs on the preferred list arecovered by the health plan. No reimbursement is available for nonformulary drugs except inextraordinary circumstances or with the health plan's approval.

Because a health plan's ability to establish a closed formulary is often determined by state law,most health plans offer formularies that combine characteristics of both open and closedformularies. Such formularies are commonly referred to as managed formularies. They may alsobe called restricted or partially/selectively closed formularies. For example, a health plan with amanaged formulary may have a preferred drug list that prescribers are expected to use but, undercertain circumstances, may allow coverage of prescription drugs not on the formulary. Tiered orincentive formularies are examples of managed formularies in which both formulary andnonformulary drugs are covered, but copayments and pharmacy reimbursement vary according towhether the drugs are (1) included in the formulary and (2) branded or generic.

Some health plans and some states have developed negative formularies, which are "lists of drugswithin a specified therapeutic category that cannot be prescribed" under the formulary. 6 Forexample, states may develop negative formularies to address the pharmacy benefits available tothe Medicaid population. More often, however, disallowed drugs are listed as exclusions ornoncovered benefits under a plan's benefit design.

Health plans and PBMs usually publish a printed book or booklet of their formulary anddisseminate that book or booklet to participating pharmacists and plan providers. Some healthplans print pocket-sized, quick references of their formulary and distribute them to patients toencourage compliance with the formulary. Most health plans and PBMs also provide electronicformularies. Electronic formularies are computer information systems that link pharmacies andphysicians' offices to health plans' information systems to provide formulary information.

Formulary Policies and Procedures

In addition to determining which drugs will be included in a health plan's formulary and how theformulary will be structured, the P&T committee develops policies and procedures that specifyhow prescription drugs are to be prescribed and dispensed.

Drug Classification

In the printed or electronic form of the formulary, a drug is usually ranked according to its cost-effectiveness. Drugs that are the most cost-effective receive a ranking of one dollar sign ($),while those drugs that are the least cost-effective may receive up to five dollar signs ($$$$$). 7

Drug Classification

Drugs included in the formulary may also be classified according to how freely they can beprescribed. Unrestricted drugs are drugs that providers may prescribe freely without obtainingpermission from the health plan. Monitored drugs require some sort of review or approval by aplan physician or group of physicians before the prescription can be filled. Restricted drugs aredrugs that may only be prescribed by certain providers or for certain diseases or conditions. Forexample, a protease inhibitor to treat an HIV patient might be a restricted drug on a health plan'sformulary. Conditional drugs are drugs that are only available in the formulary for a limited timeon a trial basis.8

Prior Authorization and Exceptions

Health plans that operate closed or managed formularies may require physicians to obtain priorauthorization before prescribing certain drugs in order to certify their medical necessity. Priorauthorization policies typically apply to expensive, potentially toxic, or nonformulary drugs. Inmany health plans, the authorization process is semi-automated. Physicians can obtain priorauthorizations by telephoning the plan and responding to prompts on an interactive voiceresponse system that request clinical and patient information. After providing the requestedinformation, the physician is either given prior authorization or is transferred to a pharmacist foradditional clarification of the medical necessity of the prescribed drug. Health plans frequentlyuse CPGs as a basis for evaluating prior authorization requests.

If a prior authorization request is denied, the physician or patient can file a request for anexception, along with clinical and other relevant information supporting the request. Decisionsare made after reviewing patient and provider information and widely accepted CPGs. Forexample, an exception for a nonformulary drug may be granted if a patient has a rare allergy to aformulary drug routinely prescribed for a particular condition, or if all therapeutically equivalentformulary drugs have been prescribed for a patient but have not been effective. 7 In most healthplans, exception decisions are made by the plan's medical director or pharmacy director.

If the health plan does not grant an exception, the patient or physician can file an internal appeal.Such appeals are reviewed by both a physician and a pharmacist. Most states have rules orregulations that require health plans to approve or deny appeals related to coverage ofnonformulary drugs within a specified time frame, usually 30 days after submission of the appeal.In addition, most states also require health plans to establish procedures for expediting the appealprocess for urgent situations. The Centers for Medicare and Medicaid Services (CMS) has similartimeliness requirements for appeals from Medicare recipients. Although most appeals areresolved at the plan level, some states allow patients whose appeals have been denied to requestan examination of the case by an external review board.

Prior authorization and exception processes can be cumbersome for both patients and prescribers.They can also increase the health plan's administrative expenses. As a result, many health plansare turning to alternatives such as two- and three-tiered copayment structures to reduce utilizationof nonformulary drugs.

Generic and Therapeutic Substitution of Drugs

Health plans also use generic and therapeutic substitution to help manage prescription drugutilization and cost. Generic substitution is the practice of dispensing a generic drug to a patient

instead of a brand-name drug. Many health plans require pharmacists to dispense genericsubstitutes if a generic is available. In most cases, physician approval of generic substitution isnot required. Insight 9B-1 provides some background on the development and use of genericdrugs.

Therapeutic substitution is a less common practice than generic substitution. Therapeuticsubstitution, also known as therapeutic interchange or drug switching, is the dispensing of adifferent chemical entity within the same drug class. While generic substitution involvessubstituting a drug with the identical active ingredients as the brand-name drug prescribed,therapeutic substitution involves substituting a drug that has different active ingredients than theprescribed brand-name drug. The substituted drug, however, has been shown to produce the sametherapeutic outcomes as the prescribed drug. Unlike generic substitution, physician approval isalways required for therapeutic substitution. Some PBMs and health plan1s offer financialincentives to pharmacists to encourage appropriate therapeutic substitution.

Because therapeutic substitution requires that the pharmacist contact the physician forauthorization of the substitution, it is a time intensive process. Therefore, therapeutic substitutionmay be used more frequently in health plans in which the health plan has more influence overphysician prescribing habits (e.g., staff model HMOs) or in a mail-order pharmacy program.11

Step-Therapy Protocols

Step-therapy is a form of prior authorization that reserves the use of more expensive medicationsfor cases in which the use of less expensive medications has been unsuccessful. Prescribingguidelines for step-therapy are described in step-therapy protocols, also known as step-care

protocols or drug step-therapy protocols, that list the possible drug treatments for a particularcondition in order, from the most cost-effective to the least cost-effective. Generally, providersshould prescribe the most cost-effective medication to treat a condition first. If the patient'soutcome is not satisfactory, a less cost-effective medication may be used.

Pharmaceutical point-of-service (POS) systems can usually support step-therapy protocols byallowing the pharmacist to access data indicating whether the patient has used a less expensivedrug prior to the prescription he or she is seeking to fill. If the step-therapy protocol has beensatisfied, the POS system will issue online authorization for the use of a more expensivemedication.12

Step-therapy is appropriate for situations in which

A significant percentage of those treated with the initial therapy will respond favorablyand not need the second therapy

The delay created when a patient does not respond favorably to the first therapy andmoves to a second therapy will not cause serious or permanent effects

A drug or class of drugs has significantly greater potential side effects or complicationsthan do other medications used to treat the same condition

Selection of drugs for step-therapy protocols should be based on scientific evidence from themedical literature supporting the medical effectiveness and appropriateness of the therapy.

Dispensing Guidelines

Whereas prior authorization, exceptions, generic and therapeutic substitution, and step-therapyprotocols manage utilization by specifying the types of drugs that can be prescribed anddispensed, dispensing guidelines focus on the quantity of drugs that can be dispensed. Forexample, most health plan formularies limit the number of refills allowed per prescription, thenumber of doses per refill, or the amount and/or strength of a particular medication that isdispensed when a prescription is filled or refilled. Dispensing guidelines are typically based on anevaluation of the costs per day and the number of doses per day for a medication.

Challenges Related to Formularies

Formularies (especially closed or managed formularies) can have a significant impact on memberand provider satisfaction. For example, member satisfaction is often linked to the ease with whichplan members can obtain a drug (often the brand-name drug that they have seen, read, and heardabout or one that has been prescribed by their plan providers). Member satisfaction is also linkedto plan members' perceptions that the "best" and most effective drugs are the ones that cost themost. Provider satisfaction is related to how closely the formulary matches the provider'sprescribing patterns. If the drugs that members and providers want and expect are not available inthe health plan's formulary or if members and providers believe that they have no choiceregarding substitute drugs, they may become dissatisfied with the overall health plan experience.

Health plans can eliminate or reduce dissatisfaction by carefully developing the formulary and thepolicies that govern the use of prescription drugs. Periodically evaluating the formulary andmaking necessary additions, deletions, or modifications can also reduce member and providerdissatisfaction. In addition, health plans can use education campaigns directed at physicians,

pharmacists, and patients to inform them about the clinical and financial benefits of genericversus brand-name prescription

Another related challenge that health plans must address is compliance. Most pharmacies andphysicians participate in more than one health plan network and as a result must keep track ofmore than one formulary. The complexity and confusion of dealing with multiple formularies canlead to problems with compliance.

Health plans can address some of these problems by providing technological and administrativesupport. For example, providing online formulary information at the point of service makes itrelatively easy for most pharmacists to comply with generic substitution programs and dispensingguidelines. The fact that physician approval is not required for generic substitution simplifiescompliance even further.

Encouraging physician compliance requires a slightly different approach. Unlike pharmacies,physicians may not have easy access to formulary information. Health plans can address thisproblem by targeting educational materials concerning formularies and the benefits of genericsubstitution to physicians and other healthcare providers. Health plans can also encouragephysician compliance by making formularies easier for busy physicians to use. For example, afew physicians are currently participating in trials of electronic devices (e.g., small hand-heldcomputers that transmit patient data and drug information during the patient office visit) that canbe used in the examination room to obtain formulary information and even print out prescriptions.

Other methods that health plans are using to address physician compliance with formulariesinclude

Use of academic detailing to inform physicians about their prescribing patterns Use of subformularies that are subsets of the entire formulary (e.g., formularies designed

for individual medical specialties) Computer software programs that match appropriate drugs with specific diagnoses

Some health plans have also used sample-closet programs-programs that put samples offormulary products on site in a physician's office for their prescribing use-to encourage formularycompliance. Increases in government-imposed procedural requirements, however, have reducedthe attractiveness of these programs and many physicians have stopped providing drug samples.

Health plans can also provide financial incentives for formulary compliance. For example, planswith closed or managed formularies may not reimburse the pharmacy for nonformulary drugs orfor brand-name drugs that have generic substitutes. In areas where formulary compliance is amajor problem, health plans may need to provide further inducements. Health plans can requirephysicians or physician groups to accept some of the risk for the pharmacy benefit in the form ofcapitation contracts, withholds, or risk pools. Awarding bonuses for compliance with the healthplan's formulary can also encourage compliance. When physicians accept responsibility for thefinancial results of pharmacy services, they tend to prescribe more generics and comply with theformulary more often.

Drug Utilization Review and Management

As we discussed in Medical Management for Pharmacy Services - Part I, drug utilization review(DUR), or drug utilization evaluation (DUE), is a process through which a health plan or a PBM

evaluates whether drugs are being used safely, effectively, and appropriately. A naturalconsequence of DUR is drug utilization management, which calls for the health plan or PBM totake the information from DUR and address any perceived problems by applying managementtechniques to improve prescribing patterns, pharmacist dispensing, and patient compliance withdrug therapy, and to deal with issues related to dosage, drug toxicity, and adverse druginteraction.

DUR programs consist of the following five steps:

Defining the criteria for appropriate or optimal drug use. Two types of criteria maybe used in defining optimal drug use-diagnosis criteria and drug-specific criteria.Diagnosis criteria are standards that identify the types of diseases or conditions or thetypes of patients for which a drug should be used. Drug-specific criteria are standardsthat set forth the appropriate dosages, duration of treatment, and other elements related tothe use of a particular drug.15

Measuring actual use. Measuring actual use involves reviewing information onprescribing and dispensing patterns obtained from medical records, pharmaceuticalclaims data, and prescriptions themselves.

Comparing actual use to identified criteria for optimal drug use. In this step of theprocess, problems with physicians' prescribing patterns or the inappropriate or ineffectiveuse of drug therapies for individual patients becomes apparent.

Taking corrective action or making appropriate interventions to effect change. Oncethe problem (i.e., physician prescribing patterns or ineffective drug therapy regimens) isidentified, the health plan must take corrective action to try to remedy the problem. If theproblem is a physician's over prescription of antibiotics, for example, the health plan maysend a letter to the physician including literature to educate the physician about theappropriate use of antibiotics as drug therapy.

Evaluating the impact of DUR on drug utilization. After the health plan has takencorrective action designed to change the problem, the results of the intervention must beevaluated. For example, in the preceding example, after the physician received theliterature about appropriate use of antibiotics, did his or her prescribing patterns for thatclass of drug change?

These steps are incorporated into each of the three DUR categories: prospective, concurrent, andretrospective review.

Prospective DUR

Prospective drug utilization review is a type of DUR that focuses on the drug therapy for a singlepatient instead of overall usage patterns and is designed to allow a pharmacist to intervene beforea drug is administered or dispensed to a patient, to avoid undesirable results. Either by rule or bystatute, most states require prospective DUR be performed by pharmacists. These rules andstatutes are patterned after the Omnibus Budget Reconciliation Act of 1990 (OBRA-90) provisionthat requires prospective DUR be performed for Medicaid patients.16

OBRA-90 recommends that pharmacists screen for the following factors before dispensing aprescription medication:

Therapeutic duplication, a situation in which a patient is inadvertently prescribedmore than one medication for the same therapeutic indication

Drug-disease contraindications Drug-drug interactions, including serious interactions with non-prescription products Incorrect drug dose or duration of therapy Drug-allergy interactions Clinical abuse or misuse, particularly of controlled substances Step-therapy protocols

Two challenges in implementing prospective DUR lie in the requirement of immediate access toinformation at the point-of-service for prescription dispensing and the need for physicians andpharmacists to work together to see that the patient's needs for drug therapy are met in the mosteffective, least costly manner possible. 17

Concurrent DUR

Concurrent drug utilization review is a type of DUR that takes place while drug therapy is inprogress. Concurrent DUR typically occurs when a health plan or one of its affiliated pharmacistsperforms a periodic audit of the medical records of a certain group of patients or patients taking aparticular drug. If the audit reveals some drug therapy adjustment is necessary, the pharmacist orthe health plan will contact the prescribing doctor to discuss treatment alternatives that may betteror more safely meet the patients' needs.

Retrospective DUR

Retrospective drug utilization review is a type of DUR that is based on historical data and thattakes place after the drug therapy has begun. OBRA-90 also requires that pharmacists performretrospective review for Medicaid patients, and this type of DUR has been adopted by manystates for use with all patients. Although retrospective DUR is helpful in building information tochange physicians' prescribing patterns and to document a drug's effectiveness in treating aparticular disease or condition, it does not really help patients while they are following a drugtherapy.

Figure 9B-2 lists practices that can be identified by using prospective, concurrent, andretrospective DUR.

Drug errors, which include adverse drug reactions as well as "errors in ordering, transcribing,dispensing, and administering drugs,"18 have become increasingly prevalent in the healthcareenvironment. For example, researchers at the University of Toronto identified adverse drugreactions as falling somewhere between the fourth and the sixth leading cause of deaths in theUnited States.19 The Institute of Medicine's recent report on the prevalence and cost of medicalerrors (discussed in the lesson Quality Management) confirms the severity of the problem.

Researchers have identified a number of resources that health plans can use to reduce drug errors.For example, a study partly funded by the American Society of Health-System PharmacistsResearch and Education Foundation has shown that having a pharmacist participate on hospitalrounds can lower the number of adverse drug events caused by prescribing errors.20 Technologycan also help health plans lower the number of drug errors. For example, one company offershospitals a computerized system that helps healthcare personnel more accurately dispense andadminister drugs and provides checks to prevent adverse drug reactions. The company uses barcodes imprinted on caregivers' identification badges, patients' wrist bands, and drug packaging toprovide feedback on drug usage. The caregiver scans all the relevant bar codes into a computerlink at a patient's bedside. The bedside system checks the dosage, time of administration, and typeof drug for the particular patient and either approves or denies the administration of the drug.21

Unfortunately, implementing new procedures or technology is expensive and often requiresbehavior modification of healthcare personnel.

DUR techniques can also be used to reduce drug errors. We have already discussed how apharmacist's online review of a particular patient's claims data at the point of dispensing can alertthe pharmacist to possible drug interactions and other warnings and cautions related to the drugprescribed. This type of intervention by the pharmacist at the point of service is an example ofprospective DUR. Other methods used by health plans to prevent drug errors include

Prompting physicians to review patients' records prior to or during an office visit forindications of drug allergies, chronic conditions that are being treated by drug therapy, orother information that could affect the effectiveness or safety of a prescribed drug

Prompting physicians to ask patients during their office visits about other drugs they arecurrently taking including vitamins, herbal supplements, or over-the-counter drugs and toadd the information to medication sheets or problem lists in the patients' records

Using case management to monitor the drug therapy of patients who, for an extendedtime, take more than one prescription drug or are under the care of more than onephysician (Case management in such situations may be especially helpful for seniorcitizens who often are most at risk for drug errors.)

Requiring pharmacists to perform concurrent and retrospective DUR and notifyphysicians of favorable and unfavorable drug therapies they have used or are using fortheir patients

Regulatory Requirements Affecting Pharmacy Services Management22

Both federal and state laws and regulations affect the provision of pharmacy service. We havealready discussed the role of the FDA in regulating the production and sale of prescription drugs.The Comprehensive Drug Abuse Prevention and Control Act of 1970, a federal law, alsoregulates the manufacturing, distribution, dispensing, and delivery of drugs, especially those thathave the potential for abuse or cause people to develop physical or psychological dependence onthem.23

States have a variety of laws regulating the delivery of pharmacy services by health plans. Theselaws relate to such issues as the

We briefly discuss these topics here. For a more complete discussion of these topics, please seeAHM 510, Health Plans: Governance and Regulation.

Open Pharmacy and Freedom of Choice Laws

Open pharmacy laws allow individual members to choose their own pharmacies. One type ofopen pharmacy law is any willing provider statute. Any willing provider laws allow anypharmacy that agrees to accept the terms and conditions, including reimbursement, that the healthplan or PBM sets for participation in the network to be a network pharmacy. Open pharmacy lawsare focused on the rights of pharmacies.

Freedom of choice laws focus on the rights of patients. In some states, such laws may allow planmembers to choose an out-of-network pharmacy with no monetary penalty.

Formulary Laws

Federal law grants states the right to establish Medicaid drug formularies. Because of consumerconcern related to the use of formularies for both government and private healthcare programs,states have struggled with developing appropriate regulation related to the use of formularies. Inmany instances, instead of developing a ban on the use of formularies, a state will mandate thatcertain drug classes or drug therapy for certain chronic diseases (e.g., diabetes) be covered byhealth plans. Recently, the state of California required several health plans to reinstate severaldrugs that had been deleted from their formularies. Such state action has health plans concernedthat states may begin micromanaging formularies and undermine their effectiveness.

Some states now have requirements that health plans must disclose their use of formularies andhow the formularies work to prospective and current enrollees. Many of the states that havepassed formulary disclosure requirements also require health plans to outline the process amember must follow to obtain a drug not on the health plan's formulary. States may also haverequirements relating to the length of time the process to request a nonformulary drug can takeand a provision for external review of a denied request.

Mail-Order and Online Pharmacy Laws

Some states have enacted laws that prohibit health plans from requiring exclusive use of a mail-order pharmacy for all member prescriptions. A more recent trend is the requirement in somestates that mail-order pharmacists be licensed in every state in which a drug is delivered to amember, instead of just the state in which the mail-order company is located. Some states alsohave laws or regulations that give preference to in-state versus out-of-state mail-orderpharmacies. Because some issues have been raised in relation to mail-order pharmacists' ability toaddress patient questions and adequately convey warnings about possible drug interactions orother medication-related issues, some states require mail-order pharmacies to provide a certainnumber of hours of counseling services each week.

Some states are also considering legislation to regulate the use of online pharmacies and at leastone state bans Internet sales of drugs unless physicians see the patient for whom they prescribedrugs. The FDA has begun to identify and sanction online pharmacies that are violating federaland state regulations that require a licensed healthcare practitioner to physically examine a patientbefore prescribing a drug for the first time.24

Generic and Therapeutic Substitution Laws

States have either mandatory or permissive generic substitution laws. As the term implies,mandatory substitution requires the pharmacist to substitute a generic drug for a brand-name drugunless otherwise requested by the purchaser or the purchaser's physician. Permissive substitutionallows, but does not require, the substitution of generics for brand-name drugs. In every state,prescribers have some mechanism that allows them to prevent the pharmacist from substituting ageneric for a brand-name drug; in most states, a pharmacist must obtain the member's consentbefore substituting generics for brand-name drugs.

A handful of states have passed laws relating to generic substitution for narrow therapeutic index(NTI) drugs, which are drugs "that have less than a two-fold difference between (1) the medianlethal dose and the median effective dose or (2) the therapeutic concentration and the minimumtoxic concentration in the blood." Generally, such laws prohibit the substitution of generic drugsfor NTI drugs.

Laws Mandating Coverage for Particular Drugs

Some states mandate that health plans offer coverage for the use of particular drugs, for example,certain experimental drugs used to treat cancer or medications used for the treatment of pain.Health plans operating in states with coverage mandates are not allowed to exclude suchmedications. States may also require that health plans offer coverage of drugs for off-label uses,that is, for uses other than those stated in the labeling approved by the Food and DrugAdministration. Even in the absence of state mandates, health plans must carefully examine drug

exclusions because members can sue based on the legal theories of negligent denial or bad faithclaims.

Drug Utilization Review Laws

Following the federal government's lead in requiring prospective and retrospective DUR forMedicaid patients based on provisions in the Omnibus Budget Reconciliation Act of 1990, almostevery state has a law that requires prospective DUR, and many also require retrospective DUR.To facilitate DUR, many states have enacted laws that require pharmacists to maintain patientprofiles, screen the profiles for overutilization, underutilization, drug interactions, etc., and makeoffers face-to-face, in writing, or by telephone to counsel patients on the appropriate use ofprescribed drugs. Some state laws require that the pharmacist consult with the prescriber ifscreening reveals a potential problem related to the drug therapy.

Health plans or pharmacies that advertise their prospective DUR systems may subject themselvesto increased liability if the information gathered in the DUR indicates a problem and no action istaken to address the problem. 26

Liability and Other Legal Issues

In the lesson Environmental Influences on Medical Management, we discussed how the doctrineof vicarious liability affects health plan medical management decisions. This doctrine also appliesto a health plan's decisions regarding pharmacy services. For example, in some cases, pharmacistsand physicians have been shown to be "employees" of the health plan based on their contract withthe health plan to provide services. In addition, a health plan may be held liable for its pharmacypolicies under the corporate negligence doctrine if such policies bring harm to a patient.27 Forexample, if a plan member can show in court that a health plan's decision to deny authorization ofa drug resulted in harm or injury that could have been avoided or lessened by use of that drug, theplan member may be able to obtain damages from the health plan.

In some circumstances, rebate programs offered by manufacturers may be considered violationsof federal Medicare/Medicaid anti-kickback statutes and/or state anti-kickback laws.28

In addition to the regulatory requirements we have mentioned, states may require preapproval ofcommunications materials for members, pursue resolution of member complaints, and performperiodic regulatory audits of a health plan's pharmacy services.

