THCB

Why Medical Management Will Re-Emerge

Several years ago I had dinner with a woman who had served in the late 1990s as the national Chief Medical Officer of a major health plan. At the time, she said, she had developed a strategic initiative that called for abandoning the plan’s utilization review and medical management efforts, which had produced heartburn and a backlash among both physicians and patients. Instead, the idea was to retrospectively analyze utilization to identify unnecessary care.

This was at the height of anti-managed care fervor. A popular movie at the time, As Good As It Gets, cast Helen Hunt as the mother of a sick kid. When someone mentioned an HMO, Ms. Hunt’s character let fly a flurry of expletives. America’s theater audiences exploded in applause.

Apparently, the health plan’s senior management team bought into cutting back on medical management but saw no need for retrospective review. After all, if the health plan abandoned actions against inappropriate services, utilization and cost would explode. Fully insured health plans make a percentage of total expenditures, so more services, appropriate or not, meant the plan’s profits would increase.

And that’s how it played out. Virtually all health plans followed suit, dismantling the aggressive medical management that had been managed care’s core mechanism in driving appropriateness. In the years following 1998, health plan premium inflation grew significantly, for a short period reaching 5.5 times general inflation, but averaging 4 times general inflation through today. Medical management became all but a lost, or at least a scarce, discipline in American health care, which is its status now.

The industry responded by making hay. Health care costs have been the most worrisome and unpredictable of all business line items. They have also become the single largest driver of our national budget woes and the bane of competitiveness in global markets. Nobel economist and commentator Paul Krugman noted this on CNBC last month. “If we could suddenly have French health care costs instead of American health care costs, our [national] budget problems would be solved forever.”

It is important to distinguish the term “medical management” as distinct from what physicians do. It refers to the development of mechanisms that ensure the right care at the right time in the right context, driving appropriateness and reducing avoidable risk. (These ideals have been largely thwarted by fee-for-service reimbursement, a lack of transparency and the subjugation of primary care over the past several decades.)

But it also is more than clinical management. Health care businesses now depend on delivering excessive services, often with egregious pricing, to maintain the revenues they have come to expect. Each industry sector has developed many ways to game care and cost.

So managing the processes requires knowing where health care waste is buried, and going after it.  It demands an interdisciplinary fluency in risk, analytics, medical/surgical and drug claims data, evidence-based guidelines, clinical decision support, appropriate cost, and purchasing and negotiation.

There are endless examples.

  • Care for the sickest patients has become the fastest growing area of health care cost. A recent PwC study found that, over the past decade, the percentage of California cases that exceeded $1 million increased seven-fold. Often, this results from misdiagnosis, lack of expertise and/or misaligned incentives. Centers of Excellence consistently produce better outcomes for these patients at lower cost. So do organizations that use salaried physicians rather than paying a percentage of what the physicians have prescribed.
  • Health plans typically have relied on the broadest possible network of doctors and other providers, even though there often can be a six-fold difference in episodic cost to obtain the same outcome. Turning a blind eye to performance opens choice, but it also amps up cost and removes quality and efficiency from the marketplace.
  • Plans often purchase stakes in Pharmacy Benefit Management (PBMs) firms, jack up generic drug pricing by 200+% over cost. They use the margins as a revenue stream, and tell their customers that they’re managing cost.
  • In the wake of the plummeting service volumes associated with the recession, hospitals charges for high frequency procedures have risen spectacularly. This primarily affects people without coverage, and is comparable to “gouging” for ice or gas after a hurricane. But it is difficult to spot, because most people have no frame of reference on unit pricing.
  • Itemized charges for hospital stays are often replete with unnecessary products/services that are likely to go unchallenged. My firm regularly sees bills in excess of half a million dollars that health plans have auto-adjudicated and paid, but that should have been significantly less costly.
  • Health plan case management and disease management programs are often provided as a default option (and at considerable cost). But in practice many don’t actively recruit members into the program, or produce savings. We have seen clients pay $100,000/month for disease management, with fewer than 20 patients actively enrolled.
  • The prices of high value items can be highly variable within markets, but they can also be excessive. Advanced images like MRIs may be available on a volume basis, with a reading, for less than $500. But health plan clients have routinely and unwittingly paid $1,750-$3,200 for the same image. The same principal holds with dialysis, which in commercial settings can be charged and paid at 4-6 times Medicare rates. Market principles simply haven’t applied in many cases.

The tools and skills needed to identify and address these kinds of problems are complex, and the job itself is heavy lifting. That said, we now have far better data and information management tools than were available a decade and a half ago.

And the need has re-emerged. The health care marketplace is at an inflection point. While it is unclear whether we’ll transition away from fee-for-service and toward some form of risk – the full force of the health care lobby is intently focused on defeating this now in Congress – there are other signs that the old paradigm is failing.

With or without the development of Accountable Care, the industry will be forced, for the first time in decades, to compete for market share based on performance. Hospital admissions are down and Medicare’s annual allocation is on track to drop by $40 billion/year. Commercial plans will likely reduce reimbursements as well. Health plans enrollments have plummeted as individuals and groups have been priced out of the market by rampant cost growth, driving up the uninsured (self-pay) population. Employers and other purchasers, finally exhausted by the burden of what they perceive as a relentlessly rapacious industry, are moving toward more market-based approaches that go around conventional players. (The popularity of onsite clinics exemplifies this.)

As true markets finally emerge in health care, demonstrating better care at lower cost will finally develop beyond an admirable goal to become the basis for competition. Success will depend on managing all aspects of clinical and financial risk. And that will require reconstituting a discipline that has been mostly dormant for a decade and a half.

Brian Klepper, PhD, is an independent health care analyst, Chief Development Officer for WeCare TLC Onsite Clinics and the editor of Care & Cost. His website, Replace the RUC, provides extensive background on the issue.

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Carita TibwellArchelle Georgiou, MDGary O.Sandra_RaupMargalit Gur-Arie Recent comment authors
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Carita Tibwell
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Carita Tibwell

I was wanting I might obtain an article this way with all the data I needed to acquire my personal school assignment carried out…. Many thanks.

Archelle Georgiou, MD
Guest

Brian, You and I had a dinner a few years ago..I was the CMO of United, a “major health plan,” and we talked about the decision to eliminate the onerous aspects of medical necessity review in 1999…which then created a sea change in the industry. I suspect that that the unnamed individual you reference in your blog is me. Assuming I am correct, then your blog misrepresents the overall strategy and processes at United, and I feel compelled to offer some few clarifications. As you point out in your blog, the term “medical management” encompasses many different processes. However, it… Read more »

Barry Carol
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Barry Carol

Sandra_Raup — Thanks for the information about how things work in the UK. It’s very helpful. In an ideal world, doctors would offer the patient and family a clear, honest and objective prognosis along with potential treatment options, the chance of success and the likely side effects, if any, and their impact on the quality of the patient’s life. I can understand, though, that if the prognosis is grim, it’s a difficult and uncomfortable conversation. It’s easier to just offer the intervention, especially if taxpayers or insurers are paying, and only respond to questions that the patient or family bring… Read more »

Margalit Gur-Arie
Guest

“expensive heroic measures” I don’t know why every time the above is discussed, the conversation turns to “heroic – yes or no” and to the humanity of letting people die or the wisdom of accepting death, instead of “expensive – yes or no” and the morality of extracting profit from human pain and suffering. I would submit that if that’s what we want to do, then all the talk about patient-centered, patient-engagement, patient-empowerment and consumer-driven, is just a bunch of purposely deceptive nonsense. However, if we are serious about all the patient-whatever labeling then it is up to the patient… Read more »

Barry Carol
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Barry Carol

“This stuff works, but fits very poorly with our ideas that health care is mostly heroic intervention in catastrophic conditions.” Pat S. – I certainly agree with you about the management of CHF and it appears that approach is starting to be embraced more widely. The heroic interventions (surgery / dialysis / ICU care / aggressive cancer treatment, etc.) coupled with higher prices per service, test, procedure or drug vs. other developed countries are the two biggest reasons, I think, why our healthcare system is so much more expensive as a percentage of GDP. My question for you with respect… Read more »