Accreditation Issues

Although no accrediting organization accredits PBMs, most accrediting organizations evaluatethe pharmaceutical services provided by PBMs in their review of health plans. For example,NCQA considers the use of a PBM as delegation and requires PBMs to comply with applicableUM standards. The use of drugs is an integral component of accreditation standards used to assessCPGs. The pharmacy benefit may also impact member satisfaction. NCQA encourages theappropriate use of drug therapy and compliance with drug therapy via its HEDIS measures. Forexample, at least one HEDIS effectiveness of care measures relates to the use of pharmaceuticals-the measure that requires information on beta blocker treatment after a heart attack. HEDISbehavioral health measures include a requirement that health plans monitor compliance withantidepressant therapy. JCAHO requires drug utilization evaluation (another term for drugutilization review) as part of a health plan's quality assurance program.

Pharmaceutical Coverage Issues

The pharmacy benefit was initially an add-on benefit. Today, attitudes toward pharmacy benefitshave changed. Most health plans now view the pharmacy benefit as an integral part of theiroverall benefit package. Employers see enriched pharmacy benefits as a way to attract and retainqualified workers. Consumers often view pharmacy benefits as an entitlement and considerbenefit exclusions or limitations as infringements of their right to the "best" pharmacy productsand services.

This shift in focus has raised some important questions related to coverage and exclusions. Forexample, should a health plan authorize payment for an experimental drug that may help acritically ill patient? Should health plans provide coverage for quality-of-life drugs and, if so,under what circumstances. A quality-of-life (QOL) drug is a drug that improves "patients'satisfaction with the quality of their lives but does little to improve medical outcomes or to reduceoverall healthcare costs."

Examples of drugs that health plans may classify as QOL drugs include:

Anabolic steroids Cognition-enhancing drugs Erectile dysfunction agents Growth hormones Infertility drugs Oral contraceptives Topical antiaging preparations Weight-loss medications30

Hair growth-promoting agents

In some cases, QOL drugs may be medically necessary and appropriate. For example, weight-lossmedications may improve medical outcomes for obese patients whose weight represents asignificant health risk. For the general population, however, QOL drugs are discretionary.

The criteria health plans use to make coverage decisions about prescription drugs have alsochanged. Traditionally, health plans based decisions about coverage for new drugs on medicalnecessity and cost-effectiveness. Now, health plans must also consider consumer, provider, andpurchaser expectations. Cost-benefit analysis has allowed health plans to respond to some ofthese demands and expectations by providing at least partial coverage for QOL drugs. Forexample, because of consumer and employer demand, most health plans currently provide somelevel of coverage for oral contraceptives.

Double-digit cost increases for existing drugs and a constant flow of expensive new drugs, manyof them QOL drugs, are making such coverage decisions more difficult. On one hand, healthplans have an obligation to develop drug policies that provide the greatest benefit to the majorityof their members. On the other hand, they must operate within limited budgets. How health plansbalance these potentially conflicting priorities can have significant legal and ethicalconsequences.

A health plan's pharmacy benefit decisions can also affect physicians and pharmacists. Physiciansmust balance their obligations to provide patients with the best possible treatment with their

contractual obligation to the health plan to provide the most cost-effective therapy possible. Forexample, a physician who believes that a patient with a chronic condition can be treated best witha nonformulary drug that the health plan will not cover faces a difficult decision. That decisionbecomes even more difficult if the physician suspects that the patient will not have theprescription filled if the health plan won't cover the drug cost. Reimbursement arrangements thatreward physicians for prescribing fewer or less expensive drugs may create additional pressuresto underutilize pharmaceuticals for therapy.

Conclusion

Pharmacists must balance their financial and contractual obligations to the health plan with theirprofessional obligation to see the patient is not harmed and receives the best possible drugtreatment. Just as physicians swear to uphold the Hippocratic oath or other ethical codes that theirmedical schools or employers require, pharmacists must adhere to the Code of Ethics forPharmacists developed by the American Pharmaceutical Association.

Health plans cannot foresee every legal or ethical problem that may arise; however, health planscan prepare for such situations by developing policies to govern the use of drugs and identifyingsteps that must be followed to grant exceptions to their policies.

Endnotes

1. A Pharmacist's Guide to Principles and Practices of Health Plan Pharmacy (Alexandria,VA: Foundation for Health Plan Pharmacy, 1995), 27.

2. E.C. Hanson and M. Shepherd, "Formulary Restrictiveness in Health MaintenanceOrganizations," Journal of Social and Administrative Pharmacy 11, no. 1(1994): 54-56.

3. A Pharmacist's Guide to Principles and Practices of Health Plan Pharmacy (Alexandria,VA: Foundation for Health Plan Pharmacy, 1995), 29-30.


5. Norrie Thomas, Lon N. Larson, and Nancy N. Bell, Pharmacy Benefits Management(Brookfield, WI: International Foundation of Employee Benefit Plans, 1996), 56.



8. Academy for Healthcare Management, Managed Healthcare: An Introduction(Washington, DC: Academy for Healthcare Management, 1999), 4-10.









17. Claudia Kalb, "Medicine: When Drugs Do Harm," Newsweek (27 April 1998): 61.

18. "Pharmacist on Rounds Show Decrease in ADEs," Managed Healthcare News(September 1999): 18.

19. Scott Hensley, "Preventive Medicine: Computerized System Analyzes Whether Dosage,Timing and Type of Drug are Right for the Patient," Modern Healthcare (12 July 1999):52.

20. Adapted from Academy for Healthcare Management, Health Plans: Governance andRegulation (Washington, DC: Academy for Healthcare Management, 1999), 6-30-6-41;used with permission.

21. Douglas J. Pisano, "Controlled Substances and Pain Management: Regulatory Oversight,Formularies, and Cost Decisions," Journal of Law, Medicine & Ethics, 24, no. 4 (1996),310-16, http://208.234.16.94/research/mayday_jlme/24.4f.html, (10/13/99).

22. "FDA Cracks Down on Illegal Online Rxs," Managed Healthcare News (September1999): 17.

23. Molly Stauffer, 1999 State By State Guide to Health Plan Law, ed. Donald R. Levy (NewYork: Panel Publishers, 1999), 5-8.

24. Health Plan Law Manual, Supplement #7 (Gaithersburg, MD: Aspen Publishers, Inc.,April 1998), 117.

25. Richard R. Abood, "Cut Pharmaceutical Costs, But Mind the Legal Dangers," HealthPlan (August 1997),www.managedcaremag.com/archiveMC/9708/9708.legalpharma.shtml, (25 October1999).

26. Richard R. Abood, "Cut Pharmaceutical Costs, But Mind the Legal Dangers," HealthPlan (August 1997),

www.managedcaremag.com/archiveMC/9708/9708.legalpharma.shtml (25 October1999).


28. Mary C. Sevon and Devora Mitrany, "Quality-of-Life Drugs: Framing the Issue," Journalof Health Plan Pharmacy 5, no. 3 (May/June 1999),http://www.amcp.org/public/pubs/journal/vol5/num3/spotlight.html (18 November 1999).

AHM Medical Management: Medical Management for Specialty Services

Objectives

After completing Medical Management for Specialty Services, you should be able to:

Explain why a health plan might choose to use a carve-out arrangement to deliver aspecialty service

Describe several medical management challenges for behavioral healthcare Explain the strategies that health plans and managed behavioral healthcare organizations

use to manage quality and costs for behavioral healthcare Understand quality and utilization management strategies for dental care, vision care, and

complementary and alternative medicine

Introduction

Many employers use healthcare benefit packages to attract potential new employees and keepcurrent employees satisfied, so health plans are constantly looking for ways to make their benefitofferings more appealing to employers and employees. One way that health plans can enhancetheir benefit packages is by offering specialty services.

Specialty services are healthcare services that are generally considered outside standard medical-surgical services because of the specialized knowledge required for service delivery andmanagement. Specialty services often involve different types of providers and delivery systemsthan do standard medical services. Health plans may cover some types of specialty services (e.g.,behavioral healthcare, oncology services) in their standard medical benefit packages, whileoffering other types of specialty services (e.g., dental care, vision care) in a separatesupplementary benefit package.

In this lesson we examine medical management issues related to the delivery, utilization, andquality of specialty services. We begin by exploring a health plan's options for arranging thedelivery of a specialty service. Next we discuss several specific types of specialty services-behavioral healthcare, dental care, vision care, and complementary and alternative medicine-andthe medical management issues surrounding them, such as the use of clinical practice guidelines,utilization review, and quality assessment and improvement.

Throughout the lesson, we address network management and benefits administration policy issuesthat may affect the quality and utilization of specialty services. We also describe applicableregulatory requirements and accreditation issues.

Options for the Deliver of Specialty Services

Health plans sometimes develop and maintain their own programs for the delivery of specialtyservices; however, many health plans arrange and manage the delivery of these services throughcarve-out (delegation) arrangements with other health plans that focus on specialty services, suchas managed behavioral healthcare organizations (MBHOs). Insight 9C-1 explains more about theuse of carve-out arrangements for specialty services.

Delegating (carving-out) specialty services is a relatively common practice in the health planindustry. A specialty service carve-out may offer a health plan benefits that include

Clinical and medical management expertise in a specialty service that an individualhealth plan may find difficult to replicate

Focused management of a single aspect of healthcare rather than a whole benefit package Knowledge about network management for the specialty service providers and, perhaps,

an established network of credentialed providers who have the education and trainingnecessary to deliver the specialty service

Greater cost-effectiveness for specialty service medical management programs than asingle health plan could achieve because of the economies of scale that may be realizedby a specialty service health plan that serves multiple health plans

Improved statistical results on quality improvement and outcome studies for low-volumespecialty services through the consolidation of data from several health plans

Improved member access to specialty services because of a larger provider panel than anindividual health plan could support, again due to the total number of members fromvarious health plans

Favorable compensation rates from specialty service providers, based on the largevolume of patients that the specialty health plan can bring to providers

Health plans that choose to develop and manage their own specialty services programs may findthat they are able to offer better continuity of care to their members that health plans that carveout specialty services can offer. For example, a health plan may be able to coordinate behavioralhealthcare services with existing primary care/preventive services or apply its case managementor disease management processes to behavioral healthcare.

On the other hand, health plans that contract with experienced specialty service health plans mayfind that their members receive greater continuity of care within the specialty service network.For instance, because of their experience with case management, an MBHO may be better able tocoordinate a patient's needs for behavioral healthcare across different providers and care settingsthan a health plan without such experience.

A health plan evaluates the costs and benefits of delegation versus in-house management whendeciding whether to carve out a specialty service and which aspects to delegate. Regardless ofwhich approach it takes, the health plan is ultimately responsible for the quality of care for thespecialty services included in its purchaser contract. Even if the carve-out of a specialty service iscomprehensive, regulatory bodies and accrediting agencies hold the health plan accountable forthe proper performance of any delegated functions. With the exception of MBHOs, there are nonationally recognized accreditation programs for specific types of specialty service health plans.Therefore, a health plan must carefully evaluate the policies, procedures, and capabilities of anyorganizations that render patient care or perform medical management functions on behalf of thehealth plan. The health plan must continue to monitor each delegate's quality of care andperformance of delegated functions throughout the term of the carve-out contract.2

Many of the same medical management techniques that we have discussed previously in thiscourse manual apply to managing specialty services; however, specialty services have someunique characteristics that affect medical management. We will discuss these characteristics inthe following sections.

Behavioral Healthcare

Behavioral healthcare is the provision of mental health and chemical dependency (or substanceabuse) services. Generally, behavioral healthcare treatment focuses on (1) protecting patients andothers from harm that may result from behavioral health disorders, (2) relieving incapacitatingsymptoms (e.g., insomnia, inability to concentrate), (3) returning patients to the functional statusthey had before the behavioral disorder appeared, and (4) preventing acute episodes.

Drug therapy, psychotherapy, and counseling are the most common treatment approaches forbehavioral disorders. Behavioral healthcare providers often use a combination of drug therapyand psychotherapy or counseling. Psychotherapy may be brief, goal-oriented therapy or long-termtherapy. It may be administered on either an individual or group basis.

Behavioral healthcare also establishes resources to support crisis intervention, that is, theintensive treatment of acute episodes of a behavioral health disorder. Crisis intervention is acritical element of behavioral healthcare because appropriate treatment in the acute phase oftenallows the patients to engage their own coping mechanisms and become functional again.Without treatment, recurrent acute episodes often increase in severity and the disorder maybecome chronic.

MBHOs emerged in the 1980s to help curb rapidly rising costs for mental healthcare andchemical dependency. Since MBHOs have been in existence, opinions concerning theeffectiveness of carving out behavioral healthcare services from traditional medical services havevaried in the healthcare industry. Proponents of carving out behavioral healthcare believe thatMBHOs can give members faster access to care and more specialized services than most healthplans. However, a behavioral healthcare carve-out can potentially decrease continuity of care dueto lack of communication and care integration between the behavioral healthcare provider and themember's primary care provider (PCP).

Medical Management Challenges for Behavioral Healthcare

Whether care is delivered and managed by a health plan or through a behavioral healthcare carve-out, the nature of behavioral healthcare creates some unique medical management challenges.

The complexities of diagnosing and treating behavioral disorders make the development andapplication of medical policy and clinical practice guidelines (CPGs) a challenge. For example,the severity of mental and substance abuse disorders varies greatly among different patients andin the same patient over time. These conditions typically persist for long periods of time,sometimes even for the life of the patient. Many patients have both mental disorders and chemicaldependency.3

The diagnosis and treatment of some behavioral disorders is based primarily on a patient's self-reported symptoms and observations made by a behavioral health specialist. However, thesubjectivity of patients' self-reporting and some patients' tendencies to withhold informationabout behavioral issues make assessment, diagnosis, and treatment by the provider difficult.Further, patients with behavioral disorders often display physical symptoms that may misleadtheir PCPs or medical specialists and delay appropriate diagnosis and treatment of the behavioralcondition.

The wide variation in patients' behavioral healthcare needs also means that health plans generallyoffer coverage for a variety of care levels and settings for behavioral healthcare. Figure 9C-1describes some of the levels of care and settings that health plans may include in their behavioralhealthcare benefits. The levels of care are listed in order from the most intensive and restrictive tothe least intensive and restrictive. A health plan's utilization management (UM) and qualitymanagement (QM) programs for behavioral healthcare services should reflect the different carelevels and settings, as well as the different diagnoses (e.g., depression, anxiety disorders,alcoholism, drug addiction) and clinical interventions (e.g., medications, individual therapy,group therapy) that are covered under its benefit package.

Matching a patient's needs with the appropriate intervention(s), care level, and care setting is animportant consideration for delivering high-quality, cost-effective behavioral healthcare. Whendetermining the appropriate level of care, health plans and MBHOs consider the level of riskposed by patients to themselves, others, and property; patients' abilities to perform self-care;existing comorbidities; and other medical needs.

Because patients with behavioral disorders often do not need around-the-clock nursing care,behavioral healthcare lends itself to alternative settings. Managed behavioral healthcareencourages outpatient over inpatient care where feasible. Health plans and MBHOs often use bothinpatient and outpatient care options to meet the needs of individual patients, such ashospitalization for an acute episode followed by outpatient treatments to prevent recurrent acuteepisodes.

Unlike many other specialty services, such as pharmaceutical or dental, behavioral healthcareservices are rendered by several different professional disciplines, including psychiatrists,psychologists, psychiatric nurses, licensed clinical social workers (LCSWs), and marriage,family, and child counselors (MFCCs). These disciplines vary greatly in terms of training, thescope of services provided, and the levels of compensation that they receive for their services.Such a diverse group of providers makes provider network management, UM, and QM verychallenging. Another network-related issue is that in many health plans, PCPs serve as patients'point of entry to behavioral healthcare services. Some PCPs may lack the time or skill toaccurately assess patients' needs for behavioral healthcare services.

Rising costs for behavioral healthcare are another ongoing concern for health plans. Managedbehavioral healthcare has been relatively successful in shifting care for behavioral healthdisorders from acute inpatient settings to less intensive, less costly alternative settings.6 However,the following factors have combined to increase the total costs of treating these patients:

More frequent diagnosis of disorders such as depression, anxiety, substance abuse,obsessive compulsive disorder, phobias, etc., than in the past

Increased willingness of the general population to acknowledge and receive treatment forbehavioral disorders

The development of new treatments for behavioral conditions (e.g., pharmaceuticals fordepression, anxiety)

Rising drug costs, especially for new drugs

In addition to wanting lower costs for behavioral health services, health plans and purchaserswant managed behavioral healthcare programs to produce positive outcomes, such as improvedfunction and decreased absenteeism and improved productivity at work

Strategies for Managing Quality and Costs

Health plans and MBHOs have developed several strategies to help manage costs whiledelivering high-quality behavioral healthcare to members. Such strategies include themanagement of behavioral healthcare provider networks, CPGs, the integration of behavioralhealthcare into the primary care setting, quality management initiatives, utilization review (UR),case management, disease management, and benefits administration policy.

Managing Behavioral Healthcare Providers

Achieving an appropriate mix of different types of providers is critical to delivering theappropriate services in a cost-effective manner. However, identifying, recruiting, andcredentialing the different types of providers can be a complicated task. For example, a healthplan cannot apply the credentialing standards for psychiatrists (who are physicians) topsychologists (who are not physicians). One reason that health plans contract with MBHOs isbecause MBHOs generally have the experience to develop a multi-disciplinary network. Figure9C-2 shows some typical parameters for the composition of a provider panel for managedbehavioral healthcare.

As with medical services, health plans must guard against developing incentives that mightinduce either undertreatment or overtreatment of behavioral conditions. At the same time, healthplans need to develop methods to encourage providers to use the most cost-effective treatment fora particular disorder while seeing that quality care is provided. Incentives that incorporatemeasures of utilization, clinical outcomes, and member satisfaction may be the most effectivemeans of achieving both quality and cost-effectiveness goals.

Behavioral Healthcare Clinical Practice Guidelines

Just as health plans establish CPGs for the treatment of certain diseases or conditions in themedical setting, health plans or MBHOs also establish clinical practice guidelines for certainprevalent behavioral health disorders. These organizations often use CPGs for major depression,anxiety, schizophrenia, bipolar disorder, attention deficit hyperactivity disorder, alcoholism, drugabuse, obsessive compulsive disorder, and eating disorders.6 Health plans and MBHOs maycreate their own guidelines or adopt guidelines created by another entity (e.g., the AmericanPsychiatric Association).7

Guidelines for behavioral healthcare may encourage the use of medications for certain disorders,suggest the use of psychotherapy in addition to drug therapy, and give general timeframes duringwhich improvement in the patient's condition can be expected. Because behavioral healthspecialists' educational backgrounds and practice approaches may vary considerably, concise,simple guidelines seem to work best. General guidelines that offer boundaries or suggestions forcare rather than describing exact steps for care may enhance provider cooperation with theguidelines.

Most health plans and MBHOs that develop or use CPGs make efforts to monitor compliancewith the guidelines. Some organizations review treatment plans to evaluate compliance; otherspublicize a more simplified version of their guidelines for consumers who can question treatmentoptions if guidelines are not being followed. If a health plan or MBHO observes unnecessarypractice variation, the organization can intervene to encourage the provider to adopt practicepatterns more consistent with the guidelines.

Integrating Behavioral Healthcare with Primary Care

Many health plans are increasing their efforts to (1) improve access to appropriate services forpatients who need behavioral healthcare and (2) coordinate behavioral healthcare services withmedical care. For example, some health plans have developed educational programs to alert PCPsto physical signs that may indicate a behavioral, rather than a physical, health problem for apatient. For example, recurrent backaches, headaches, or stomachaches with no apparentunderlying physical cause may be symptoms of behavioral health disorders.

Health plans may also establish CPGs to help PCPs assess suspected behavioral health problems;treat mild, uncomplicated behavioral disorders; and, when necessary, make appropriate referralsto behavioral healthcare providers. For example, a CPG might provide screening questions tohelp PCPs detect common disorders such as depression. Behavioral health screening can be aneffective tool for the early detection and treatment of behavioral health disorders. Many patientsare unaware of their behavioral disorders, so screening is also important to improving access tobehavioral healthcare services.

To promote the integration of behavioral health and medical services, health plans and MBHOsencourage cooperation and sharing of relevant clinical information between PCPs and behavioralhealthcare providers. Some health plans and MBHOs include the coordination of care acrossproviders as a requirement in policies and procedures for their behavioral healthcare providers.8

However, these organizations must also have safeguards in place to protect the privacy andconfidentiality of the information exchange. Information about behavioral health disorders andservices is particularly sensitive.

Recently, several health plans have brought behavioral healthcare back into the primary caresetting by placing behavioral health specialists in the same practice settings as PCPs or makingbehavioral health specialists available to PCPs on a consultation basis. Health plans may alsoseek to increase consumer awareness of the symptoms of common behavioral disorders throughhealth promotion programs or literature placed in PCPs' offices.

Quality Management Initiatives

In addition to credentialing behavioral healthcare providers, educating PCPs, establishing CPGs,and coordinating care, health plans and MBHOs may use other QM initiatives such as providerprofiling, member and provider satisfaction surveys, process measures, clinical outcomemeasures, and accreditation to support the quality of their behavioral healthcare services.

Process measures address such issues as the speed of access to services for members or how wellmembers comply with their drug therapy or psychotherapy schedules. Examples of clinicaloutcomes include achievement of functional goals (e.g., reduced absenteeism from school orwork, performance of parental duties), relapse rates for drug and alcohol use, symptom relief, andthe absence of adverse events (e.g., hospital admission, self-destructive behavior, violent actstoward others).

Accreditation organizations either include some requirements for behavioral healthcare servicesin their standards for evaluation of health plans, or they separately accredit MBHO programs.Both the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) and theNational Committee for Quality Assurance (NCQA) accredit managed behavioral healthcareproviders or programs.

Figure 9C-3 lists and describes the six categories for NCQA's MBHO accreditation programstandards. In addition to these separate standards, NCQA also has standards for health planaccreditation that address a health plan's delivery of behavioral healthcare, either through its owninternal programs or through delegation arrangements. Further, some Health Plan Employer Dataand Information Set (HEDIS) measures are specific to behavioral healthcare services. Forexample, HEDIS examines an MBHO's program for managing medication compliance forpatients treated with antidepressants.

Although the American Accreditation HealthCare Commission/URAC (URAC) does notspecifically accredit managed behavioral healthcare programs, its accreditation standards forhealth networks can be applied to MBHOs. URAC accredits a specialty network using the samestandards it uses for general health networks, but applies specialty-specific requirements forcredentialing and clinical oversight. Further, URAC frequently accredits the mental health URcomponents of MBHOs through its health utilization management standards.

Utilization Review

In addition to determining the most appropriate treatment approach and care setting for aparticular patient, utilization review for behavioral healthcare must also determine which careprovider can deliver the appropriate services in the most cost-effective manner. Thisdetermination is no easy task because the costs of behavioral healthcare vary greatly according tothe type of service, the care setting, and the type of provider. For example, individual therapysessions generally cost more than group therapy sessions, and inpatient care is usually moreexpensive than outpatient care. A psychotherapy session with a psychiatrist carries a highercharge than the same service rendered by a psychologist, which in turn is more costly than asimilar session with a counselor.

However, the least expensive provider may not always be the most cost-effective. Althoughtreatment by a psychiatrist typically costs more per hour than treatment by a counselor, dependingon the particular behavioral disorder, the psychiatrist may be less expensive if the patient's

disorder can be more effectively treated using a drug therapy instead of a series of psychotherapysessions with a counselor. This example illustrates the complexities of UR decisions and why it isimportant for the health plan or MBHO to examine all of the options for care that may apply to apatient's behavioral healthcare needs. Data warehouses and decision support systems may assistUR personnel with matching patient needs to care levels, providers, and settings.

Prospective and concurrent utilization review are especially important to see that (1) appropriatetreatment is provided and (2) costs are not excessive. For outpatient services, many health plansand MBHOs initially authorize one to three sessions for an assessment of a patient and require thetreating provider to submit a treatment plan before payment for additional treatment will beauthorized. Another form of prospective review is the precertification of inpatient services at ahospital or other treatment facility. Ideally, prospective review is available 24 hours a day, 7 daysa week to address the need for crisis intervention.

Health plans and MBHOs often practice concurrent review during the course of a patient'sbehavioral health treatment to assess the patient's responsiveness to treatment. Reviewers closelymonitor inpatient care to see that necessary assessments and treatments are aggressively pursuedin a timely fashion and that discharge planning is addressed immediately. For outpatienttreatment, reviewers assess whether the patient is receiving goal-oriented therapy that is designedto stabilize the patient's condition and return the patient to a functional level in a timely manner.Based on the results of the concurrent review, the health plan may recommend changes in thelevel of care, care setting, or care provider.

Health plans and MBHOs may also use retrospective review for behavioral healthcare to evaluatecases that did not receive prospective or concurrent review. For behavioral healthcare,retrospective review may determine if there were extenuating circumstances for the failure toobtain preauthorization for payment. For example, a health plan might decide that the severity ofa patient's condition constituted an emergency and waive its usual requirements forpreauthorization. Health plans also use retrospective review to address appeals ofnonauthorization of payment for services.

Case Management

Because some members need extensive behavioral healthcare services, perhaps on a long-termbasis, health plans and MBHOs may use case management to support the continuity,appropriateness, quality, and cost-effectiveness of care. Case management can direct a patient'streatment, monitor progress, make changes as necessary to see that functional status goals arebeing met, and coordinate behavioral healthcare with medical services as necessary. Anotherimportant function of a case manager is to see that behavioral healthcare benefits (which may belimited in terms of the number of visits, inpatient days, or total dollar coverage) are used in themost efficient manner and that plan members receive referrals to relevant community services,such as self-help groups.

Case managers for behavioral healthcare may include psychologists, psychiatric nurses, licensedclinical social workers, and others with many years of clinical experience. Case managers oftenconsult with other providers (both behavioral health and medical) involved with a particularpatient.

Figure 9C-4 summarizes how case management may be a useful tool for behavioral healthcareUM and QM.

Insight 9C-2 describes how one MBHO uses prospective and concurrent UR and casemanagement in its managed behavioral health program.

Disease Management

Some health plans are addressing common behavioral disorders through disease managementprograms. To help determine and reach the population in need of behavioral health disease

management, health plans establish diagnostic CPGs that PCPs can use to identify behavioralhealth disorders or illnesses, such as depression and schizophrenia.

Upon diagnosis, the PCP usually refers the patient to a behavioral health specialist for furtherevaluation and treatment under a disease management program. Just as in disease managementprograms for medical illnesses, behavioral health disease management programs may incorporatedisease-specific CPGs, preventive care, self-care, case management, education and incentives tosupport patients' compliance with their treatment regimens, and mechanisms to monitor clinical,financial, and member satisfaction outcomes of treatment.

Behavioral Health Benefits Administration Policy

Health plans may also use their benefits administration policies to manage utilization ofbehavioral health services. Many plans have an annual limit on the number of inpatient treatmentdays and outpatient visits or annual or lifetime dollar limits for behavioral healthcare services.

Most plans must comply with federal requirements for limitations on mental healthcare benefits,as discussed later in this lesson. However, these requirements do not apply to chemicaldependency, so benefits for chemical dependency are often more limited in terms of the intensity,duration, and site of treatment than are benefits for mental disorders. For example, some planslimit the number of days in a course of drug rehabilitation or the number of times a patient mayundergo a course of rehabilitation for drug or alcohol addiction. A health plan's benefitsadministration policy may also specify the type(s) of rehabilitation program that will be covered.

The specific types of behavioral healthcare services that are covered or excluded vary amonghealth plans. Individual purchasers may also influence the types of services covered under theircontracts with health plans.

Health plans may also adjust copayment levels, deductibles, or coinsurance amounts based on thelevel of care a patient receives, the type of disorder treated, types of treatment used, and the typesof providers delivering care.10

For example, inpatient coinsurance or copayment requirements may be higher than outpatientcontributions, and outpatient treatment provided by a psychiatrist may carry a higher copaymentthan such treatment provided by other behavioral healthcare disciplines.

Regulatory Requirements for Behavioral Health

Over the last few years, much attention has been focused on mental healthcare at both the stateand federal levels. The Mental Health Parity Act (MHPA) of 1996, a federal law, was drafted toprovide parity between medical and mental healthcare coverage for group plan members. TheMHPA does not require health plans to offer mental health benefits; rather, it prohibits grouphealth benefit plans that do offer mental health benefits from imposing lower annual or lifetimedollar limits or caps for mental illness than for physical illness. This law applies to group healthplans with more than 50 members. The law provides an exemption from MHPA requirements forplans that can demonstrate that achieving parity increases their costs by more than 1 percent. Notealso, that the MHPA does not address

Limitations on the number of outpatient visits or inpatient days covered

The amount or percentage of any cost-sharing mechanisms such as copayments orcoinsurance

Limitations on the types of services to be covered

Several states had their own parity laws prior to the passage of the MHPA, and many other stateshave passed laws relating to mental health coverage after MHPA became effective. However,some policymakers and industry analysts argue that parity has not yet been achieved. Becausegroup health plans can impose limits on provider visits or inpatient days and adjust cost-sharingmechanisms, there still may be a gap in the care covered for medical versus mental health.Further, purchasers may opt not to provide any mental health benefits. Some federal and statelegislators are currently trying to develop additional mechanisms to establish parity betweenmedical and mental healthcare coverage.

Medical Management Considerations for Dental Care

Dental care differs from medical care in several ways. One of the primary purposes of dental careis to prevent two diseases or conditions-tooth decay and gum disease-that, if not detected andtreated early or if left untreated, account for very high costs. General dental practitioners, notspecialists, provide most dental care, and dental care rarely requires hospitalization. Further,many dentists are solo practitioners who are not familiar with the health plan processes such asutilization review, profiling, and peer review. Health plans must take these characteristics ofdental care into consideration when making medical management decisions for dental care.

Many plans provide 100 percent coverage for preventive dental care that includes X-rays, exams,and cleanings. Most plans cover a portion of the cost of fillings, extractions, and more complexdental procedures or expensive devices, such as root canals and prosthetics.

Although indemnity (fee-for-service) dental plans are still the most common form of dental carecoverage, managed dental care is gaining popularity. Managed dental care organizations typicallyappear in one of three forms-dental health maintenance organizations (DHMOs), dental preferredprovider organizations (dental PPOs), or dental point-of-service (dental POS) options. Healthplans can develop and manage their own programs for dental care or they can contract with amanaged dental care organization to deliver dental care for their members.

No federal law exists to allow the formation of national DHMOs or other managed dentalorganizations; therefore, such organizations are regulated at the state level. Many states havedental plan licensing requirements that managed dental care organizations must meet.12 DentalPPOs are typically subject to less regulation than DHMOs.

Quality Management

Although no specific accreditation program for managed dental plans currently exists, URAC'snetwork standards addressing QM, provider credentialing, member protection, and networkmanagement may be applied to dental plans. In addition, the National Association of Dental Plans(NADP), a not-for-profit trade association for DHMOs and dental PPOs, has developed qualitystandards for managed dental plans and is seeking an existing healthcare accreditationorganization to implement them.13 The NADP's standards address issues such as

Dental plans' communications with their members Access to dental care

Plan member privacy and confidentiality of dental information Qualification of network dentists Effectiveness and quality of dental care

In the absence of dental accreditation programs, DHMOs and dental services vendors have usedcredentialing and recredentialing, office audits, professional standards, CPGs, patient surveys,and profiling to support the quality of care. Some managed dental care organizations followNCQA's standards for credentialing and recredentialing dentists (Doctors of Dental Surgery) ormodel their own credentialing standards after those of NCQA.14 Before adding a practitioner to itsnetwork, a DHMO may conduct a site audit to check the following quality indicators:

Cleanliness and appearance of the facility Adequacy of equipment and staffing Adequacy and convenience of office hours Patient safety measures (e.g., infection control, procedures for medical emergencies) Completeness and legibility of patient records and treatment plans System for telephone coverage 24 hours a day, 7 days a week

Some DHMOs conduct site audits periodically (every year, every three years, etc.) to reassessthese indicators.

Many health plans and managed dental care organizations develop standards with which networkdentists must comply, such as standards on the use of X-rays, sterilization of equipment, and theminimum appropriate level of care to be administered to patients. These organizations may alsofollow standards set by the Occupational Safety and Health Administration (OSHA). In addition,some plans have developed practice guidelines, similar to medical CPGs, for treating specificdental problems.

Health plans and dental plans also measure outcomes of dental care provided to their members.Examples of dental care outcomes may include

The number of routine preventive dental visits per member per year The incidence of advanced cases of tooth decay and gum disease that could have been

prevented15

Some plans use patient surveys to determine areas of care in which network dental providers needimprovement. At least one plan publishes a dental report card based on the results of its patientsurvey. The report card rates access, credentialing, member satisfaction with the plan and themember's dentist, and quality of care.16

Managed dental care plans may also conduct profiling to measure dentists' performance inproviding quality, cost-effective dental care to members. Dental provider profiling generallymeasures any or all of the following indicators:

Clinical outcomes Patient satisfaction Utilization rates for preventive care and procedures, that is, the proportion of patients for

whom a dentist provides each type of dental service (e.g., exams, crowns, oral surgeries,etc.) during a certain time period

Utilization rates for referrals to dental specialists and the types of conditions referred

Utilization rates for prescription medications for dental patients, sometimes by the typesof medications prescribed

The performance measurements are compared to predetermined standards set for each indicatorby the plan and, in some instances, to the performance of other network dentists.

The managed dental care organization communicates the results of the profile to the dentists and,when appropriate, may provide additional education or training to help the dentists adjust theirpractice patterns to be closer to the established standards. For example, if the review indicatesthat the proportion of a dentist's patients receiving preventive care is below the managed dentalcare organization's standard, the organization's network management director might discussreasons for the variance with the dentist and, if warranted, suggest ways to improve thepreventive practice patterns.


The main tools for UM of dental care are preventive care, self-care, UR, and benefit design.Health plans and managed dental care organizations may have programs to educate andencourage members to (1) perform good oral hygiene on a daily basis and (2) regularly utilize thepreventive care services provided by their dentists. Members can generally access preventivedental care and uncomplicated treatments (e.g., fillings, extractions) directly, that is, withoutpreauthorization of payment by the health plan or dental health plan. However, coverage of theseservices may be subject to limitations (e.g., two examinations and cleanings per year) and/or cost-sharing features (e.g., copayments, deductibles, coinsurance).

More extensive and costly services are often subject to prospective authorization. For example,the authorization system of a health plan or managed dental care organization may requirepreauthorization of payment for caps and crowns and for services performed by dental specialistssuch as orthodontists, periodontists, or oral surgeons. In some instances, the UR determinationmay indicate whether a general dentist or a specialist should perform a particular service.

Managing Vision Care

A health plan's approach to medical management for vision care depends on the vision benefitsoffered by the health plan. Vision care benefits are typically separated into two categories:clinical eye care and routine eye care. Clinical eye care encompasses medical and surgicalservices for eye diseases, such as glaucoma, and eye injuries. Routine eye care covers general eyeexaminations to test vision, prescribe corrective lenses, and screen for eye disease, and sometimesincludes payment for corrective lenses.17

Clinical eye care is generally included in a health plan's benefit plan; however, although manypurchasers and consumers view routine eye care as an attractive benefit, most health plans do notinclude routine eye care as a standard benefit.18

The coverage of routine eye care is especially appealing to the Medicare population. Medicaredoes not require health plans to offer vision benefits, but some Medicare plans consider eye carebenefits as a way to attract new members and enhance satisfaction with the health plan. Medicaidhealth plans must offer eye examinations and corrective eyeglasses to children, and many statesrequire similar benefits for adult Medicaid recipients.19

Health plans have several options for offering vision care benefits to their members. Most healthplans include clinical eye care providers in their networks. To arrange access to routine eye care,a health plan can

Add providers who perform routine eye care to its existing network Include provider organizations that offer both clinical and routine eye care in its network Enter into a carve-out arrangement with an organization (such as a managed vision care

organization) that will arrange access to routine eye care for members Enter into a carve-out arrangement with a managed vision care organization or a multi-

specialty provider organization that will deliver both clinical and routine eye care formembers20

Quality Management

A managed vision care organization (MVCO) is an organization devoted to the delivery ofroutine eye care or both routine eye care and clinical eye care by implementing health planconcepts such as credentialing, authorization systems, CPGs, utilization review, and QM.MVCOs that deliver both routine and clinical eye care often operate much like an HMO does.Many MVCOs that provide only routine eye care operate like PPOs.21

Under a typical carve-out arrangement for routine eye care or all eye care, the health plandelegates credentialing, UR, QM, medical records, and administrative functions to the MVCO orprovider organization.

One method that health plans and MVCOs use to support appropriate eye care is by establishingor adopting CPGs for use by their contracted providers. The American Optometric Associationand the American Academy of Ophthalmology have published CPGs related to vision care. Theseorganizations' guidelines include suggestions on

Adults' and childrens' eye exams including special screenings (e.g., for cataracts)indicated by the age of the patient

Care for patients with diabetes mellitus, age-related macular degeneration, amblyopia,conjunctivitis, and glaucoma22

Some health plans and MVCOs also perform provider profiling to manage the vision care theirmembers receive. Other quality control mechanisms health plans and MVCOs may implement forvision care include

Audits of vision service facilities and providers' optical laboratories Quality improvement studies Surveys or other communications to obtain member and provider feedback

Health plans or MVCOs often counsel providers who receive a large number of membercomplaints. Because member and customer (e.g., employer) satisfaction is a crucial issue tohealth plans, many health plans and MVCOs conduct member surveys to assess how membersperceive the vision benefit or network. Typical survey topics include wait times for appointments,wait times in providers' offices, and the courtesy and helpfulness of office staff.23 In addition tosurveys, most health plans and MVCOs have set up a system for tracking membercommunications about the vision network, specific providers, or the vision benefit.

None of the major accreditation agencies currently have an accreditation program specifically formanaged vision care; however, several vision networks have obtained accreditation underURAC's network accreditation program. Other vision care networks model their credentialing andother quality standards for vision care after NCQA's standards for medical care.

Utilization Management for Vision Care

Authorization systems vary among health plans and MVCOs, but for routine eye care, managedvision care programs primarily rely on benefit design for utilization management. Membersgenerally do not need prior authorization of payment before obtaining routine eye examinationsand, if applicable, corrective lenses, but payment is based on the terms of the benefitsadministration policy (e.g., how often eye examinations are covered, dollar limitations onexaminations or corrective lenses, copayments, etc.).

For clinical eye care, authorization systems more closely resemble those for medical care.Clinical eye services other than those provided by a PCP may be subject to precertification,concurrent review, or retrospective review.

Most PCPs have little training in diagnosing and treating vision problems, so their role is usuallylimited to basic vision screening to detect vision deficiencies and treating minor conditions suchas conjunctivitis or removing foreign objects from the eye. They typically refer other eye careconcerns to an ophthalmologist or an optometrist.

Although ophthalmologists are educated and trained to treat eye disease and injury, they can alsoperform routine eye exams and prescribe corrective lenses. Most health plan members see anophthalmologist upon referral from a PCP or optometrist. An optometrist's fees for routine eyecare are usually significantly less than an ophthalmologist's charges for the same services.26

An optometrist in an MVCO that delivers both clinical and routine eye care may serve in areferral role. Eye problems, such as glaucoma or other eye diseases, will be referred to anophthalmologist. During a routine eye examination, an optometrist may detect symptoms thatsuggest an underlying medical problem, such as diabetes, cancer, or hypertension. In thissituation, the optometrist refers the patient back to the PCP for further investigation of thesymptoms.27

Opticians may work in the same office as an ophthalmologist or optometrist. Some optometristsare also opticians. Because the lab that grinds the lenses for eyeglasses may be a part of anophthalmologist's or optometrist's practice, health plans or MVCOs must take care that suchcombined practices do not generate unnecessary prescriptions to support the sale of eyeglassesand contact lenses. To avoid this issue, some health plans and MVCOs use a central lab to makeall lenses for members. Central labs may also facilitate quality control for lenses.

Insight 9C-3 describes how one national vision benefits manager performed a quality andutilization review study for diabetes patients.

Managing Complementary and Alternative Medicine

Complementary and alternative medicine (CAM) encompasses healthcare services not offeredby traditional medical providers that are viewed as alternatives to traditional care or that can beintegrated with or can complement traditional (western) medicine. Many CAM practices focus onthe stimulation of the body's natural ability to remain well and to heal when illnesses and injuriesoccur. Prevention, wellness, and self-care are core concepts for most CAM approaches. CAMmodalities tend to emphasize low-tech, minimally invasive treatments.

Chiropractic, acupuncture, herbal medicine, homeopathy, massage therapy, naturopathy, andmind-body therapies are among the most frequently used CAM treatment methods. Figure 9C-6describes several of the more common CAM approaches.

Coverage for at least some level of chiropractic care has become so commonplace that manyhealth plans include it as part of the medical benefit package rather than as an "alternative"approach that may be purchased as a supplement to the basic benefits. However, few health planshave integrated other types of CAM benefits into the basic benefit package.

CAM seems to have a firm hold on consumers in the United States, who now make more visits toCAM practitioners than to PCPs. Because CAM treatments may result in lower long-term coststhan traditional medical therapies for chronic diseases, some employers believe the use of CAM

may lower their total costs for healthcare. However, no evidence currently exists to support orrefute this belief. In response to employer and consumer demand, many health plans includeCAM benefits in their coverage or offer a separate CAM plan.

Medical Management Issues Related to CAM

CAM is a relatively new phenomenon for health plans and represents significant challenges interms of how to manage the delivery of the services and how CAM should relate to traditionalmedical care. Medical management issues that health plans must address for CAM include:

Deciding which CAM services to cover and in what amounts (i.e., setting benefitsadministration policy)

Managing the potential liability of covering services for which effectiveness has not beenclearly established to the satisfaction of the insurance or traditional medical communities

Managing a CAM provider network Managing the quality and utilization of services that often differ significantly from

traditional medical services Determining whether to and how to integrate CAM services with existing medical care Evaluating CAM services

Because of these issues (which are discussed in further detail in the following sections) and theirinexperience with delivering and managing CAM services, health plans often delegate CAMservices to specialty service health plans, such as chiropractic health plans.

Establishing CAM Benefits Administration Policy

Because many CAM practices lack conclusive scientific evidence to support claims ofeffectiveness, member and purchaser demands and regulatory requirements often drive healthplans' coverage of CAM. Medicare and government programs cover certain CAM services. Forexample, Medicare Part B covers some chiropractic and acupuncture. The Federal EmployeeHealth Benefits Program also requires its health plans to cover acupuncture in some situations.

Laws and regulations may influence benefit design in some jurisdictions. For example, the stateof Washington passed a law in 1995 that required health plans and insurers to allow access to allcategories of licensed healthcare providers, including naturopaths, chiropractors, andacupuncturists. The law has been the subject of much debate and formal legal appeals; however,it currently stands, and health plans must comply with it.33Other states have sought to pass lawsthat allow traditional medical providers to prescribe or perform alternative treatments for theirpatients. In most states, traditional medical providers are not licensed to provide CAM services topatients unless they have obtained an appropriate CAM license from the state in which theypractice.

Managing the Liability Associated with CAM

Covering CAM services that lack scientific evidence of effectiveness creates possible liabilityexposures for a health plan. First, the inclusion of an unproven (perhaps even untested) CAMbenefit in a standard benefit package conflicts with the definitions and exclusion provisions forexperimental and investigational services in the purchaser's contract. For this reason, many healthplans choose to offer CAM benefits as a rider-that is, a separate supplemental benefit-or to have a

separate CAM product (such as a discount program) rather than to include CAM benefits in theirbasic coverage.

Health plans that offer coverage for CAM services must also take appropriate risk-managementmeasures to protect members from being harmed by CAM services. Supporting the appropriatedelivery of these services also reduces the risk of malpractice associated with CAM.

Health plans should become familiar with state and federal consumer protection statutes thataffect the provision of CAM services. Most of these statutes relate to the consumer's right toknow the potential risks and benefits of using CAM. To that end, some health plans addressliability by requiring members receiving CAM therapies to sign statements indicating knowledgeof and consent to a particular CAM treatment. By signing such a statement, membersacknowledge that they understand

What the CAM service is and what the service is expected to achieve The experimental nature of the treatment, if applicable That a conclusive impact on the ailment may not have been established for the CAM

treatment That they can withdraw their consent to the treatment at any time

Health plans must also take care in developing marketing or advertising materials so that theymake no promises or implied warranties related to the results of CAM services.30

Determining the potential liability associated with a particular CAM modality is oftenproblematic due to the lack of clinical trials to evaluate safety and effectiveness. In fact, someCAM proponents argue that studies used to evaluate new traditional medical treatments may notbe the best method to establish the effectiveness of CAM therapies because CAM therapies aretypically holistic, rather than directed toward a specific illness, injury, or symptom, and resultsvary by individual.

CAM Network Issues

Network management, particularly credentialing, for CAM providers may be difficult for healthplans whose network management experience has focused on traditional providers, such asphysicians, hospitals, and pharmacies. Credentialing CAM providers presents additionalchallenges because of the variance in state laws and regulations. For example, although all 50states and the District of Columbia require licensing of chiropractors, licensing requirements andother regulations for acupuncturists, massage therapists, and naturopaths vary among the states.Although NCQA has credentialing standards for chiropractors, none of the major accreditingagencies have standards for credentialing other CAM disciplines.

State or national CAM associations, such as the American Chiropractic Association, theAmerican Massage Therapy Association, or the American Holistic Nurses Association, canprovide guidance on network management for CAM benefits. For example, the professions ofchiropractic, acupuncture, and massage therapy offer standardized national exams. Chiropractic,naturopathy, and acupuncture have established a federally recognized accrediting agency for theirschools.32

Managing Quality and Utilization

Currently, provider credentialing is the primary tool that health plans use to manage the quality ofCAM services. In addition to credentialing, some health plans and specialty service health plansuse CPGs, member satisfaction surveys, profiling, peer review, and report cards to support thequality of CAM services for health plan members. Health plans that wish to establish CPGs forthe delivery of CAM services often turn to national CAM provider associations and specialtyservice health plans for assistance with CPG development.

Member satisfaction surveys for CAM often emphasize both healing and comfort as aspects ofhealthcare quality. In this context, healing does not necessarily mean curing, but refers to thefacilitation of health. Comfort refers to the relief and sense of well-being that may result fromCAM treatment.33

Plans that offer CAM benefits must decide whether to require authorization of CAM benefits bythe PCP or the health plan, or to allow members direct access to CAM services. Because healthplan coverage of CAM services is a relatively new phenomenon, most health plans do not haveenough historical claims data on the utilization of CAM services to project the financial andclinical impact of offering CAM services as covered benefits. Therefore, health plans often relyon benefit design features such as copayments, deductibles, cost-sharing, and limitations tomanage utilization until data is available to provide a better understanding of CAM utilizationpatterns, costs, and outcomes.

Although most health plans and specialty service health plans do not require a PCP referral orprecertification for CAM benefits, some of them do require a PCP referral. Using PCPs to helpmembers access CAM appropriately may not be effective because few PCPs make referrals toCAM providers unless they have specific education and training about CAM practices. Someplans use naturopaths as PCPs; however, naturopaths are licensed in only one-fourth of the states,so this application may be limited.

Another consideration for CAM benefits is determining the role that CAM will play in a healthplan's spectrum of services. CAM therapies are based on a holistic approach to health. Forexample, suppose that a physician refers a patient to an acupuncturist for a specific painmanagement issue. The acupuncturist will not just treat the particular part of the body where painis present but will examine the patient's entire system using principles of acupuncture to findweaknesses that may be causing the pain that reside in a different location in the individual'sbody. This holistic approach to diagnosis and treatment may not fit well with a health plan'sestablished methods for UR, which typically address the use of a particular service for a specificdisease or ailment. Health plans that cover CAM may have to adjust their UR procedures toaccommodate the holistic nature of those services.

Health plans and specialty service health plans sometimes struggle with questions of medicalnecessity and appropriateness for CAM services. For example, a member who seeks the servicesof a massage therapist for pain management related to injuries sustained in an automobileaccident may have a better case for medical necessity than a member who accesses massagetherapy for the stresses related to everyday living. Related to this issue is the question of what is amedical condition, as opposed to normal conditions that are uncomfortable.

Some CAM proponents believe that traditional requirements for medical necessity are notrelevant for CAM services since holistic medicine, by definition, supports health maintenance and

healing through natural body processes rather than addressing specific symptoms or isolatedepisodes of illness.

Integrating CAM with Traditional Medical Services

Some health plans prefer to have completely separate programs for the delivery and managementof CAM and traditional medical services. However, other plans believe that the integration of thetwo types of care will eventually result in overall improvements in quality, cost-effectiveness, andmember satisfaction.

Incorporating the use of CAM with traditional medical services requires health plans to addressthe education and training needs of both CAM and traditional providers. Many CAM providersare not familiar with health plans and initially may be somewhat resistant to contract with a healthplan. These providers may need education on what a health plan is, how it works, and theirresponsibilities for medical management under a health plan contract. For example, CAMproviders may need an initial orientation to and continuing education on a health plan's qualitymanagement initiatives and systems for authorization of services and referrals.

Health plans that wish to integrate CAM with their basic medical care must also educate theirtraditional providers about covered CAM benefits, especially if traditional providers will serve ina referral role for CAM services. In order for traditional providers to be able to make appropriatereferrals to CAM providers, the traditional providers must understand the

Different CAM approaches covered by a health plan Situations in which each CAM approach is appropriate Potential benefits and risks of CAM treatments Ways that CAM can complement traditional medicine Health plan's authorization system for CAM referrals

Lack of knowledge about CAM may discourage traditional providers from even considering aCAM referral. One way for health plans to support integration and appropriate PCP referrals forCAM is to establish CPGs to guide the PCP in assessing a patient's need for CAM and makingthe referral to the CAM provider. The CPGs that a health plan uses for CAM assessment andreferral are very important to establishing the credibility of CAM to traditional providers. Oneapproach to establishing such CPGs is to assemble a committee that includes both traditional andCAM providers to develop a consensus on how to assess CAM needs, indications for a referral,requirements for referral authorization, and the type of information the CAM provider needs fromthe PCP.

Some plans are experimenting with integrating CAM into their traditional medical practice byhaving CAM and traditional medical providers in the same office so that patients can be referredimmediately to the most appropriate provider for diagnosis or treatment.

Evaluating CAM Results

Outcome measurements for many CAM services are sketchy; however, some information isavailable to assist health plans with managing and evaluating CAM services. For example, theNational Institutes of Health (NIH) established the National Center for Complementary andAlternative Medicine to evaluate the effectiveness of various CAM treatments. In 1997, a federalpanel of scientific experts convened by NIH issued a statement that acupuncture may be an

effective treatment for chemotherapy-induced nausea, post-operative dental pain, and treatment ofcertain other painful conditions. Another federal organization, the Agency for HealthcareResearch and Quality (AHRQ), found that chiropractic is an effective treatment for acute lowback pain.

Some large health plans that offer some CAM benefits are attempting to track their own clinical,financial, and member satisfaction outcomes. Much of the information they gather is based onpatients' reports on the effectiveness of certain treatments. Peer-reviewed journals that examinethe effectiveness of various CAM therapies have also emerged within the last five to six years.One actuarial science organization is collaborating with Harvard Medical School to work withhealth plans to develop a reliable outcomes database to measure the effectiveness and cost-effectiveness of CAM.34

If favorable clinical, financial, and member and provider satisfaction outcomes can beconclusively demonstrated, then CAM services may become more standard in health plans, andhealth plans may relax benefit administration requirements and limitations.

Endnotes

1. Academy for Healthcare Management, Network Management in Health Plans(Washington, DC: Academy for Healthcare Management, 1999): 6-49-6-50.

2. Dorland's Illustrated Medical Dictionary, 29th ed. (Philadelphia: W. B. SaundersCompany, 2000), 1489.

3. David R. Selden, "The Shocking Truth of Tapping Behavioral Health into MedicalServices," Managed Healthcare (September 1999): 26.

4. Academy for Healthcare Management, Network Management in Health Plans(Washington, DC: Academy for Healthcare Management, 1999): 6-52.


6. William Goldman, et al., "More Evidence for the Insurability of Managed BehavioralHealth Care," Health Affairs 18, no. 5 (September/October 1999): 172-173, 179.

7. "MBHOs Advancing Gradually with Implementation of Guidelines," Medicine & HealthPerspectives (25 October 1999): 1.

8. "MBHOs Advancing Gradually with Implementation of Guidelines," Medicine & HealthPerspectives (25 October 1999): 4.


10. National Committee for Quality Assurance (NCQA), "NCQA's Managed BehavioralHealth Accreditation Program: An Overview,"http://www.ncqa.org/pages/policy/accreditation/mbho/mbhoexec.html (25 April 2000).

11. Saul Feldman, "Behavioral Health Services: Carved Out and Managed," The AmericanJournal of Health Plan (25 June 1998): SP62-63.

12. Donald F. Anderson, et al., "Managed Behavioral Health Care and Chemical DependencyServices," in Best Practices in Medical Management, ed. Peter R. Kongstvedt, M.D., andDavid W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 417.

13. Marlene Piturro, "Following in Medicine's Path: Dental Health Plan Continues to Grow,"Managed Healthcare News (February 1999): 20.

14. Wendy Knight, Health Plan Contracting (Gaithersburg, MD: Aspen Publishers, Inc.,1997), 253.

15. Allison Bell, "Managed Dental Group Issues Standards," National Underwriter (Life &Health/Financial Services Edition) (27 September 1999): 46.

16. Evelyn F. Ireland, "NADP Strives to Advance Managed Dental Care," ManagedHealthcare (June 1997): 26.

17. Leigh A. Wachenheim and Brian A. Cameron, The Dental Health Plan Marketplace(Washington, DC: Atlantic Information Services, Inc., 1998), 18-19.

18. Carolyn Stevenson, "Dental Vendors Develop Programs Focusing on Cost and Quality,"Employee Benefit Plan Review (January 1996): 36.



21. Jesse Rosenthal, "Health Plans Are Beginning to See the Light," Managed Healthcare(March 1997): 75.

22. Ed Rabinowitz, "The Untapped Market of Managed Vision Care," Managed HealthcareNews (August 1999): 17.



25. Elaine Zablocki, "20/20 Vision Care," Healthplan (May/June 1998): 28.






31. "Fields of Practice-What is Cam?" National Center for Complementary & AlternativeMedicine, http://www.nccam.nih.gov/nccam/what-is-cam/fields (6 December 1999).

32. Landmark Health Care, "The Landmark Report II on HMOs and Alternative Care," 1999,http://www.landmarkhealthcare.com/99tlrIIm.htm (21 June 1999).

33. "Alternative Medicine and Employer Health Plans: A Wide-Angle Perspective,"Employee Benefit Practices (2nd quarter 1999): 10.

34. Rodd Zolkos, "Alternative Medicine Brings New Exposures," Business Insurance (11October 1999): 12.

35. John Weeks, "On the Outside Moving In: Will the Alternative Medicine IntegrationMovement Shape U.S. Healthcare?" Healthcare Forum Journal (November/December1998): 16.

36. Roxana Huebscher, "Improving Quality in Natural and Alternative Health Care Practice,"in Improving Quality: A Guide to Effective Programs, ed. Claire Gavin Meisenheimer(Gaithersburg, MD: Aspen Publishers, Inc., 1997), 562.

37. "Alternative Medicine and Employer Health Plans: A Wide-Angle Perspective,"Employee Benefit Practices (2nd quarter 1999): 15.

AHM Medical Management: Medicare

Objectives

After completing lesson Medicare, you should be able to:

Identify the major benefits of managed Medicare Understand the legal and regulatory requirements that affect medical management for

Medicare Recognize the special health risk factors and needs of the Medicare population

Describe the important components of a comprehensive program of geriatric care

Introduction

Health plans were developed primarily to serve commercial populations made up of relativelyyoung, healthy, working men and women and their families. Today, increasing numbers ofMedicare beneficiaries are enrolling in health plans. The Congressional Budget Office (CBO)predicts that the number of Medicare beneficiaries enrolled in health plans will increase from 7.8million in 2000 to 16.8 million in 2008.1 Because Medicare beneficiaries have healthcare needsthat are often different than those of commercial enrollees, this influx of Medicare beneficiariesinto health plans will have a significant impact on the way health plans design and managemedical benefits.

In this lesson, we provide a brief overview of the healthcare options available to Medicarebeneficiaries and describe the legal, social, and economic factors that have influenced theMedicare program. We also describe some of the steps the federal government and health planshave taken to support the delivery of high-quality, cost-effective medical care to the elderly anddisabled.

Medicare Options

Originally, Medicare provided healthcare benefits only through a traditional fee-for-service (FFS)program operated by the federal government with support from third party Medicare insurancecarriers and intermediaries. Passage of the Balanced Budget Act (BBA) of 1997 led to arestructuring of Medicare and established Medicare+Choice as an alternative to traditional FFScoverage. As mentioned in the lesson, Environmental Influences on Medical Management(italicized), the Medicare Modernization Act of 2003 provided some short and long term updatesto the medicare program, including changing the name of the Medicare+Choice program toMedicare Advantage. Updates to this text will be made available in the spring of 2005, after thefinal regulations are released. Medical benefits are also available to eligible beneficiaries in theform of Medigap insurance.

Traditional Fee-For-Service (FFS) Medicare

The traditional fee-for-service (FFS) Medicare program consists of two parts. Part A providescoverage for inpatient hospital services, short-term care in skilled nursing facilities (SNFs), homehealthcare following an institutional stay, and hospice care. Part B provides voluntarysupplemental medical insurance coverage.

Medicare+Choice

Medicare+Choice offers Medicare beneficiaries a choice of three options.

Coordinated care plans (CCPs), which include health maintenance organizations(HMOs), with or without a point-of-service component, preferred provider organizations(PPOs), and provider-sponsored organizations (PSOs).

Private fee-for-service (PFFS) plans, under which coverage is provided by privateinsurance carriers rather than through the traditional FFS Medicare program.

Medicare medical savings account (MSA) plans, which consist of a tax-preferredmedical savings account (MSA) set up for individual Medicare beneficiaries to which thefederal government makes contributions on behalf of the beneficiary to pay healthcareexpenses. Medicare MSAs are available under a national demonstration project that limitsthe total number of participants and suspends new enrollments as of January 1, 2003.

Medicare+Choice plans provide all Medicare Part A and Part B services to members as medicallynecessary.

Editor's Note:The Medicare Modernization Act of 2003

On December 8, 2003, President George W. Bush signed into law the Medicare ModernizationAct of 2003 (MMA), taking steps to expand private sector health care choices for current andfuture generations of Medicare beneficiaries. The MMA proposes short-term and long-termreforms that build upon more than 30 years of private sector participation in Medicare.

The centerpiece of the legislation is the new voluntary prescription drug benefit that will be madeavailable to all Medicare beneficiaries in 2006. Additional changes to the Medicare+Choice(M+C) program include:

Medicare+Choice program’s name is changed to Medicare Advantage (MA); Increased funding is provided for MA plans in 2004 and 2005; MA regional plans are established effective 2006.

On January 16, 2004 CMS announced new county base payment rates for the MA program.Beginning March 1, 2004, all county MA base rates received an increase which plans arerequired to use for enhanced benefits. Plans may use the extra money in one of four ways:

Reduce enrollee cost sharing; Enhance benefits for enrollees; Increase access to providers; Utilize the stabilization fund.

The short-term reforms have already improved benefits and reduced out-of-pocket costs formillions of Medicare beneficiaries who are covered by health plans in the Medicare Advantageprogram, previously known as the Medicare+Choice program. These coverage improvementsbecame effective on March 1, 2004.

On June 1, 2004, beneficiaries saw additional improvements in Medicare under anotherimportant MMA initiative, the Medicare-Endorsed Prescription Drug Discount Card Program,

which will remain in effect through the end of 2005. This program gives beneficiaries the optionof purchasing prescription drug discount cards—sponsored by private sector entities andendorsed by Medicare—which offer discounted prices on prescription drugs. Furthermore, thediscount card program is providing low-income Medicare beneficiaries with up to $600 annuallyin assistance, in both 2004 and 2005, to help cover their prescription drug costs.

Beginning in 2006, the MMA will provide beneficiaries with a broader range of private healthplan choices similar to those that are available to working-age Americans and federal employees.In addition to the locally-based health plans that currently cover more than 4.6 million Medicarebeneficiaries, regional PPO-style plans will be available as a permanent option under theMedicare Advantage program.

Beginning in 2006, all beneficiaries will have the option of choosing prescription drug coveragedelivered through private sector entities. This coverage will be available as a stand-alone drugbenefit or, in other cases, as part of a comprehensive benefits package offered by MedicareAdvantage health plans.

Other important provisions of the MMA address Medigap choices and specialized MedicareAdvantage plans for beneficiaries with special needs.

Public comments on the regulations are currently in review, and changes to the draft regulationsare anticipated. Final regulations are expected in the spring of 2005, and content updates will bemade after the release of the final regulations.

Medigap Insurance

Traditional FFS Medicare functions primarily to protect against losses from acute illnesses andinjuries and, as a result, covers only a portion of the medical expenses incurred by the averagesenior. To cover gaps in traditional FFS Medicare coverage and help reduce their out-of-pocketmedical expenses, Medicare beneficiaries often rely on supplemental insurance policies. Thesepolicies, referred to as Medigap policies, are sold by state-licensed private insurance companies.

Although Medigap policies have been sold for many years, the Medigap policies that arecurrently available were developed by the National Association of Insurance Commissioners(NAIC) to standardize benefits under this type of coverage. Ten Medigap policies, labeled Athrough J, have been approved for sale to Medicare beneficiaries. Benefits vary by plan but not bystate or by insurer. For example, a Plan B policy sold by an insurance carrier in one location willinclude exactly the same benefits as a Plan B policy sold by a different insurance carrier in adifferent location. The cost of Medigap insurance varies by policy, insurance carrier, and state.

All ten policies offer a basic benefit package that includes the following components:

Coverage for Medicare Part A and Medicare Part B coinsurance 365 additional hospital days after Medicare benefits end The first three pints of blood used each year

Plan A is the simplest of the ten plans and provides only the basic benefit package. Sequentialplans add benefits to the basic Medigap benefits package. Figure 10A-1 summarizes the benefitsprovided by each of the ten approved Medigap policies.

Benefits of Managed Medicare

Unlike other coverage options for seniors (traditional FFS Medicare, private FFS plans, non-network Medicare MSA plans, and Medigap policies), CCPs offer comprehensive programs ofcare that are designed to address both acute medical care needs and overall health and quality oflife. This approach to healthcare offers the following advantages to Medicare beneficiaries:

Prevention and early identification/treatment of disease. By emphasizing preventiveservices and screening, CCPs can identify potentially serious conditions before theybecome acute. Also, by providing continual monitoring, CCPs can help slow theprogression of chronic disease and delay disability. For example, compared to FFSpatients, smokers in CCPs are 50 percent more likely to be advised to quit; heart attacksurvivors in CCPs are more than twice as likely to be prescribed beta-blockers; andfemales in CCPs are 40 percent more likely to be screened for breast or cervical cancerwhile in the at-risk age range.2

Focus on health status/quality of life. CCPs acknowledge the effects of both medicaland non-medical factors on medical outcomes. By providing education to patients andtheir families, CCPs can increase patients' awareness of and participation in decisions thataffect their health.

Coordinated care. Unlike other options, which have indemnity plan structures, CCPsplace primary care at the center of the delivery system and focus on managing patients'care at all levels. CCPs are increasingly building interdisciplinary primary care systems

that focus on delivering high-quality care in settings that best meet the needs of patientsand their families.

High-quality care. As a result of quality initiatives such as performance measurementand improvement, many CCPs have collected a great deal of information abouthealthcare processes and outcomes. This information allows CCPs to focus on thosetreatment options that lead to the best outcomes.

Additional benefits. Unlike most other options, CCPs often provide benefits that are notcovered by Medicare Part A and Part B. For example, in 1998, 83 percent of MedicareHMOs offered vision care as part of their basic benefit package; 71 percent offeredhearing care; 70 percent offered routine physical examinations, eye and ear examinations,immunizations, and outpatient drug benefits; and 68 percent offered prescription drugbenefits.3

Legal and Regulatory Requirements Affecting Medical Management for Medicare

Since its inception, Medicare has undergone a number of changes because of legal and regulatoryaction. The most extensive of these changes to Medicare have come about as a result of theBalanced Budget Act (BBA) of 1997 and the Balanced Budget Refinement Act (BBRA) of 1999.

As we mentioned earlier, the BBA restructured Medicare and established Medicare+Choice,which expanded the types of organizations that can deliver covered services and increased thenumber of available coverage options. The BBA also made significant changes to the Medicarepayment structure. These changes were designed to

Encourage introduction of Medicare+Choice programs in rural areas by increasingpayments in these areas

Preserve coverage and benefits in areas with higher than average costs Improve overall program efficiency, resulting in lower costs to beneficiaries and lower

growth in Medicare spending Reduce geographic variations in payment rates

The actual results of these changes are unclear. Although the BBA payment methodologyencourages growth in low-payment counties, it reduces the growth in many other markets, whereincreases in costs are well above the 2 percent increase in payment set by the Centers forMedicare and Medicaid Services (CMS). Many Medicare HMOs contend that the paymentsystem proposed by the BBA makes it difficult for them to maintain their current programs. Someexisting plans have withdrawn from the program or have limited their service areas. Participationby other types of plans has also been low.

The BBA also called for changes that have a direct impact on medical management. For example,the BBA expanded Medicare benefits by mandating coverage for the following preventiveservices:

Annual mammograms for all Medicare-eligible women ages 40 and older, with Part Bdeductible waived

Screening pelvic exams and Pap smears, with Part B deductible waived Annual prostate cancer screening tests for Medicare-eligible men ages 50 and older Diabetes outpatient self-management training services and supplies, including blood

glucose monitors and testing strips for type II diabetics without regard to use of insulin Bone density exams for high-risk individuals

Vaccine outreach programs for seniors

The addition of such benefits increases the quality of care available to Medicare beneficiaries, butit also increases costs. Medicare HMOs, already under pressure to manage healthcare costs andutilization, have begun responding to the combination of increased benefits and reducedreimbursement outlined in the BBA by cutting benefits, raising premiums, or both. According toa report released by CMS in December 1999, the number of "zero premium" plans available toMedicare beneficiaries will decrease. At the same time, existing premiums are likely to rise. Inaddition, a significant number of plans have announced changes in benefits. The majority of thesechanges involve coverage for prescription drugs, with 86 percent of plans establishing annualdollar caps on prescription drugs.4 Recent proposals to provide mandatory prescription drugcoverage for all Medicare beneficiaries may temper these actions and require plans to findalternative ways to reduce costs.

The BBA also established extensive guidelines for seeing that CCPs deliver quality care toMedicare beneficiaries. These guidelines are built around a series of components related toperformance assessment and improvement. Originally, the BBA required PPOs to meet thequality requirements that apply to all other CCPs, including HMOs. As a result of the BBRA,however, PPOs are now required to meet the quality standards that apply to PFFS plans and non-network MSAs. Although these plans are not subject to the same quality requirements as CCPs,they must still meet requirements such as those that apply to enrollee grievances.

The following sections describe some of the specific quality initiatives outlined in the BBA.

Quality Review

One important component of Medicare quality programs is a requirement for quality reviews byindependent quality review and improvement organizations. These organizations, referred to asquality improvement organizations (QIOs) under the Health Care Quality Improvement Program(HCQIP) collaborate with providers and health plans to perform quality improvement activities.The Health Care Quality Improvement Program (HCQIP) is a program initiated by CMS toimprove the quality of care provided to Medicare beneficiaries.

The BBA requires CCPs to have an agreement with a quality review and improvementorganization for each Medicare plan they operate and to undergo periodic quality reviews.Review organizations perform quality reviews; assess the appropriateness of the plan's setting forcare, adequacy of access, and outreach programs; and review complaints about quality. Reviewsmay be waived if the plan has an excellent quality record and complies with otherMedicare+Choice requirements. Plans may be deemed to have met requirements forconfidentiality, accuracy of patient records, access to services, anti-discrimination, advancedirectives, and provider participation if they have been accredited by a private organization thatmeets CMS' standards for deeming.

Performance Measurement and Improvement

The BBA also requires Medicare+Choice plans' quality programs to satisfy the following fivegeneral requirements related to performance measurement and improvement. Plans must undergoa formal, independent evaluation of their quality improvement plan at least annually. Theevaluation must address the impact and effectiveness of the plans' quality assessment andperformance improvement programs.

Plans must establish systems for measuring and reporting performance and achieveminimum performance levels based on standard measures required by CMS

Plans must conduct performance improvement projects that produce demonstrable andsustained improvement in significant clinical and nonclinical areas

Plans must follow written policies and procedures that reflect current standards ofmedical practice in processing requests for initial or continued authorization of services

Plans must establish mechanisms to detect both underutilization and overutilization ofservices

Plans must provide CMS with information on quality and outcomes measures that willallow beneficiaries to compare health coverage options

HEDIS and CAHPS

As you recall from Environmental Influences on Medical Management, the Health Plan EmployerData and Information Set (HEDIS) is a set of standardized performance measures designed tohelp consumers and purchasers evaluate health plans. Under the terms of the BBA, CCPs arerequired to report their results on specified HEDIS measures that apply specifically to theMedicare population. These measures include clinical effectiveness measures on flu vaccine,mammography, diabetic retinal screening, beta blockers for heart attack patients, smokingcessation programs, outpatient follow-up after hospitalization for mental illness, and functionalhealth status.

Plans are also required to submit data from the Consumer Assessment of Health Plans (CAHPS)surveys, which measure how consumers and purchasers evaluate health plans. CAHPS surveysare administered by third party organizations under contract with the health plans. In addition,CMS contracts with a third party vendor to conduct a Health of Seniors Survey that measuresfunctional status of patients.

To assist plans with collecting and reporting performance and satisfaction data, CMS created theHealth Plan Management System (HPMS), a database that contains information on MedicarePart A and Part B recipients who are enrolled in CCPs. The HPMS database is intended to

Help beneficiaries choose among health plans Support health plans' quality improvement activities Monitor and evaluate the care provided by CCPs Assist program management Provide a research database for CMS and other researchers

The HPMS went into effect in 1998.

Quality Assessment Performance Improvement

The Quality Assessment Performance Improvement is a CMS initiative designed to strengthenhealth plans' efforts to protect and improve the health and satisfaction of Medicare and Medicaidenrollees.6 Established in 1996, QAPI serves as a model for implementing the quality assessmentprovisions included in the BBA of 1997. For Medicare, QAPI represents CMS' administrativeinterpretation of Medicare+Choice requirements in the areas of quality measurement andimprovement and delivery of healthcare and enrollee services.

QAPI's quality assessment standards and operational guidelines direct Medicare+Choice plans to

Operate an interim program of quality assessment and performance improvement thatachieves demonstrable improvements in enrollee health, functional status, andsatisfaction

Collect and report performance data using standardized measures of healthcare qualityand meet contractually specified performance levels on these measures

Comply with administrative structures and operational requirements for quality of careand beneficiary protection

QAPI quality assessment standards apply to all services provided by health plans to Medicareenrollees, including medical care, mental health and substance abuse services, and any additionalservices delivered to Medicare enrollees as mandatory or optional supplementary benefits.Performance improvement standards are divided into clinical and nonclinical focus areas. Clinicalfocus areas include:

Primary, secondary, and/or tertiary prevention of acute conditions Primary, secondary, and/or tertiary prevention of chronic conditions Care of acute conditions Care of chronic conditions High-volume services High-risk services Continuity and coordination of care

Nonclinical focus areas include availability, accessibility, and cultural competency of services;interpersonal aspects of care, including quality of provider/patient encounters; and handling ofappeals, grievances, and other complaints.7 QAPI standards address only those areas related toquality. Separate mechanisms exist as part of CMS' oversight protocols for other health planfunctions such as operations, marketing, eligibility, claims processing, and external appeals,monitoring, and enforcement.

QAPI updates the quality standards for health plan contractors established by Medicare in 1988.In addition, QAPI outlines the role of Quality Improvement Organizations (QIOs) in assistinghealth plans with designing and implementing required quality studies. QAPI also builds onexisting and proposed quality initiatives of other organizations. For example, CMS hascollaborated with the National Committee for Quality Assurance (NCQA) to incorporateMedicare-specific performance measures into HEDIS. Through QAPI, CMS specifies how thesemeasures are to be applied to Medicare health plan programs. QAPI also provides authority andjustification for the use of consumer surveys, such as CAHPS, as a component of performancemeasurement programs and required studies of access, continuity of care, and other nonclinicalaspects of quality.

QAPI appeals and grievance measures mirror provisions included in the NAIC's Health CarrierGrievance Procedures Model Act (GPMA), a model act adopted in 1996 that defines the methodshealth carriers, including health plans, are to use to resolve member grievances. QAPI requireshealth plans to establish appeals procedures according to GPMA guidelines related toauthorization, coverage, payment, and discontinuation of service. 8

A health plan's organizational structure determines the extent to which QAPI standards apply. Forexample, all QAPI quality measurement and improvement standards apply to CCPs, includingHMOs, POSs, and PSOs, although as mentioned earlier, they no longer apply to PPOs. Certainstandards, such as those related to resolving enrollee grievances, also apply to PPOs, non-network

MSA plans, and PFFS plans. Standards requiring demonstrable improvement in enrollee healthdo not apply to non-network plans. Programs of All-inclusive Care for the Elderly (PACE),discussed later in this lesson, are exempt from QAPI requirements.

Organizational structure also affects plans' ability to collect and report standardized performancedata such as HEDIS results. CMS works with plans to identify quality measures for which dataare not reasonably available and allows them to report "not available" on those particularmeasures. CMS' intention is to balance uniform reporting and ease of comparison withdifferences in organizational structure and data collection capabilities.

QAPI standards took effect on January 1, 1999, for Medicare+Choice health plans. During thefirst two years of implementation, plans are required to report on HEDIS and CAHPS measures,but they do not have to satisfy any minimum performance requirements. Plans also have toinitiate two performance improvement projects. Projects are required to demonstrateimprovement by the end of the third contract year. The BBA grants Medicare the authority toaccept accreditation by a private accrediting organization, or by Medicare, as proof that a healthplan meets certain quality requirements.

Until they receive Office of Personnel Management (OPM) clearance, QAPI standards remain ininterim final form and are subject to modifications that result from the BBRA or legislativeactions to implement quality requirements. However, most plans have already begun to monitorperformance and implement improvement programs according to QAPI standards.

Issues and Challenges Regarding Quality

CMS has made progress toward making compliance with basic quality and performance standardsa condition of participating in the Medicare program, including a requirement that allMedicare+Choice plans obtain accreditation. However, the process is not complete. In order toachieve its goal, CMS must address a number of issues and challenges.

Perhaps one of the most significant challenges to establishing a consistent program of qualitymeasurement and improvement is the difficulty of comparing the quality of health plans with thequality of FFS care. Whereas health plans provide an organizational focus for accountability, FFSsystems offer no comparable entity that is accountable for performance. Quality, therefore, can beassessed only at the level of individual providers. To date, health plans have had minimal successin measuring and reporting quality at the provider level. CMS is currently piloting a program forcollecting HEDIS data about FFS providers in six cities, but even in this program, directcomparison with health plan data is difficult.

Consistent quality assessment and improvement is also difficult to establish across different typesof health plans. Differences in plan structure and enrollment can make it difficult to determinewhich factors actually impact quality. CMS faces the challenge of designing appropriateperformance measurements and accountability systems that promote the participation of a widevariety of healthcare delivery systems. The current system is most feasible for HMOs and FFSproviders. CMS has been challenged to develop an intermediate level of accountability for thequality and cost-effectiveness of Medicare services in healthcare organizations such as PPOs.

Another challenge facing CMS is determining how to deliver quality information that isinformative, engaging, and easy for the Medicare population to use. Systems that supply toomuch information are as likely to fail as systems that supply too little information. A successful

effort will require data that can be used by CMS, healthcare purchasers, and consumers toidentify and eliminate those plans that perform poorly and by health plans to improve quality andsatisfaction.

A final challenge for CMS is to develop a system of measuring and improving the quality of careprovided to the most needy and vulnerable members of the Medicare population. As Figure 10A-2 indicates, Medicare beneficiaries in managed Medicare plans are, in general, as satisfied withthe quality of care they receive as are those in the traditional FFS Medicare program. In fact, aCAHPS survey of over 100,000 CCP enrollees found that almost half rated their plan a "10" on ascale of 1 to 10.9

This pattern may not be true of disabled members or those in poor health. Because of their highutilization rates and chronic conditions, the frail elderly are the most costly segment of theMedicare population. As a group, they are also the most affected by health plan's efforts tocontrol costs, especially efforts to limit provider choice and establish guidelines for referrals tospecialty care and expensive tests. In order to measure quality of care accurately, it will benecessary to collect and analyze data from this population.

Creating Effective Healthcare Programs for the Elderly and Disabled

Designing effective medical management programs for the Medicare population involves twosteps: (1) defining the special health needs of older adults and (2) developing a delivery systemthat makes appropriate services available at appropriate times and in appropriate settings.

Defining the Special Health Needs of Elderly and Disabled Adults

Medicare beneficiaries differ from the general healthcare population on a variety of medical andsocial dimensions.

Patient Demographics

Aging slows the healing process. As a result, seniors who suffer an acute illness or injury arelikely to require longer and more costly recovery periods than younger patients. They are alsolikely to require a greater number of post-acute care services. In addition, seniors' health needsare often compounded by non-medical factors such as living arrangements, relationships withfamily and caregivers, and socioeconomic problems.

Prevalence of Chronic Conditions

A large number of seniors suffer from at least one chronic condition. In fact, among persons age65 and older, "48.3 percent have arthritis, 38.1 percent, hypertension, 27.9 percent, heart disease,and 8.8 percent, diabetes."10 A significant number of these seniors suffer from more than onechronic condition.

Chronic conditions impact both utilization of healthcare services and cost of care. Studies haveshown that the cost of care for an enrollee with one chronic condition is more than three times ashigh as the cost of care for an enrollee without a chronic condition. For enrollees with multiplechronic conditions, the cost can be nearly eight times as high.

Reliance on Prescription Drugs

The presence of chronic conditions and comorbidities in the Medicare population has a directimpact on the demand for prescription drugs. Seniors consume more than 33 percent of allprescription drugs and average 14 prescriptions per person per year.11 It is not surprising,therefore, that prescription drug benefits rank as the number one factor among seniors in selectionof a health plan. Increased drug use, however, often leads to increased health risks, includingadverse drug reactions.

Decreased Functional Status

The combination of age and illness among the Medicare population frequently leads to reductionsin functional status. Functional status is defined as a patient's ability to perform the activitiesassociated with daily life. These activities are typically divided into two categories: activities ofdaily living (ADLs), which include basic self-care activities such as bathing, dressing, eating, andpersonal care, and instrumental activities of daily living (IADLs), which include cognitiveactivities such as shopping, managing money, and using the telephone. Figure 10A-3 shows howthese measures are used to assess functional status.

Mental Health Problems

Mental health problems occur frequently among Medicare beneficiaries. Researchers estimatethat at least 10 percent of beneficiaries age 70 suffer from Alzheimer's disease. By age 80, thenumber increases to approximately 26 percent and by age 84, to 34 percent.12 Other forms ofdementia and depression are also common among the elderly. These conditions are associatedwith increased mortality, morbidity, and healthcare costs.

Dependence on Caregivers

Seniors with reduced functional abilities are often forced to depend on family members or othercaregivers for assistance. These caregivers often function as an important extension of thehealthcare system. They also function as an extension of the patient. As a result, their needs andexpectations must be addressed.

Provider/Patient Relationships

Like other segments of the population, Medicare beneficiaries consider various factors whenevaluating healthcare and health plan quality. Medicare beneficiaries are particularly sensitive tothe attitudes and behaviors of providers and their staffs and often equate quality of care with aprovider's willingness to treat patients in a caring, respectful, informative manner. Older patientsalso equate quality with the amount of time they spend with providers during office visits.

Risk Identification and Assessment

Seniors with chronic conditions account for more than 70 percent of the older population'shealthcare expenses. In addition, most seniors change health plans infrequently, with MedicareHMOs averaging less than 8 percent disenrollment per year. These two facts provide strongfinancial incentives for CCPs to identify high-risk seniors as early as possible.

Identification of high-risk seniors is typically accomplished through intervention identification(also known as case finding), which is a three-part process that includes screening, recognition ofhigh-risk seniors by clinicians, and analysis of administrative data. Medicare health plans shouldscreen all new enrollees for chronic illness or other high-risk medical conditions by means of ahigh-risk screening questionnaire administered by mail or telephone. Enrollees who score above aspecified threshold on the questionnaire are considered to be potential candidates for specialpreventive and maintenance services.

Clinicians-especially PCPs-also play a part in identifying high-risk enrollees. Because of frequentencounters, PCPs are in a position to observe changes in patients' health and functional status thatindicate risk and to begin managing potential problems early. Analysis of administrative datafrom the following sources also provides risk information:

Diagnostic codes from claim forms and encounter reports Procedural codes from claim forms and encounter reports National Drug Classification codes Laboratory utilization reports Pharmacy utilization reports Patient demographic data

Because this information is available only at the time of or after an acute episode, interventionsfocus on preventing future episodes.

Individually, these methods provide only limited information about potential risks. Screening isoften performed only for new enrollees, and questionnaires often lack questions about importantnonmedical factors affecting patient health. For example, research has shown that elderly menand women who live alone, with few or no nearby relatives, frequently require higher levels ofcare and attention than do men and women in stable social environments.13 Clinicians do notalways have the expertise or the opportunity to assess geriatric information. In addition to beingretrospective, administrative data are often difficult to obtain in a timely manner. The value ofthese approaches to risk identification, therefore, lies in their combination.

Once high-risk enrollees have been identified, they must be assessed in order to determine whichservices are most appropriate to their health needs. Initial assessments are typically conductedthrough interviews with nurses or other skilled healthcare professionals and cover the followingelements:

Cognition Medical conditions Medications Access to care Functional status Social situation Nutrition Emotional status

More detailed assessments are sometimes needed for complex problems in order to define andprioritize the major factors affecting patient health and utilization of services and to develop andcommunicate a management plan. These assessments are typically conducted by interdisciplinaryteams.

Case Management for Seniors

In an FFS environment, seniors with chronic conditions often interact with hospitals, skillednursing facilities, emergency departments, physician's offices, pharmacies, home care agencies,outpatient surgery and rehabilitation centers, laboratories, transport services, and medicalequipment vendors. Each interaction involves different goals, plans, providers, and information.Care in such situations is fragmented and often leads to increased communication errors,duplication of effort, increased administrative costs, and adverse outcomes.

Seniors also rely on a number of nonmedical services such as senior centers, support groups,adult day care centers, companion and transport services, and meals-on-wheels programs. Theseservices are typically provided by publicly supported, community-based organizations. Thefrailest elderly often require the long-term care services of nursing homes.

Case management offers a way of bringing these fragmented services together in an integratedapproach to healthcare. Such an approach is especially beneficial for high-risk enrollees withmultiple clinical problems, chronic conditions, and limited or unstable family and social supportnetworks.

Case management programs can be classified into two primary groups based on the number ofpatients involved and the level of interaction between patients and case managers. In high-volume, low-intensity programs, case managers arrange services for large numbers of seniors, butspend little time dealing with individual patients one-on-one. In low-volume, high-intensityprograms, case managers arrange services for limited numbers of seniors and meet with patientsfrequently.

Case management offers important benefits to both patients and health plans. By linking healthplan services and community-based services, case management can decrease the reliance on acutecare, reduce medical costs, enhance the quality of life for Medicare enrollees, and improve bothpatient and provider satisfaction with quality of care.

Team-Based Care

In traditional settings, individual providers often focus on specific components of healthcareprograms for patients without effectively communicating with each other about treatment plans orintegrating their services. A more effective approach, especially for seniors who often havecomplex healthcare needs, is to integrate these separate providers into interdisciplinary teams.Health plans design and support delivery systems that encourage the development of such teamsthrough case management programs.

Interdisciplinary teams typically consist of a core group of providers that includes a physician, anurse, and a social worker. Geriatricians and gerontological nurse practitioners (GNPs) areespecially valuable on care teams for seniors because of their expertise in caring for the elderly.Depending on the complexity of a patient's needs and the goals of the treatment program, otherproviders such as pharmacists, dieticians, psychologists, and physical and occupational therapistsmay also be included. Leadership of the team is determined by patient needs. For example, if thepatient's needs are primarily medical, the physician assumes a leadership role; programs forpatients whose needs are primarily educational would most likely be led by nurses or GNPs.

The team approach to geriatric care has already been tested and shown to be effective in casemanagement programs. Other examples include Geriatric Evaluation and Management (GEM)and Interdisciplinary Home Care (IHC) programs. Geriatric Evaluation and Management(GEM) programs are designed to provide elderly patients at risk for hospitalization with targetedoutpatient intensive care at a reasonable cost.14 GEM programs include comprehensive geriatricassessment, a series of primary care office visits, and continuous case management by a teamconsisting of a geriatrician, a nurse or social worker, and a GNP. GEM programs have shownimprovements over traditional care in diagnostic accuracy and patients' functional status andsatisfaction with care, and reductions in mortality, healthcare costs, use of emergencydepartments and hospital services, patient depression and anxiety, and caregiver stress.15

Interdisciplinary Home Care (IHC) provides chronically disabled seniors with an integrated,physician-led program of medical and supportive care at home. 16 IHC programs incorporate theservices of nurses, home health aides, occupational and physical therapists, and home visits byphysicians. Teams meet regularly to discuss active cases and to recommend necessary programchanges. Although some IHC services, especially physician home visits, may not be cost effectivein the short term, these programs do offer a way to avoid the need for more expensive, labor-intensive services over the long term.

Integrated Acute and Long-Term Care

Working with providers and healthcare facilities, health plans have taken a number of steps tointegrate their systems for delivering acute care to Medicare enrollees including the developmentof home hospitalization programs, establishment of geriatric and ACE (acute care for elders) unitsin acute-care hospitals, and creation of sub-acute facilities. By substituting lower-technologyinterventions for higher-technology interventions, these programs have helped avoid or shortenhospital stays, reduce costs, and improve patients' and providers' satisfaction. A next step is tointegrate acute and long-term care.

CMS has already developed two prototype programs in this area: Programs of All-inclusive Careof the Elderly (PACE) and the Social Health Maintenance Organization (SHMO) program. Theseefforts are supported by pooled, capitated funding from Medicare and Medicaid.

Programs of All-inclusive Care for the Elderly (PACE) grants waivers of certain Medicare andMedicaid requirements to a limited number of public and nonprofit private community-basedorganizations that provide integrated healthcare and long-term care services to elderly personswho require a nursing-facility level of care. The purpose of PACE is to foster prepaidcomprehensive health services designed to enhance quality of life and, to the extent possible,enable frail, older adults to live in their communities.

PACE was initiated in 1986 under the Omnibus Budget Reconciliation Act (OBRA 1986). OBRA1990 extended the number of organizations eligible to conduct PACE programs from 10 to 15.The BBA of 1997 authorized coverage of PACE under the Medicare program and amended theSocial Security Act by adding a section that addresses Medicare payments and benefits underPACE. The BBA also authorized establishment of PACE as a state option under Medicaid.

PACE provides comprehensive services to eligible participants, based on need and theparticipant's care plan, and without limitation as to amount, duration, or scope of service andwithout any deductibles, copayments, or other cost-sharing features. Eligible enrollees must beassured access to providers and services 24 hours per day, 7 days per week.

Congress established the Social Health Maintenance Organization (SHMO) demonstrationproject under the Deficit Reduction Act of 1984 in an effort to determine whether a coordinatedprogram of healthcare, preventive, and social services could prevent costly medical complicationsamong the elderly. SHMOs provide Medicare beneficiaries with a combination of standard HMObenefits, such as hospital, physician, SNF, and home healthcare services, and long-term carebenefits, such as social benefits for frail elderly who reside at home. The goal of these programsis to avoid institutionalization of Medicare beneficiaries through the use of community-basedcare. Like other Medicare risk HMOs, SHMOs receive a capitated payment from CMS for eachenrolled beneficiary. This payment is equal to 100 percent of the adjusted average per capita cost(AAPCC).

PACE provides comprehensive services to eligible participants, based on need and theparticipant's care plan, and without limitation as to amount, duration, or scope of service andwithout any deductibles, copayments, or other cost-sharing features. Eligible enrollees must beassured access to providers and services 24 hours per day, 7 days per week.

The BBA mandated a report to Congress with a plan for integration and transition of SHMOs intothe Medicare+Choice options. The BBRA extended the SHMO demonstration project to 18

months after submission of this report. Features of the PACE and SHMO demonstration projectsare described in Figure 10A-4.

Focus on Geriatrics

Health plan's emphasis on preventive care and its focus on utilization, cost, and qualitymanagement make it an ideal setting for comprehensive geriatric care programs. Geriatric care isan approach to providing care for older adults that include systematic assessments of patients'health and functional status, coordination of care, preventive and educational interventions,psychosocial support services, regular follow-up care, and application of geriatrics expertise.17

The essential elements of a comprehensive geriatric care program are described in Figure 10A-5.

Geriatric specialists are an important part of these programs at both an administrative level and aclinical level. Administratively, geriatricians can provide valuable input into the design andongoing evaluation of programs targeted at Medicare beneficiaries. Because they have a clearunderstanding of the multidimensional needs of the elderly and disabled and of the impact offrailty and functional status on utilization and mortality, they are also in a position to makeinformed decisions regarding allocation of resources. Clinically, geriatricians can provideinformation about clinical needs specific to the Medicare population, help design and managegeriatric care programs, and serve as primary clinicians for special populations or specialprograms.

Geriatricians also play an important role in providing education and training for primary careproviders, case managers, and other healthcare professionals. These efforts include providinginformation in the following areas:

The use of evidence-based clinical practice guidelines for common geriatric conditionssuch as stroke and hip fracture

The availability of special programs for acute care such as discharge planning and ACEunits

The options available for transitional, custodial, and end-of-life care

Educational Programs for Patients and Caregivers

Education programs for seniors with chronic conditions and their caregivers focus on providinginformation about specific diseases, treatment options, proper utilization of healthcare services,

and self-management techniques. Education can be provided through printed materials or throughstructured classes, support group sessions, and individual counseling.

Such educational programs have been proven to reduce costs and improve quality of life. Forexample, self-management programs for arthritis are now widely available. These programstypically consist of a series of weekly sessions during which patients and their families learnabout disease pathology, treatment options, strength and endurance exercises, relaxationtechniques, nutritional needs, and the effects of stress, pain, and depression. Studies show thatthese programs result in greater control over symptoms, improved self-management, and reducedpain.18

Conclusion

Implementing comprehensive medical management programs for the Medicare populationinvolves challenges for both health plans and the surrounding community. For example, in orderto maximize the effectiveness of case management programs, health plans will need to becomeaware of and familiar with the resources that are available and the requirements for gainingaccess to those resources; they will need to establish partnerships and contracts with community-based service providers and develop relationships and processes that will facilitate referrals; andthey will need to develop payment policies that are flexible enough to take advantage of the lowcosts and high satisfaction levels offered by many of these services.

In order to create interdisciplinary teams, health plans will have to find ways to bringprofessionals from different disciplines together to "speak each other's language" and tocoordinate their skills and practice patterns. In order to combine acute and long-term careservices, health plans will have to explore ways to combine Medicare capitation with otherfunding streams, such as Medicaid and long-term care insurance.

Similar changes will have to be made at the community level. Health plans will have to work withcommunity leaders and program sponsors to overcome concerns with and lack of knowledgeabout health plans. Health plans, community leaders, and program sponsors will also have tomake healthcare providers aware of the availability of community-based services that cancomplement health plan benefits. Even more important, community leaders and program sponsorswill need to develop data systems, product definitions, and outcomes measures on which to baserealistic financial arrangements with health plans.

Such efforts will take time and resources, but they offer significant potential for improving thequality and reducing the costs of medical care for the growing elderly population.

Endnotes

1. Congressional Budget Office, The Economic and Budget Outlook: Fiscal Years 1999-2008, Appendix F: Medicare Projections, January 1998,http://www.cbo.gov/showdoc.dfm?index=316&sequence=11 (14 June 2000).

2. "Health Care in America," The Economist (March 7, 1998): 24.

3. Patricia Neuman and Kathryn M. Langwell, "Medicare's Choice Explosion? Implicationsfor Beneficiaries," Health Affairs 18, no. 1 (January/February 1999): 152.

4. CMS, "Medicare+Choice: Policy Concerns, Implications, and Prescription for Change,"http://www.hcfa.gov/medicare/mc00anal.htm (13 December 1999).

5. Jennifer E. Gladieux, "Medicare+Choice Appeal Procedures: Reconciling Due ProcessRights and Cost Containments," American Journal of Law & Medicine 25 (1999): 113.

6. Centers for Medicare and Medicaid Services, "Introduction: Quality ImprovementSystem for Health Plan," http://www.hcfa.gov/quality/docs/qismc-in.htm (10 March2000).

7. Centers for Medicare and Medicaid Services, "Guidelines for Implementing andMonitoring Compliance with Interim QAPI Standards, Domain 1: Quality Assessmentand Performance Improvement Program," http://www.hcfa.gov/qismc-1g.htm (10 March2000).

8. Jennifer E. Gladieux, "Medicare+Choice Appeal Procedures: Reconciling Due ProcessRights and Cost Containment," American Journal of Law & Medicine 25 (1999): 113.

9. "CMS Posts HMO Performance Data, Tells Plans to Pay for Audits," Physician Manager(February 5, 1999): 7.

10. Peter D. Fox, Lynn Etheredge, and Stanley B. Jones, "Addressing the Needs ofChronically Ill Persons Under Medicare," Health Affairs 17, no. 2 (March/April 1998):144.

11. Nancy A. Whitelaw and Gail L. Warden, "Reexamining the Delivery System as Part ofMedicare Reform," Health Affairs 18, no. 1 (January/February 1999): 135.

12. Michael Weiner, M.D., Neil R. Powe, M.D., Wendy E. Weller, Thomas J. Schaffer, andGerard F. Anderson, "Alzheimer's Disease Under Health Plan: Implications fromMedicare Utilization and Expenditure Patterns," Journal of the American GeriatricSociety (June 1998): 764.

13. Emily Rhinehart, "Concern About Elderly Causes Some Graying," Managed Healthcare(July 1999): 20.

14. Agency for Healthcare Research and Quality, "Model Outpatient Program Helps KeepHigh-Risk Elderly People Out of the Hospital at a Reasonable Cost," AHCPR ResearchActivities 218 (August 1998): 8.

15. Chad Boult, M.D., Lisa Boult, M.D., and James T. Pacala, M.D., "Systems of Care forOlder Populations of the Future," Journal of the American Geriatrics Society 46 (1998):502.

16. Chad Boult, M.D., Lisa Boult, M.D., and James T. Pacala, M.D., "Systems of Care forOlder Populations of the Future," Journal of the American Geriatrics Society 46 (1998):502.

17. The HMO Workgroup on Care Management, "Essential Components of Geriatric CareProvided Through Health Maintenance Organizations," Special Series: Geriatrics inHealth Plan, Journal of the American Geriatrics Society (1998): 303.

18. The HMO Workgroup on Care Management, "Essential Components of Geriatric CareProvided Through Health Maintenance Organizations," Special Series: Geriatrics inHealth Plan, Journal of the American Geriatrics Society 46 (March 1998): 306.

AHM Medical Management: MedicaidObjectives

After completing lesson Medicaid, you should be able to:

Describe the impact of recent laws and regulations on the management of medical carefor Medicaid beneficiaries

Describe the health risk factors and healthcare needs of Medicaid beneficiaries Identify the essential components of an effective Medicaid health plan Describe the challenges health plans face in designing programs to meet the needs of

Medicaid beneficiaries

Introduction

Medicaid, which was created in 1965 under the same legislation that established Medicare, is ajoint federal-state entitlement program designed to provide healthcare coverage to low incomefamilies and certain categories of aged and disabled individuals. Today, more than 43 millionbeneficiaries receive medical services and long-term care through Medicaid, making it the largesthealth insurer in the United States.

17 million Medicaid recipients were enrolled in managed care plans in 2003. Enrollment in theseplans increased by about 8.5 percent in 2003 and grew by over 40 percent from 1998-2003.Today, every state except Alaska relies on some form of health plan for Medicaid beneficiaries.1

As they do with Medicare, health plans face important challenges in developing effective medicalmanagement programs for Medicaid enrollees.

Because medical management efforts for Medicaid depend on a clear understanding of thepopulation being served, we begin our discussion with an overview of Medicaid requirements andoptions. We also describe the major legal and regulatory changes that have impacted Medicaidand outline some of the steps health plans are taking to provide continuous quality healthcare toMedicaid recipients.

Background and Overview of Medicaid

Although Medicare and Medicaid were both created as part of the Social Security Act of 1965,they have very little in common. Whereas Medicare is governed entirely at the federal level,under the direction of the Centers for Medicare and Medicaid Services (CMS), authority overMedicaid is split between CMS and individual state governments. The federal governmentestablishes broad guidelines for Medicaid programs, provides partial funding to states, and setsminimum standards for eligibility, benefits, and provider participation and reimbursement.Individual states provide additional funds and administer the programs.

Funding

Federal funding for Medicaid, which is called federal financial participation (FFP), or theFederal Medical Assistance Percentage, is determined by a formula based on the per capitaincome in each state. FFP payments range from a legislatively set minimum of 50 percent of astate's total Medicaid costs to a maximum of 83 percent of costs. Percentages are proportionallyhigher in states with relatively low per capita incomes. Individual states contribute additionalfunds and determine the reimbursements for individual providers and health plans. The payment

methodology used at the state level varies by state and by whether reimbursements are paid on afee-for-service or capitated basis.

Eligibility

Initially, Medicaid was grafted administratively onto state welfare programs, and adults andchildren in low-income families that qualified for public assistance were automatically eligiblefor Medicaid. Beneficiaries who received Medicaid benefits as a result of their welfare statuswere classified as categorically needy individuals. Categorically needy individuals consisted ofmembers of the following two main welfare groups:

Individuals who qualified for Aid to Families with Dependent Children (AFDC), afederally funded welfare program that provided assistance to one-parent households withone or more children

Individuals who qualified for Supplemental Security Income (SSI), an ongoing federalprogram that provides assistance to individuals who are aged (Old Age Assistance), blind(Aid to the Blind), and/or disabled (Aid to the Disabled)

Categorically needy individuals were required to meet specified financial resource andmonthly income criteria in order to be eligible for coverage.

Individuals also qualified for Medicaid benefits if they were classified as medically needyindividuals or if they belonged to expansion populations. Medically needy individuals weredefined as those individuals who met the categorical and financial resource requirements ofcategorically needy individuals but whose monthly income exceeded specified maximums. Statescould opt to provide coverage to medically needy individuals whose incomes were up to 100% ofthe federal poverty level or who "spent down" their excess income on medical care. "Spendingdown" was similar to a deductible: once an individual had spent enough on healthcare expenses toreduce his or her income to the specified threshold, he or she became eligible for Medicaid.

Expansion populations included children and pregnant women who did not qualify ascategorically or medically needy individuals. Coverage for children included all servicesavailable under the AFDC program. Coverage for pregnant women was limited to pregnancyrelated services delivered during pregnancy and a period of up to 60 days following delivery andfamily planning services for a period of one year following delivery. Individuals in expansionpopulations did not have to meet financial resource requirements but did have to meet an incometest based on federal poverty guidelines.

Almost 100 percent of the people who are eligible for Medicaid because they receive Old AgeAssistance and 40 percent of those eligible because they receive Aid to the Blind and/or Aid tothe Disabled are also eligible for Medicare coverage. These beneficiaries are classified as dualeligibles. Medicare provides primary coverage for dual eligibles; Medicaid provides secondarycoverage and pays Medicare premiums, deductibles, and copayments. Prior to welfare reformlegislation, immigrants with permanent residence status who met eligibility requirements werealso entitled to Medicaid benefits.

Benefits

The federal government requires that state Medicaid programs provide basic healthcare benefitsto all eligible beneficiaries. These benefits are fairly comprehensive and include most of the

services traditionally covered under group health insurance. Figure 10B-1 provides a list offederally mandated Medicaid benefits.

Individual states determine the amount and duration of services offered under Medicaid as long asbenefits meet minimum federal standards. For example, states may limit the number of hospitaldays or physician visits allowed. Limits, however, must not reduce services below a levelsufficient to achieve the purposes of the benefit and may not be different for different medicaldiagnoses or conditions. With approval, states may also expand benefits to include such optionalitems as prescription drugs, dental care, and vision care.

Medicaid Options

Almost from its beginning, Medicaid has provided two healthcare coverage options: traditionalfee-for-service (FFS) insurance coverage and health plan coverage. Medicaid has alsotraditionally funded community-based health and social services and subsidized providers whoserve large numbers of indigent, uninsured individuals. Over the years, increasing pressures tomanage costs and improve access to care have prompted many states to make enrollment inhealth plans mandatory.

Traditional Medicaid

Under traditional Medicaid, state agencies contract with individual providers to supply coveredservices to eligible beneficiaries for a reduced fee. Providers participating in Medicaid mustaccept Medicaid's established fee as payment in full for services rendered to Medicaidbeneficiaries.

States have the option to impose nominal deductibles, coinsurance, or copayment requirementsfor certain services. States, however, cannot require copayments for emergency services andfamily planning services. Nor can they require cost-sharing by pregnant women, children under

age 18, hospital or skilled nursing facility patients who are expected to contribute most of theirincome to institutional care, or individuals receiving hospice care.

The use of reduced FFS payment and cost-sharing systems has helped to manage healthcare costsunder Medicaid. Unfortunately, it has also resulted in limited access to providers and increasedreliance on emergency departments. State Medicaid reimbursement rates are typically lowcompared to those of commercial insurance, and as a result, many providers choose not toparticipate in Medicaid. The socioeconomic circumstances of Medicaid recipients tend to makeaccess and utilization problems even worse.

Managed Medicaid

Prior to the Balanced Budget Act (BBA) of 1997, Medicaid could contract with one of thefollowing three types of organizations to provide services to eligible recipients:

Health plans (HMOs and health insuring organizations) Prepaid health plans (PHPs) Primary care case management (PCCM) programs

The BBA expanded Medicaid health plan options to include provider-sponsored organizations(PSOs) as well. Health plans provide the same broad range of services available under traditionalFFS Medicaid, with an emphasis on preventive care and health maintenance.

Medicaid Supplemental Services

In addition to paying for traditional healthcare services, Medicaid reimburses services renderedby a variety of community-based organizations such as federally qualified health centers(FQHCs), large urban teaching hospitals, public health departments, and rural health clinics(RHCs). These organizations provide both clinical and "enabling" services such as programs formentally ill and disabled individuals, substance abuse treatment programs, and group clinics.Medicaid also provides financial subsidies for individual safety net providers anddisproportionate share hospitals (DSHs).

Safety net providers are defined as providers who have historically served large numbers ofMedicaid and indigent patients and who are willing to provide health and related servicesregardless of the patient's ability to pay. These safety net providers often rely on Medicaidpayments, government grants, and private donations to maintain their practices.

Disproportionate share hospitals (DSHs) are qualified hospitals that provide inpatient services tolarge numbers of Medicaid and indigent patients and are therefore at a high risk of operating at aloss. Medicaid makes direct supplemental assistance payments to DSHs rather than reimbursingthe hospitals for services rendered to a specific patient. Even when DSHs contract with healthplans, these payments are made directly to the hospitals. The federal government matches statefunds designated for DSH payments.

Some state Medicaid agencies require health plans to take steps to include safety net providersand DSHs in their provider networks and to work with state and local public health departmentsto provide services that will improve the overall quality of care delivered to Medicaidbeneficiaries. Because these providers and community-based organizations are conveniently

located and often have established relationships with patients, they offer an efficient way ofdelivering care to Medicaid beneficiaries.

Laws and Regulations Affecting the Management of Medical Care for MedicaidBeneficiaries

Recent laws and regulations have established a series of new requirements for Medicaideligibility. Because eligibility is a critical factor in delivering continuous, quality care toMedicaid beneficiaries enrolled in health plans, these changes have also created new demands formedical management. The most important changes to Medicaid eligibility have come throughwelfare reform laws and the Balanced Budget Act (BBA) of 1997.

Welfare Reform

The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996severed the link between Medicaid and public assistance and replaced the AFDC program with anew program called Temporary Assistance for Needy Families (TANF), which provides incomesupport and work programs to needy individuals. States must still make Medicaid available toindividuals who meet previous AFDC categorical and medically needy criteria; however,qualified individuals must now submit formal applications to Medicaid in order to receivebenefits. Medicaid applications are separate from TANF applications.

Although PRWORA was designed to address welfare eligibility, it has had unintended effects onMedicaid eligibility as well. For example, even though Medicaid eligibility is no longer linked towelfare eligibility, reductions in the number of welfare caseloads has triggered similar reductionsin the number of people applying for Medicaid coverage. A study conducted by the KaiserCommission on Medicaid and the Uninsured concluded that because people now see publicassistance as a temporary benefit, they are less likely to apply for or continue Medicaidcoverage.3 In addition, PRWORA's revised eligibility requirements and disability determinationthreatened both the welfare status and Medicaid eligibility of certain segments of the Medicaidpopulation.

Balanced Budget Act (BBA) of 1997

The BBA of 1997 softened the impact of PRWORA's restrictive definitions and eligibilityrequirements. The BBA also modified existing Medicaid eligibility requirements for children anddual eligibles and expanded the Medicaid population by allowing states to modify eligibilityrequirements.

For example, the BBA restored SSI and Medicaid eligibility to immigrants who had attainedpermanent resident status prior to PRWORA and allowed states to extend continuous eligibilityfor children up to age 19 from 6 months to 12 months. In addition, the BBA providedsupplemental funding for dual eligibles in the form of five-year block grants. These funds areavailable on a first-come, first-served basis to low-income, low-resource individuals who do notqualify for Old Age Assistance.

States have used the expansion authority granted to them by the BBA to provide Medicaidcoverage for the following populations:

Groups not ordinarily covered by Medicaid. A number of states have received CMSapproval to waive Medicaid eligibility rules and extend eligibility to groups outside thetraditional Medicaid population. Arizona's Employing and Moving People Off Welfareand Encouraging Responsibility (EMPOWER) program, a state-wide initiative thatcontains measures and incentives to help families achieve and maintain self-sufficiencyand independence, is an example of a successful Medicaid waiver program.

Children eligible for medical benefits under the State Children's Health InsuranceProgram (SCHIP)-Title XXI of the Social Security Act. The BBA allows states toimplement SCHIP through their existing Medicaid programs or as a commercialinsurance program. States determine eligibility requirements, subject to CMS approval.We will discuss SCHIP in more detail in the next section.

Individuals, referred to as Home Relief or General Relief Recipients, who do notsatisfy federal Medicaid eligibility criteria and therefore do not qualify for federalMedicaid assistance. States determine eligibility requirements for these individualsindependently and provide coverage out of state funds. CMS approval is not requiredbecause no federal funding for services is provided.

Elderly individuals eligible for long-term care under Programs of All-inclusive Carefor the Elderly (PACE). The BBA established PACE as a permanent program of careand allowed states to extend coverage to Medicaid-eligible program enrollees.Individuals are not required to be enrolled in Medicare to receive Medicaid benefitsthrough PACE. We described the basic features of PACE in lesson Medicare.

Specific information about eligibility and expanded coverage under Medicaid is available fromstate or county Medicaid agencies or from CMS.

State Children's Health Insurance Program (SCHIP)

The BBA mandated that states establish SCHIP coverage, either in conjunction with Medicaidprograms or as commercial insurance benefit programs, to provide health assistance to uninsured,low-income children. In order to receive federal funding for SCHIP, states are required to submita State Child Health Plan to the Department of Health and Human Services (HHS) for approval.The State Child Health Plan must include the following information:

General background information about the extent of current insurance coverage forchildren

A description of current state efforts to obtain coverage Details about how the plan will be coordinated with other efforts An outline of proposed delivery methods A description of methods to maintain the quality and availability of covered services A description of standards and methods used to establish and continue eligibility and

enrollment for targeted low-income children Written procedures for outreach to inform and enroll families of children likely to be

eligible for assistance under the plan

States must submit annual reports to HHS, assessing the operation of their SCHIP plan, progressthey have made to reduce the number of low-income children not covered by insurance, andoverall plan effectiveness.

Eligibility

SCHIP assistance is available to any child who meets the following eligibility criteria:

Is under age 19 Is not currently eligible for Medicaid or covered under other health insurance Resides in a family with income below the greater of 200 percent of the FPL or 50

percentage points above the state's established eligibility limits

Program Options

States can establish SCHIP as a separate commercial health insurance program (in addition toexisting Medicaid programs) or as an extension of existing Medicaid programs.

Separate Program Option. Separate, non-Medicaid programs must structure benefit packages incompliance with one of four options: benchmark coverage, benchmark-equivalent coverage,existing comprehensive state-based coverage, or HHS Secretary-approved coverage. Details ofthese options are presented in Figure 10B-2.

States may not impose any premiums or cost-sharing requirements that favor high-incomechildren over lower-income children and may not impose any pre-existing condition exclusionsfor covered benefits.

Medicaid-Expansion Option. States that elect to expand children's health insurance throughexisting Medicaid programs are required to provide the state-mandated Medicaid benefit package.States choosing the expansion option must submit a plan amendment and specified informationrequired by Title XXI.

The advantage of the expansion option is that even after the federal funds provided throughSCHIP are exhausted, states may continue to receive matching federal funds at their normalMedicaid rate for children covered by a Medicaid expansion program.

Quality Assessment Performance Improvement

As you recall from the lesson Medicare, QAPI is a CMS initiative designed to guide health plansin developing and implementing quality assessment and improvement strategies. The standardsapplied to Medicaid Health Plan Entities are the same as those applied to health plan Medicarecontracts and are designed to measure and improve the quality of clinical and nonclinical servicesdelivered to Medicaid enrollees. However, whereas QAPI standards and guidelines are requiredfor Medicare health plans, they are applicable to Medicaid MCEs at the discretion of theindividual states. Medicaid PCCM programs are exempt from QAPI standards. States that chooseto adopt QAPI standards and require compliance by Medicaid MCEs are considered to be incompliance with CMS regulations implementing the quality assessment and improvementprovisions of the BBA.

QAPI standards update guidelines for internal quality assessment programs of HMOs, HIOs, andPHPs established by the Quality Assurance Reform Initiative. The Quality Assurance ReformInitiative (QARI) is a 1993 CMS initiative that developed and tested standards for states to use inmonitoring and improving quality in Medicaid managed care plans.4 In addition, QAPI outlineshow states can use such performance measures as HEDIS and CAHPS as part of their requiredquality measurement and improvement programs. QAPI also affects the role of External QualityReview Organizations (EQROs) in Medicaid programs. Under the terms of the BBA, stateMedicaid agencies are required to contract with EQROs to perform annual reviews of health planquality, access, and timeliness of care. CMS has identified compliance with QAPI standards andguidelines as an EQRO contract protocol.

As with Medicare, Medicaid programs have the authority to accept accreditation by a privateaccrediting organization as evidence that a health plan is in compliance with BBA qualityrequirements.

Developing Effective Medical Management Programs for Medicaid Enrollees

As a result of legal and regulatory changes, health plans face certain challenges in designingeffective medical management programs for Medicaid enrollees. The two most important of thesechallenges are (1) to identify the specific risk factors and healthcare needs of the Medicaidpopulation and (2) to determine how the organization can meet those needs.

Health Risk Factors and Healthcare Needs of the Medicaid Population

Medicaid beneficiaries are a culturally, demographically, and medically diverse group thatincludes children, low-income adults, disabled individuals, and the elderly. A large percentage ofMedicaid beneficiaries are poor. Some are unemployed and have poor social support systems.Some are illiterate, lack reliable transportation, or do not speak English. Some suffer from alcoholor substance abuse. Individuals with more stable incomes are periodically eligible for Medicaid,becoming eligible for coverage only when they are hospitalized and incur high medical expenses.All of these factors contribute to the health problems and risks represented by the Medicaidpopulation.

In spite of the diversity of the Medicaid population, however, it is possible to divide beneficiariesinto three broad subgroups:

Children and low-income adults

Adults with chronic conditions or disabilities who are not eligible for Medicare Dual eligibles

Each of these groups is characterized by specific health risk factors and healthcare needs. Therelative size and Medicaid costs of each of these groups are shown in Figure 10B-3.

Children and Low-Income Adults

Children and low-income adults make up the largest, and generally the healthiest, subset of theMedicaid population, accounting for nearly 75 percent of all Medicaid beneficiaries but less than30 percent of Medicaid expenditures. Two-thirds of this group, or approximately 50 percent ofthe total Medicaid population, are children.5 This group is also the most likely to be targeted formandatory enrollment in Medicaid health plans.6

Perinatal morbidity and mortality and the incidence of chronic conditions among children aresignificant health risk factors for this group. For example, the neonatal mortality rate among low-income women is 1.5 times as high and the number of low-birth-weight deliveries is 2 times ashigh as those rates for higher-income women. In addition, children in Medicaid programs have ahigher incidence of chronic disabling conditions than do children in the general population.7

The nature of chronic and disabling conditions among children in Medicaid is also significant.Medicaid-eligible children are at risk for a variety of chronic conditions related to prematurityand mental illness, including developmental delays, behavioral and emotional problems, and

learning disabilities. They are also at risk for serious physical conditions. Although some of thechronic conditions affecting children are common conditions such as allergies, asthma, recurrentear infections, speech defects, and attention deficit disorder, the majority are conditions that arerarer in the general population, such as:

Sickle cell disease Cerebral palsy Chronic respiratory disease Cystic fibrosis Diabetes Muscular dystrophy Malignant neoplasms Spina bifida

The cost of treating chronic conditions among children is high. For example, a study of theWashington State Medicaid program found that 10 percent of the state's Medicaid-enrolledchildren suffered from one of the eight conditions listed above. The children with one or more ofthese conditions accounted for more than 70 percent of the state's total Medicaid expenditures.8

Children with chronic conditions that limit their activities are "twice as likely to be hospitalized,consume twice as many physician services, and use six times as many nonphysician professionalservices as children without activity-limiting chronic conditions."9

Perinatal risk factors and the prevalence of chronic conditions indicate a significant need forpreventive and primary care services, especially for children. Problems that are undetected anduntreated during childhood can result in high medical and social costs that, because of the longlife expectancy of most children, are likely to continue for many years. Evidence has shown thatearly detection and intervention can reduce, if not eliminate, a significant portion of these costs.For example, studies conducted in the 1980s estimated that every dollar spent on prenatal caresaved over three dollars in short- and long-term treatment costs for premature and low-birth-weight infants. Similarly, every dollar spent on childhood immunization saved an average of tendollars in hospitalization and treatment costs. Interventions such as nurse home-visits directedtoward high-risk infants and families resulted in overall cost savings as well as decreased use ofemergency services, decreased child abuse, and improved cognitive development.10

Individuals with Disabilities

Blind and disabled persons account for approximately 18 percent of the total Medicaid populationand more than 45 percent of total Medicaid expenditures. CMS estimated that in 2000 the annualcost per beneficiary was $9,095 for disabled individuals, compared with $1,876 average for adultsin low-income families and $1,203 for children. These expenditures did not include Medicarepayments.11 The major reason for this disproportionate percentage of costs is the high demandamong disabled beneficiaries for acute and long-term care services.

Unlike children, adult Medicaid beneficiaries with chronic, disabling conditions tend to sufferfrom prevalent conditions such as bronchitis, emphysema, chronic obstructive pulmonarydisorder (COPD), hypertension, heart disease, congestive heart failure, and cancer. A largepercentage of disabled adults also suffer from chronic mental illnesses, such as psychoses,personality disorders, and schizophrenia, and from alcohol and substance abuse. In addition,almost all disabled adults have more than one chronic health problem.

The prevalence of chronic conditions, low income, lack of social support networks, and limitedaccess to medical care put this segment of the Medicaid population at high risk for both decreasedfunctional status and serious complications from other illnesses. These characteristics also pointto the need for comprehensive case management programs that include preventive care, wellnessprograms, and coordination of medical and community services.

Dual Eligibles

As we mentioned earlier, dual eligibles are those beneficiaries who are eligible for both Medicareand Medicaid benefits. Although the beneficiaries in this group tend to be relatively few innumber, representing roughly 10 percent of the Medicaid population, they tend to be veryvulnerable and very costly. In 2000, Medicaid's costs per beneficiary were $10,243 for elderlyindividuals.12 A significant portion of total Medicaid costs for this group is for long-terminstitutionalization.

In the lesson Medicare, we identified the following factors that contribute to health risk amongMedicare beneficiaries:

Advanced age Prevalence of chronic conditions Reliance on prescription drugs Decreased functional status Mental health problems Dependence on caregivers

These same factors apply to dual eligibles receiving care through Medicaid programs and indicatea need for coordinated care across multiple settings, interdisciplinary delivery systems, focusedpreventive and primary care, and integrated acute and long-term services.

Designing Effective Medicaid Health Plan Programs

Because of the diversity of the Medicaid population, it is unlikely that any one medicalmanagement program will be able to meet all the needs of all beneficiaries. The followingelements, however, are essential:

Access to services Outreach and education Focus on preventive care Case management

Health plans have led the way in implementing many of these strategies in their commercialhealth plans. They have learned the hard way, however, that what works for the commercialpopulation does not necessarily work for the Medicaid population and that simply mergingMedicaid beneficiaries into existing plans is not enough. Implementing these strategies forMedicaid beneficiaries requires a clear understanding of the needs and challenges of the Medicaidpopulation.

Access to Services

Although access to services is an important indicator of quality for Medicaid beneficiaries, accessis often hampered by Medicaid's complex eligibility and service requirements. This is true in bothFFS Medicaid and managed Medicaid programs.

FFS Medicaid. Poor reimbursement rates have triggered large-scale reductions in the number ofFFS providers willing to treat Medicaid patients, especially those with chronic or disablingconditions. The result is that illnesses among Medicaid recipients often go undetected anduntreated until they are serious and costly. When patients do seek care, they most often turn toacute care facilities or emergency departments. Poor social and economic conditions also make itdifficult for patients to comply with treatment programs. For example, management of diabetescan be nearly impossible for patients who are homeless or cannot afford a proper diet. Sociallyisolated patients are at risk for poor outcomes from strokes; for deterioration of cognitive,physical, and psychological functioning; and for poor compliance with instructions formedication and follow-up care.

Physicians often lack the resources necessary to provide care management or case managementservices for patients with complex conditions. In addition, physicians' offices are ofteninconveniently located and open only during specified hours. Patients who can get appointmentsoften face long waits before and after they arrive at the doctor's office.

Managed Medicaid. Obstacles to access under managed Medicaid programs are different thanthose under FFS Medicaid. For example, a lack of qualified providers is typically not an issue formost health plans that maintain provider networks. Health plans often have established casemanagement and disease management programs as well. The unstable eligibility status ofMedicaid beneficiaries, however, is a serious problem for health plans.

Unlike commercial enrollees who obtain healthcare coverage early and maintain it over manyyears, Medicaid beneficiaries other than dual eligibles or individuals confined to institutions tendto gain and lose coverage periodically. Because Medicaid uses strict income standards todetermine eligibility, even slight fluctuations in income can trigger changes in enrollment.Recipients of AFDC/TANF are especially susceptible to such changes, with 30 percent or moreof the population being replaced each year.14 Changes in eligibility are also common amongpatients who "spend down" their income on medical expenses. These patients frequently enterMedicaid only when they are hospitalized for illness or injury; once they leave the hospital, theymay leave Medicaid as well. Even patients who suffer chronic or disabling conditions such asAIDS, mental illness, and substance abuse are often not enrolled in Medicaid at the onset of theirmedical problems.

The combination of program variability and population mobility brought about by homelessnessand lack of social networks also contributes to population instability. Beneficiaries who areeligible for Medicaid benefits in one state may lose their eligibility if they move into anotherstate.

A final contributing factor is the ease with which beneficiaries can enroll and disenroll in healthplans. Under BBA guidelines, states have an option to "lock-in" a beneficiary's health planenrollment for up to one year. However, within the health plan option, enrollees have the right tochange plans or PCPs at any time for cause and within 90 days of enrollment without cause.Enrollees can also change plans at least once during any 12-month period. In states without a

lock-in provision, Medicaid beneficiaries can enroll in and disenroll from health plans on amonthly basis.

Health plans have already taken the following steps to improve Medicaid enrollees' access tocare:

Locating facilities in nearby neighborhoods or contracting with providers with offices inthose areas

Providing extended hours of service at healthcare facilities and physicians' offices Including multiple services in a single location Providing "extras" such as translation services, multicultural and multilingual staff, and

transportation services Providing a system of mid-level professionals such as nurse practitioners and physician's

assistants and mid-level programs such as telephone hot-lines and triage programs Including community health centers in provider networks

One of the most important steps health plans have taken to improve access is to providebeneficiaries with a medical "home" where they can receive regular, reliable healthcare services.Access to a primary care provider who is responsible for supervising patient care encouragespatients to seek-and follow the recommendations of-preventive care and early interventionprograms. For example, managed Medicaid programs have been shown to improve prenatal carefor pregnant women, increase regular pap smears and breast cancer screenings, and boost thelevel of child immunizations.15 health plan staff also help Medicaid patients obtain other socialservices. These efforts improve continuity of care for Medicaid beneficiaries and reduce relianceon acute care facilities and emergency departments.

Outreach and Education

Introducing commercial enrollees to health plans can often be accomplished by handing outinformation packages to new enrollees or offering orientation programs. Introducing Medicaidbeneficiaries whose contact with healthcare is often limited to intermittent visits to hospitalemergency departments to the benefits of regular primary care and disease prevention requiresongoing, intensive, and personalized outreach and education.

The following steps can help make outreach and education programs more effective:

Establish an information contact within the organization. Medicaid enrollees who come into ahealth plan are likely to be unfamiliar with procedures such as selecting PCPs and obtainingreferrals. A contact within the organization can serve as a source of information. The contact canexplain plan benefits, assist with scheduling appointments, and remind patients aboutrecommended services such as immunizations and preventive screening and follow-upappointments. Plan contacts can also play an important role in educating enrollees on self-caretechniques for minor medical problems.

Establish a follow-up system. Even patients who see PCPs for routine preventive care tend toturn to emergency departments when they are sick. Follow-up calls to these patients allow plansto acknowledge the patient's condition and to reinforce the need for primary care and prevention.Such calls are often effective in reinforcing patient/provider relationships and reducing theutilization of emergency services. One health plan reported that such calls had reduced

emergency department visits from 540 per 1,000 members to 395 per 1,000 members over athree-year period.

Provide information in multiple forms. Education and outreach programs need to provideinformation in a variety of formats, such as telephone hot-lines or follow-up services, informationpackages sent through the mail or available at churches and neighborhood clinics where enrolleesgather, or home visits by outreach workers. Such efforts should be designed to provideinformation where and when patients need it.

Match information to patients' social, cultural, language, and literacy needs. Medicaidbeneficiaries' access to medical care is frequently hampered by language barriers, cultural beliefs,socioeconomic status, and illiteracy. For example, people from cultures that do not embraceWestern medicine may have difficulty understanding the need for childhood immunization.Patients who do not have access to regular meals may have trouble accepting the idea of planneddiets. Messages that are tailored to accommodate patients' needs, that are written in multiplelanguages, and that contain culturally relevant information can help eliminate barriers, even ifthey fall outside the boundaries of standard practice. As one plan leader put it, "If you've got anobese Medicaid patient and your dietitian hands out recipe cards, forget the ones that requireblenders and deboned chicken."

Give members an incentive to comply. Health plan programs will succeed only if they canencourage their Medicaid members to get involved in preventive and primary care programs andbecome accountable for their own health. One way to accomplish this goal is to provide memberswith incentives and rewards for compliance. For example, one plan offers gift certificates tosupermarkets and department stores to young mothers who come in for all their prenatalcheckups. Another offers mothers whose children are up to date on immunizations a chance towin savings bonds.[Endnote 18] The cost of these incentives is incidental compared to their long-term savings. Because individual states often have regulations regarding the types of incentivesHealth plans can and cannot offer, plans should check state Medicaid regulations beforedesigning an incentive program.

Outreach and education programs tend to be labor-intensive and costly, but over the long termthey can produce significant savings and improved health outcomes. In addition to reducingemergency department visits, such programs have been shown to reduce the costs of hospitaladmissions. One plan reported an average cost-per-hospital-admission that was $4,300 below the$6,900 average cost reported by FFS Medicaid.19

Focus on Preventive Care

Disease prevention and early intervention can have a significant impact on long-term healthoutcomes and costs. Risk identification and assessment systems such as those described inMedicare for identifying high-risk Medicare recipients can also help plans determine whichMedicaid enrollees are at risk for serious and costly health problems and which services are mostappropriate to meet their needs. Risk screening is not a new concept under Medicaid, which hasincluded screening and assessment as a covered benefit for a number of years. What is new is theinclusion of non-medical factors such as behavioral, developmental, and emotional health, peerrelationships, and family needs and resources in the screening process.

Preventive care programs offer obvious benefits to both Medicaid beneficiaries and health plans.Prenatal and neonatal care have been shown to reduce low-birth-weight delivery and infant

mortality rates. For example, since 1987, North Carolina's Baby Love Program, which providescomprehensive prenatal care and infant health services to Medicaid beneficiaries, has reduced thestate's Medicaid infant mortality rate by 27 percent.20 Programs in other states have producedsimilar results.

Immunizations can eliminate most childhood diseases and reduce serious complications fromillnesses such as flu among high-risk patients. Wellness programs that emphasize good nutrition,exercise, smoking cessation, and behavioral and lifestyle changes can help reduce the incidenceand effects of preventable diseases. Preventive and primary care services can also have asignificant effect on healthcare costs.

Preventive care programs also pose significant challenges. Preventive measures are usuallyderived by tracking patterns in utilization and outcomes. With the exception of elderlybeneficiaries confined to institutions or covered by SSI, Medicaid beneficiaries' use of services isunpredictable and intermittent. It is often unclear which interventions are likely to produce thebest results. Preventive measures are also most effective if implemented early and continued overtime. Such an approach is ineffective for patients who are not eligible for benefits until theybecome ill or who are not enrolled long enough to follow programs such as prenatal care andchildhood immunization through to completion.

In order to maintain continuity of care, prevent secondary complications of illness or injury, andreduce the impact of chronic and disabling conditions on medical costs, health plans will have todevelop programs that extend beyond the limits of plan enrollment and current Medicaid rostersto include the entire population.

Case Management

Health plan's success in controlling healthcare costs in the commercial arena is linked to itsefforts to maintain the health of a relatively young, employed, and basically healthy population.Even when beneficiaries who become eligible as a result of catastrophic conditions or throughother medically needy mechanisms are excluded from consideration, Medicaid enrolleeschallenge this approach.

As we mentioned earlier, the Medicaid population consists of distinct subgroups, includingchildren, low-income adults, chronically ill or disabled adults, and the elderly. Costs for thesesubgroups are typically higher than costs for commercial enrollees; for Medicaid enrollees withchronic conditions, for example, costs can be as much as 300 percent higher.22 Moreover, riskbehaviors associated with chronic conditions tend to increase with age and are inversely related tosocial and economic status. In order to meet the needs of Medicaid enrollees, health plans willhave to develop health management programs.

Case management, which we described in lesson Medicare, is an essential component of healthmanagement and medical management. Case management provides access to important publichealth and community-based social services such as substance abuse counseling and treatmentprograms, community-wide programs to identify and reduce the transmission of disease,transportation services, housing, and employment programs. By coordinating healthcare andcommunity-based services, case management helps Medicaid beneficiaries receive quality care. Italso provides a way to manage costs by reducing Medicaid enrollees' reliance on acute care.

The Future of Managed Medicaid

If current trends continue, increasing numbers of Medicaid beneficiaries will be entering healthplans. In 2003, 46 states provided managed care options for Medicaid recipients. Between 1998and 2003, the number of Medicaid recipients enrolled in any type of managed care plan increaseddramatically, from 16.6 to 25.3 million (see Figure 10B-4.) This 52 percent increase in Medicaidmanaged care enrollment over the last five years indicates states' increasing reliance on privateplan options in their Medicaid program.

Organizations that enter the Medicaid market will have to contend with a wide variety of legaland regulatory requirements. They will have to redefine their role as healthcare organizations bydeveloping new ways of managing medical care and expanding their services from the confinesof individual health plans to the surrounding community. And they will have to accomplish thesetasks without sacrificing quality.

Endnotes

1. John K. Iglehart, "The American Health Care System: Medicaid," New England Journalof Medicine Health Policy Report 340, no. 5 (4 February 1999): 407.


3. John K. Iglehart, "The American Health Care System: Medicaid," The New EnglandJournal of Medicine Health Policy Report 340, no. 5 (4 February 1999): 406.

4. Centers for Medicare and Medicaid Services, "Introduction: Quality ImprovementSystem for Health Plan," http://www.hcfa.gov/quality/docs/qismc-in.htm (10 March2000).

5. John K. Igelhart, "The American Health Care System: Medicaid," The New EnglandJournal of Medicine Health Policy Report 340, no. 5 (4 Feburary 1999): 404.

6. Deborah Grandinetti, "Medicaid Health Plan: A Gold Mine-or a Land Mine?" MedicalEconomics (13 April 1998): 85.

7. Margaret A. McManus and Harriette B. Fox, "Enhancing Preventive and Primary Carefor Children with Chronic or Disabling Conditions Served in Health MaintenanceOrganizations," Health Plan Quarterly (Summer 1996): 20.

8. H.T. Ireys, et al., "Expenditures for Care of Children with Chronic Illnesses Enrolled inthe Washington State Medicaid Program, Fiscal Year 1993," Pediatrics 100, no. 2 (1997):197-204.

9. Donna M. Henderson, "Medicaid Health Plan," in Best Practices in MedicalManagement, ed. Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg,MD: Aspen Publishers, Inc., 1998), 617-618.

10. "Health Care Report: What America's Children Need," Briefing Paper of the GroupHealth Association of America, Inc. (August 1994): 3.



13. Mary E. Stuart and Michael Weinrich, "Beyond Managing Medicaid Costs: RestructuringCare," The Milbank Quarterly 76, no. 2 (1998): 259-267.

14. Mary E. Stuart and Michael Weinrich, "Beyond Managing Medicaid Costs: RestructuringCare," The Milbank Quarterly 76, no. 2 (1998): 264.

15. Emily Roskey, "Health plans Need to Recognize Daily Challenges of Medicaid Womento Provide Effective Care," Lead Report: Medicaid, Bureau of National Affairs HealthPlan Reporter 4, no. 12 (25 March 1998): 288.

16. Sharon O'Malley, "Reaching Medicaid Patients on Their Terms," The Quality Letter forHealthcare Leaders (November 1998): 4-5.



19. Sara Selis, "Making Managed Medicaid Work," healthcarebusiness(November/December 1999): 42.

20. North Carolina Department of Health and Human Services, Division of MedicalAssistance, "Medicaid in Depth," State of North Carolina,http://www.dhr.state.nc.us/DHR/DMA/depth97.htm (26 January 1997).

21. Mary E. Stuart and Michael Weinrich, "Beyond Managing Medicaid Costs: RestructuringCare," The Milbank Quarterly 76, no. 2 (1998): 265.


AHM Medical Management: Other Government Sponsored Programs

Objectives

After completing the lesson Other Government-Sponsored Healthcare Programs, you should beable to:

Identify several FEHBP requirements that might impact a health plan's medicalmanagement activities

Describe how the Military Health System and the Veterans Health Administrationinfluence healthcare quality and cost in the private sector, and vice versa

Discuss key differences between managing quality and cost in workers' compensation programsas opposed to group healthcare programs

Introduction

In the previous two lessons, we examined medical management as it relates to Medicare andMedicaid. In this lesson, we turn our attention to the Federal Employee Health Benefits Program,the Military Health System, the Veterans Health Administration, and state workers' compensationprograms.

The Federal Employee Health Benefits Program (FEHBP)

The Federal Employee Health Benefits Program (FEHBP) provides healthcare benefits to civilianemployees, retirees, and former employees of the federal government, their eligible familymembers and former spouses, and certain other individuals specified by the federal government.In terms of number of enrollees and participating health plans, FEHBP is the largest employer-sponsored group healthcare program in the world. It is administered by the Office of PersonnelManagement (OPM), the federal government's human resources agency. OPM contracts withhealth plans to purchase many of the products and services obtained by nonfederal purchasers.Depending on availability in the geographical area, FEHBP offers enrollees a choice of healthmaintenance organization (HMO), point-of-service (POS) product, preferred providerorganization (PPO), and managed fee-for-service coverage.

Health plans that seek to participate in FEHBP must satisfy OPM requirements for financialstability, management experience, total enrollment, choice of providers, access to providers,benefit design, etc. Premium rates must be in accordance with FEHBP rating requirements.Health plans must also agree to enrollment, claims review, and audit requirements specified in theFEHBP contract. If there is a discrepancy between the FEHBP contract and a state law, thecontract governs.

FEHBP and Medical Management

Because OPM prefers products and services available in the commercial marketplace, health planmedical management is not significantly affected by FEHBP contracts. However, somerequirements can have an impact. For example, in response to the 1999 report on medical errorsby the Institute of Medicine (IOM), the president issued an executive order requiring all healthplans that cover federal employees to develop and implement patient safety initiatives. Inaddition, FEHBP requires health plans to cover:

Autologous bone marrow transplants (ABMT) for late stage breast cancer Mammography screenings according to the National Cancer Institute's minimum standard Prudent layperson standard for coverage decisions regarding use of emergency services Direct access to obstetricians and gynecologists (OB/GYNs) for routine and preventive

women's healthcare services Direct access to qualified network specialists for members who have complex or serious

medical conditions that require frequent specialty care

Furthermore, some FEHBP service requirements differ from typical health plan procedures. Forexample, FEHBP has an external review process to facilitate independent review of disputesbetween members and health plans. When members disagree with an authorization or coveragedecision, they follow the health plan's usual appeals process, but if the original decision is upheld,members can request an OPM review. OPM typically acknowledges receipt of these requestswithin 5 days and sends a final response within 60 days of receipt of the appeal.2

OPM encourages enrollees to be knowledgeable healthcare consumers and patients. Throughbrochures and electronic communications, OPM provides access to information about cost ofcoverage, benefits, participating health plans, and healthcare-related topics such as preventivecare, self-care, and healthcare quality. For example, the FEHBP handbook lists all availablehealth plans and indicates their accreditation status. OPM also uses the Consumer Assessment ofHealth Plans (CAHPS) to provide enrollees with the results of health plan assessments. Bymaking this type of information available to FEHBP enrollees, OPM helps advance the primaryobjective of medical management-high quality, cost-effective care. Insight 10C-1 shows anexcerpt, from OPM's FEHBP website, on the subject of obtaining high quality healthcare.

The Military Health System and the Veterans Health Administration

Unlike FEHBP, two other federal programs, the Military Health System (MHS) and the VeteransHealth Administration (VHA) play a direct role in the delivery of healthcare. The MHS and VHAoperate hundreds of healthcare facilities, exerting a major influence on healthcare issues such asmedical research, medical education, and patient care. The MHS and VHA also monitorinitiatives in the civilian healthcare sector and work closely with providers, health plans, andaccrediting agencies, as well as other agencies in federal and state government on a variety ofhealthcare and medical management issues.

The Military Health System (MHS)

The Military Health System (MHS) is a worldwide healthcare system operated by the U.S.Department of Defense (DoD). The MHS has two primary objectives. First, it provides (andmaintains readiness to provide) medical care for the U.S. armed forces during military operations.Second, it offers ongoing healthcare for active duty personnel, military retirees, and the familiesof active duty personnel and military retirees.

Key to the success of the MHS is its network of military treatment facilities (MTFs), thehospitals, clinics, and treatment centers that the Army, Navy, and Air Force operate to delivercare to MHS beneficiaries. In some locations, civilian healthcare contractors provide resourcessuch as personnel, equipment, and supplies for use in MTFs. To supplement the MTFs, the DoDalso offers healthcare coverage through a program called TRICARE, which includes careavailable directly from MTFs as well as care obtained from civilian sources (providers, healthplans, and third party administrators) that contract with the DoD. Oversight of the TRICAREprogram is the responsibility of TRICARE Management Activity (TMA).

The MHS includes 15 geographical health services regions, 12 of which are in the United States.In each region, a senior military healthcare officer, called a lead agent, works with the region'sMTF commanders to coordinate delivery of healthcare services between MTFs and civilianproviders and health plans.

In the 1980s, the DoD initiated a number of demonstration projects to determine the effectivenessof specific healthcare delivery and financing mechanisms. The success of these demonstrationprojects led to a 1994 congressional directive to incorporate health plan features into the CivilianHealth and Medical Programs of the Uniformed Services (CHAMPUS), which was the name ofthe existing program for military families and retirees. In 1995, the DoD began a region-by-region, phased implementation of TRICARE to replace CHAMPUS.

Eligibility and Plan Options

Since active duty military personnel are covered by the uniformed services, they obtain most oftheir healthcare at MTFs, although in certain circumstances they may be referred to civilianproviders. Families of active duty military personnel, military retirees and their families, andsurvivors and certain former spouses of military personnel are covered by TRICARE. Typically,individuals are not covered by TRICARE if they are eligible for Medicare. However, severaldemonstration projects are under way to test enrolling Medicare eligible beneficiaries in theTRICARE program.

TRICARE offers three plan options: TRICARE Prime, TRICARE Extra, and TRICAREStandard. TRICARE Prime is an HMO plan in which enrollees select or are assigned to aprimary care manager (PCM) who coordinates care much like a primary care provider (PCP) in acommercial HMO. The PCM may be a family practitioner, general practitioner, internist,OB/GYN, or pediatrician. The network consists of MTFs and civilian providers. Services that areprovided or authorized by a PCM are not subject to a deductible or coinsurance, althoughcopayments apply for certain services obtained from non-military providers. A point-of-servicecomponent allows enrollees to visit specialists without a referral from the PCM, subject to adeductible and coinsurance. Active-duty military personnel are automatically enrolled inTRICARE Prime. All other eligible individuals who wish to be covered under TRICARE Primemust opt into it.

TRICARE eligible individuals who are not enrolled in TRICARE Prime are covered under theother two plan options: TRICARE Extra and TRICARE Standard. TRICARE Extra is similar tothe network portion of a PPO plan. Under TRICARE Extra, beneficiaries who choose to visit aTRICARE-authorized, community-based network provider pay a deductible and coinsurance, butthis out-of-pocket payment is less than the out-of-pocket payment under TRICARE Standard.TRICARE Standard is a fee-for-service plan, similar to the CHAMPUS plan that was availableprior to TRICARE. Under TRICARE Standard, beneficiaries can visit any TRICARE-authorizedprovider, subject to a deductible and coinsurance. The TRICARE Standard option has the highestout-of-pocket payments.

Health Plan Features

At each location where there is a military installation, there is a TRICARE Service Center (TSC)staffed by trained personnel, many of whom have a medical background. Beneficiary servicesrepresentatives are the primary point of contact, usually by telephone, for answering questionsabout plan options, eligibility, selecting PCMs, and filing claims. The TSC also serves as aresource for beneficiaries and providers on a variety of medical management issues, such asreferrals, authorizations, and case management. As the MHS has evolved, it has refined andexpanded its medical management activities, adopting many initiatives that have been successfulin the civilian sector.

One of the goals of TRICARE has been to increase collaboration between the military andcivilian health plans and providers. In some locations, MTF staff conducts medical managementactivities; in other locations, the DoD contracts with private sector health plans to perform theseactivities. The DoD enters into health plan support contracts with health plans for administrativeservices and healthcare delivery systems. MCS contractors are required to follow all TRICAREquality management and utilization management procedures

Preventive Care, Self-Care, and Decision-Support Programs

The MHS provides a variety of wellness services and screening procedures to prevent illness andto detect and provide early interventions for existing medical conditions. For example, TRICAREoffers eye exams, hearing screenings, immunizations, mammograms, pap smears, cholesteroltesting, and blood pressure screening. In most regions, nurse advisors are available by telephone24 hours a day, seven days a week to help enrollees with their healthcare decision making. Nurseadvisors provide advice and assistance on healthcare issues such as what to do about a suddenillness or injury, treatment alternatives for a chronic condition, and prevention and self-care. TheDoD also makes available self-help books, prenatal programs, community education programs,and so on.3

Utilization Review and Case Management

Under TRICARE, healthcare finders and MTF utilization management staff sometimes handleutilization review and case management activities. Healthcare finders (HCFs), located atTRICARE Service Centers, work with patients and PCMs to authorize and coordinate referralsfor specialty care and hospital admissions. HCFs, often in coordination with MTF staff, determineif care can be provided at the MTF; if it cannot, then they refer the patient to a civilian provider inthe network. HCFs also help identify beneficiaries who might benefit from case management.Typically, case managers are available in MTFs or network hospitals to evaluate referrals for

acceptance into the case management program and to assist providers by coordinating inpatientcare and discharge planning.

Appeals and Grievances

TRICARE beneficiaries and providers have the right to appeal authorization and coveragedecisions. Initial appeals and, if necessary, second level appeals, called requests forreconsideration, are handled by the TRICARE contractor. After the request for reconsideration,beneficiaries (but not providers) can file a final appeal with a national quality monitoringcontractor (NQMC). If the beneficiary is a hospital inpatient, the second level appeal is handledby the NQMC.

Complaints about care delivered by civilian network providers are called grievances. Often,grievances are routed through the TRICARE contractor's appeals process. A beneficiary notsatisfied with the way a grievance has been resolved can contact the TSC or, in some regions, theArea Field Office (AFO) for assistance. In some cases, the TRICARE contractor works in concertwith the lead agent office or the MTF to resolve a grievance.

Accreditation and Performance Measures

For its larger military treatment facilities, the DoD seeks accreditation from the Joint Commissionon Accreditation of Healthcare Organizations (JCAHO). The DoD contracts with outside vendorsto obtain performance measurement systems used to monitor outcomes and other clinicalperformance data needed to meet JCAHO reporting requirements. The DoD also uses this data tocompare outcomes and performance results across MTFs to help guide quality improvementefforts.

Healthcare Initiatives and Studies

The MHS participates in a variety of healthcare initiatives and studies. There are over 50 MHScommittees, work groups, and charters ranging from the Armed Forces Institute of PathologyBoard of Governors to the Vision Information Services Functional Process Improvement WorkGroup.4 TRICARE's National Quality Management Program (NQMP) evaluates the quality andcost of healthcare through various studies of clinical topics such as cardiovascular disease andorthopedic injuries. Each branch of the uniformed services also sponsors healthcare initiativesand studies. For example, in 1999 the U.S. Army Center for Health Promotion and PreventiveMedicine provided funding for a number of different projects, which are listed in Figure 10C-1.

Healthcare Initiatives and Studies

The MHS participates in other government sponsored programs as well, such as Put PreventionInto Practice, a national prevention implementation initiative designed for primary care practice,developed by the U.S. Public Health Service's Office of Disease Prevention and HealthPromotion. In addition, the MHS participates in clinical trials such as the DoD/National CancerInstitute (NCI) Cancer Prevention and Treatment Clinical Trials Demonstration Project. Bycovering certain experimental procedures, TRICARE gives beneficiaries and healthcarepractitioners the opportunity to enroll in cancer prevention and treatment studies sponsored by theNational Cancer Institute.5

The Veterans Health Administration (VHA)

The Veterans Health Administration (VHA), a division of the U.S. Department of VeteransAffairs (VA), provides hospital, nursing home, and outpatient medical and dental care to eligibleveterans of military service. The VHA operates medical centers, nursing home care units, andoutpatient facilities. In some cases, the VHA oversees healthcare provided to veterans by civilianproviders. In addition, the VHA offers healthcare coverage under the Civilian Health andMedical Program for Veterans Administration (CHAMPVA) for dependents of veterans whomeet certain coverage conditions. Besides providing and coordinating patient care, the VHAconducts medical research and, through affiliations with educational institutions and healthcarefacilities, assists in educating and training healthcare providers. For more information about theunique relationship between the VA and the U.S. healthcare system, see Insight 10C-2.6

The Office of Quality Management (OQM), a department within the VHA, oversees manyquality improvement activities in areas such as JCAHO accreditation, external peer review,quality improvement checklists, best practices, outcomes monitoring, clinical practice guidelines,and patient feedback. Recognizing the importance of providing quality and value in the deliveryof healthcare, OQM has established a family of performance measures in each of three criticalperformance dimensions:

Quality outcomes, as defined by healthcare practitioners, e.g., mortality rates, functionalstate of the patient, etc.

Cost-effectiveness, e.g., cost per visit, cost per period of care, cost per patient per year,etc.

Patient satisfaction, as determined by customer standards and surveys

The VHA examines results in the above areas to monitor and improve performance. For instance,healthcare costs and resource allocations have tended to vary by region, pointing to a need toplace more emphasis on appropriate utilization of resources.

Workers' Compensation

Recall from the lesson Environmental Influences on Medical Management that workers'compensation programs are state-mandated insurance programs that provide benefits forhealthcare costs, lost wages, and loss of earning capacity resulting from a work-related injury orillness. Workers' compensation was developed to balance the needs of employees and employers.Under workers' compensation, employees injured on the job are entitled to health and disabilitybenefits but generally cannot sue their employers, while employers are largely protected fromlawsuits but must compensate employees for work-related injuries and illnesses regardless of whois at fault. Insight 10C-3 provides an example of how workers' compensation works.

Although the delivery of quality, cost-effective healthcare is always a primary goal, there arefundamental differences between group healthcare and workers' compensation. Unlike grouphealthcare, where the focus is on managing care within the scope of a healthcare benefitscontract, workers' compensation focuses on the total claim, which includes a variety of direct andindirect healthcare, disability, and workplace issues.

Every state has a workers' compensation law, and most require that workers' compensationcoverage be provided or arranged by the employer. Interestingly, workers' compensation is notconsidered health insurance, but rather property-casualty insurance, similar to homeowners' orautomobile coverage. Workers' compensation laws require coverage of a wide array of servicesoften not included in health insurance programs. They also prohibit benefit designs that containemployee cost-sharing features. These distinctions present unique challenges in integratingdisability management and health insurance functions into the workplace and into healthcaredelivery organizations. In this section, we discuss the healthcare and disability components ofemployer-sponsored workers' compensation programs. Keep in mind, however, that workers'compensation programs vary considerably from state to state due to regulatory requirements.

The Cost of Occupational Injury and Illness

Under workers' compensation, employees do not contribute for their coverage, and all reasonablemedical expenses are paid in full for as long as care is necessary. There are no cost-sharingfeatures such as deductibles, copayments, and coinsurance, nor are there benefit limits such as

restrictions on days, visits, or benefits payable. To control medical costs, many states use feeschedules, based on Medicare and Medicaid fee schedules, that specify the maximum amountproviders may charge for treating workers' compensation patients. Although these fee schedulescap the cost per procedure, they do not control utilization.

Over the years, healthcare costs under workers' compensation programs have increasedsignificantly. Possible reasons for these increases include the following:

Employees do not pay healthcare expenses under workers' compensation, so they have noincentive to control costs.

Workers' compensation takes an aggressive approach to healthcare (e.g., greater use oftests, specialists, and rehabilitation) to return employees to work quickly.

Lack of clear clinical practice guidelines for providers result in overuse of services byproviders.

Benefits for lost wages provide an incentive for employees to prolong their care anddelay their return to work.

The sometimes adversarial relationship between employee and employer can lead toemployee fraud and abuse or unwillingness to cooperate in efforts to manage costs.

Fee schedules and fee-for-service reimbursements provide an incentive for healthcareprofessionals to over treat in order to increase their earnings.

State workers' compensation laws often limit the use of health plan techniques. Employers often do not permit employees to return to work through job modifications or

modified-duty positions.

The total cost for work-related injuries and illnesses includes more than just the cost ofhealthcare. Employers also pay wage-replacement benefits to employees who are unable to work.These payments, sometimes called indemnity benefits, account for a large percentage of workers'compensation costs. In addition, employers absorb various indirect costs such as lost or poorproductivity, the cost of hiring and paying replacement workers, employee benefit expenses forinjured employees, contributions to Social Security and Medicare for disabled workers, and so on.

Furthermore, in job-related illnesses, there are hidden costs that can be very difficult to identifybecause of the length of time between workplace exposure and the medical diagnosis. Often,when sickness occurs, a work-related cause is not considered, or if it is considered, anoccupational connection is difficult to establish. Yet the impact of overlooking workplace-causedillnesses can be serious. The worker and other employees may remain at risk, and in the long run,employees, their families, and the employer suffer human, business, and financial consequenceswhen the cause of illness remains undetected.9

Health Plans and Workers' Compensation

Many states have adopted enabling legislation for managed care techniques to be incorporated inworkers' compensation, but with wide variations in defining the term managed care. For example,some states allow or require the use of "managed care" networks with few restrictions. Otherstates require health plans to meet specific certification standards before they can manage care. Inthese states, the term managed care, as it relates to workers' compensation, refers solely to state-certified health plans.

In many states, the use of health plan networks is prohibited or significantly limited. In thesestates, employers either (1) cannot require employees to visit network providers or (2) may

initially require employees to visit network providers but must allow employees to opt out of thenetwork after a certain number of visits or a specified period of time.

Largely because of the impact of state workers' compensation laws, health plans are not asprevalent in workers' compensation as in group healthcare. The use of HMO-like health plans,with PCPs and referral procedures, is extremely rare. Regulatory limitations on the use ofnetworks have led many health plans to establish their workers' compensation products as PPOs.However, due to state-mandated plan designs, health plans generally cannot apply out-of-networkbenefit reductions to encourage employees to visit network providers. Instead, health plans mustrely on other ways to encourage network utilization. For example, employers or health plansoccasionally offer incentives, such as increased wage replacement benefits for workers who usenetwork providers. Health plans also try to attract injured workers by delivering excellent servicefrom the outset and providing the right combination of quality care, expense management, andreturn-to-work techniques. Two key areas for health plans to focus on are occupational medicineand the use of medical and disability management.

Occupational Medicine

Effective workers' compensation programs recognize the important role that PCPs play in thedelivery of occupational medicine. The PCP must be able to assess a patient's condition in termsof clinical needs as well as functional capacity and return-to-work potential. The PCP is calledupon to assess and regularly report on an employee's status, providing a functional assessmentand a job assessment. When an employee is able to return to work, the PCP must determine inwhat capacity. In some cases, the PCP must determine the percentage of permanent disability thatwill be used to award compensation to an injured worker.

Compared to group healthcare, workers' compensation programs commonly address a narrowerset of medical conditions: minor wounds, lacerations, chemical burns, and variousmusculoskeletal injuries such as fractures, sprains, strains, hernias, repetitive motion injuries, andback pain. These types of conditions often require the immediate attention of medical specialists,but less often result in costly medical procedures or extended hospital stays. Many occupationalinjuries respond favorably to orthopedic or chiropractic care, as well as intensive rehabilitationand physical therapy.

Medical and Disability Management in Workers' Compensation

Disability management seeks to manage total workers' compensation costs through preventionand recovery programs that (1) maintain or improve the health of employees in their jobs and (2)emphasize returning injured or ill employees to full work-capacity and productivity, withoutrelapse, as soon as medically appropriate. Often, wage replacement and indirect costs in aworkers' compensation case far exceed the cost of healthcare. In these situations, it makes senseto aggressively treat the condition if the result will be a faster return to work with a correspondingreduction in indemnity benefits and other expenses.

Effective disability management programs involve employers to ensure that needed workplacemodifications are implemented and that injured workers can return to modified-duty jobs whenappropriate. Employer cooperation is essential, since data shows that the potential for return towork decreases dramatically the longer a worker stays away from the workplace.

Using a variety of medical and disability management techniques, workers' compensationprograms concentrate on two major areas: prevention and recovery. In this context, preventionmeans all activities intended to keep accidents, injuries, or illnesses from occurring in theworkplace, while recovery refers to activities-pursued after an employee sustains an injury orillness-to bring about the quickest possible recuperation and return to work. Most health plans donot conduct primary prevention activities in the workplace, although some do offer theseprograms as part of their total workers' compensation package.

Prevention

The goal of a workers' compensation prevention program is to reduce the number of job-relatedinjuries and illnesses by working closely with employers and employees on both the workenvironment and employee behavioral and healthcare issues. Prevention programs rely on acombination of risk management and educational activities. These programs typically include ajob site analysis intended to uncover specific practices that increase the risk of accidents, injuries,or illness. For example, employee workstations might be examined for proper ergonomic designto prevent back strain or repetitive motion injuries. In addition, the activities of workers might beobserved to determine the need for training in proper lifting, use of equipment, or the importanceof wearing protective devices.

Typically, workers' compensation risk management and education programs are provided byinsurers, while the role of health plans is to assist in monitoring and reporting the results of theseprograms. In addition, health plans conduct secondary and tertiary prevention by supporting earlydetection of medical conditions and by seeking ways to prevent conditions from worsening orrecurring. Many injuries common to workers' compensation cases (sprains, strains, and lowerback pain, for example) are chronic in nature. Consequently, health plans must balance the needto prevent relapses with the goal of returning the employee to work as soon as possible.

Recovery

By emphasizing prompt reporting of job-related medical conditions and immediate referral to theappropriate provider, health plans increase the likelihood of an accurate diagnosis, earlyintervention, and timely recovery. Once employees enter the healthcare system, health plans usemedical and disability management techniques, usually performed within the framework ofutilization review and case management programs, to help return the employee to work as quicklyas possible. Formal return-to-work programs are offered by the health plan or the employer tocoordinate clinical care, functional capacity, and job-related issues. Because of staterequirements, as well as emphasis on the total claim, workers' compensation health plans aretypically less concerned than other health plans about strict definitions of medical necessity.

In some states, providers are required to use treatment guidelines developed by state medicaladvisory panels for treating common workplace injuries. In states without such requirements,health plans often implement similar guidelines for network providers. Standards for managingworkers' compensation cases are called return-to-work protocols, which establish expectedlengths of disability, recommended medical treatments, and job placement guidelines to facilitatea patient's return to work. These protocols are in some ways comparable to UR protocols thatfacilitate hospital discharge. Return-to-work protocols take into account the nature of the medicalcondition; the age, gender, and occupation of the worker; and the employee's functional capacityas it relates to the demands of the job. Return-to-work protocols emphasize rehabilitationprograms to help workers once again become fully functional in their jobs.

When an employee is not able to assume all the functions of the job, the case manager mightdevelop a treatment plan that allows the employee to return to light duty while still receivingtreatment for the injury or illness. Light duty, sometimes called transitional duty or limited hours,is work that is less demanding than the employee's original job.

In some cases, there are no objective standards for establishing recovery and return-to-worktimeframes. For example, soft-tissue injuries of the back and neck are determined by a worker'ssubjective complaints of pain. In situations like this, a case manager often works with the patientto closely monitor progress and promote return to work as a goal.

Case management is prominent in workers' compensation programs because successful resolutionof injuries requires collaboration and coordination in planning, implementing, and monitoringservices among a variety of individuals. The case manager reviews the specifics of each file andoften consults with the employer, the worker, and providers to determine the cause and nature ofthe condition as well as the impact on the worker's functional capacity and ability to perform therequirements of the job. The case manager participates in the development of a plan for recoveryand return to work, within appropriate medical guidelines, and then monitors the employee'sprogress.

Workers' compensation case managers are generally experienced in occupational medicine ordisability management. They have knowledge of both medical and vocational issues andresources. A case manager might obtain information about a worker's education, hobbies, jobskills, and employment history, then analyze the requirements of the job and complete a jobanalysis to determine the employee's ability to return to work.10

Most health plans objectively measure outcomes of their medical and disability managementinitiatives in terms of medical improvement and improved functional capacity. They reportutilization in terms of frequency and cost of care, average disability duration, and case closurerates. They also report on the amount of time it takes for employees to return to work and howoften employees return to work on a partial basis.

Insight 10C-4 summarizes several initiatives pursued by workers' compensation health plans.

Accrediting Agency Standards

URAC (also known as the American Accreditation HealthCare Commission) has establishednational standards for the conduct of utilization management in workers' compensation. Thesestandards are organized into the following general categories:11

Confidentiality of worker- and provider-specific information Individuals who can initiate reviews of UM decisions Job responsibilities, qualifications, training, supervision, resources, and written

procedures for individuals involved in the UM process Personnel who perform program oversight; written policies and procedures for all aspects

of the UM process; oversight of delegated or subcontracted functions; criteria for scriptedclinical screening; professional staff training, management, and credentialing; qualitymanagement

Standards for telephone review and on-site review Standards for obtaining and using information needed to render decisions; procedures for

reimbursing facilities or providers for the cost of supplying information Procedures for timely review and notification; procedures for when a worker or provider

does not provide needed information to perform a review; procedures that allowproviders to discuss nonauthorization decisions

Procedures for appeals (expedited and standard) of nonauthorization decisions

Some states, which have enacted licensing requirements for workers' compensation utilizationreview organizations (UROs), permit UROs to satisfy these requirements through URACaccreditation.

In addition to UM standards, URAC has developed standards for workers' compensationnetworks in areas such as access, contracting, quality management, and credentialing.

24-Hour Coverage

Typically, workers' compensation programs are administered separately from group healthcareand non-occupational disability programs. However, occasionally employers combine all healthand disability coverage into an integrated product known as 24-hour coverage. Under 24-hourcoverage (also called integrated health and disability benefits or comprehensive medical eventmanagement), a purchaser's group health plan, non-occupational disability plan, and workers'compensation program are merged, integrated, or coordinated (depending on state regulations)into a single benefit plan. The combined program must still comply with all applicable stateworkers' compensation requirements, such as the prohibition on employee cost-sharing fortreatment of occupational injuries.12

Twenty-four hour coverage can provide several advantages. For instance, non-occupationalconditions, such as heart attack, often respond well to disability management and return-to-worktechniques that are normally used only in conjunction with occupational injuries or illnesses.Also, the consolidation of three separate administrative systems reduces expenses associated withoperating multiple systems and determining whether conditions are work related. In addition, asingle administrative system facilitates communication and record keeping by combining patientcare information from all sources into one location. Providers can use this information tocoordinate services and improve outcomes, while health plans can better manage utilization andavoid unnecessary costs. Employers benefit from a single healthcare and disability program thatcan more effectively manage total claims and expenses. Employees benefit from the convenienceand simplicity of a single point of entry to the healthcare and disability system, whether or not thecondition is work related.13

Successful 24-hour coverage programs require a team approach with excellent communicationand information sharing among all participants: the employer, employees, providers, and thedepartments within the health/disability plans that administer the program.

Conclusion

Participation in FEHBP, the MHS, the VHA, or workers' compensation programs presents uniquemedical management challenges for a health plan. The medical management systems andrequirements of these government-sponsored programs may differ substantially from the healthplan's medical management initiatives for other types of group health coverage. In addition,workers' compensation programs involve disability and workplace issues as well as the deliveryof healthcare services.

Endnotes

1. "Patient Bill of Rights, Watch for These Features in 1999," United States Office ofPersonnel Management, http://apps.opm.gov/insure/98/new99.htm (21 December 1999).

2. "Federal Employees Health Benefits Program, Handling Disputed Claims," United StatesOffice of Personnel Management, http://apps.opm.gov/insure/98/dispute.htm (2December 1999).

3. "TRICARE: Your Military Health Plan," http://www.tricare.osd.mil/tricare/brochure.html(21 December 1999).

4. "MHS Committees, Work Groups & Charters,"http://www.tricare.osd.mil/charters/chartermatrix.html (18 November 1999).

5. "The DoD/NCI Cancer Prevention and Treatment Clinical Trials Demonstration Project,"http://www.tricare.osd.mil/cancertrials/whatare.html (18 November 1999).

6. "Veterans Health Administration," Department of Veterans Affairs (VA),http://www.va.gov/dvavha.htm (6 December 1999).

7. Galen L. Barbour, "Quality Management in Veterans Health Administration," in TheHandbook for Managing Change in Healthcare, ed. Chip Caldwell (Milwaukee, WI:American Society for Quality, Quality Press, 1998), 218.

8. William Granahan, "Redefining Health Plan to Focus on Appropriate Care in IntegratedDisability Management Programs," Health Plan Week (2 November 1998): 6.

9. Sheryl Tatar Dacso and Clifford C. Dacso, M.D., Health Plan Answer Book, 3rd ed.(Gaithersburg, MD: Aspen Publishers, Inc., 1999), 11-6.


11. American Accreditation HealthCare Commission/URAC, Workers' CompensationUtilization Management Standards, Version 2.0, Interpretive Guide, Final Draft(February 1998), 5-79.

12. Academy for Healthcare Management, Health Plans: Governance and Regulation(Washington, D.C.: Academy for Healthcare Management, 1999), 6-26.

13. Academy for Healthcare Management, Network Management in Health Plans(Washington, D.C.: Academy for Healthcare Management, 1999), 7-48.

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