Sandra_Raup
Guest

Barry, I’d like to address that issue if I may. That’s exactly what happens, at least in the UK. There is a limited budget for various types of interventions, and physicians determine who will most benefit from them. This is less about specific rules (“no one under 50…”) but more about clinicians’ judgment. If you as a patient think you should get treatment X, you have administrative remedies at the NHS trust level to challenge a decision, but the legislation creating the NHS gives it the authority to determine what’s paid for, both on a global level (what’s available for… Read more »

Barry Carol
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Barry Carol

Margalit – Dr. Zeltner highlighted the importance of price differences between our two countries noting that the U.S. pays at least 30% more for brand name drugs and physician salaries are, on average, 30%-40% higher in the U.S. as well. If all prices in the U.S. are roundly 35% higher, it would imply that the Swiss would spend 16.2% of GDP on healthcare if they paid U.S. prices per service, test, procedure or drug vs. the 12% of GDP that they actually spend. It’s also important to note that Switzerland only has 7 million people vs. 315 million in the… Read more »

Margalit Gur-Arie
Guest

Barry, One thing that I really liked about that interview is Dr. Zeltner’s unwavering conviction that the Swiss health care system is a good system. They may not have the data to prove it and it may be a bit on the expensive side, but he seemed rather happy what what they achieved so far and confident that they will achieve more in the future. Contrast that with our “leaders” who are stepping all over each other to tell us that our system id broken, fragmented and killing people on a daily basis; that our doctors are a greedy bunch… Read more »

Margalit Gur-Arie
Guest

Barry, I would like to address this with a few quotes from a Health Affairs interview with one of the architects of the Swiss Health Care system http://content.healthaffairs.org/content/29/8/1442.full (I know you read it): “Most Swiss physicians in ambulatory care are self-employed……… They’re paid on a fee-for-service basis.” “First, whatever a doctor prescribes, the health insurance plan deems appropriate and therefore covered.” “Every insurer will reimburse the patient’s bill from every doctor on a nationwide basis…. from 2012 on, you will be able go to any hospital in Switzerland, and insurers must deal with all of them” “We don’t have electronic… Read more »

Barry Carol
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Barry Carol

Margalit – I’ll offer several thoughts on this. First, we need to consider that most healthcare costs are accounted for by hospital inpatient and outpatient care, expensive imaging and prescription drugs. The experts also tell us that 75% of costs relate to the management of chronic diseases like CHF, COPD, ESRD, heart disease, asthma, diabetes and mental illness among others. I have never seen a good study that shows the number of employees per licensed bed at academic medical centers and community hospitals in the U.S. vs. their counterparts in other developed countries. I suspect that U.S. hospitals have significantly… Read more »

Sandra_Raup
Guest

Barry, There have been comparative health analyses done but they are complex because of the number of variables that are not the same. For example, when I visited the UK in 2003, patients were cared for in multi-person wards in a facility that looked like the ones we had in the 1950’s. In the US, hospital rooms are usually private these days with amenities similar to what you’d find in a highly rated hotel. The number of personnel to care for that kind of real estate is obviously greater. In addition, they offer fewer high tech options, such as dialysis… Read more »

Pat S
Guest
Pat S

Outcomes in comparative studies are based on disease states — renal failure, heart failure, coronary artery disease, etc — not on admissions to ICU or patients on dialysis. It is those outcomes for disease states that are often better in Britain (and many other countries) than in the US. Britain does not put as many people on dialysis as is typical in the US. That is because there are some patients with renal failure, especially among the elderly, who potentially do better without dialysis than with. Dialysis is extremely stressful to patients, and deaths related to dialysis are not uncommon.… Read more »

Sandra_Raup
Guest

Agree, Pat, entirely. There are statistics on dialysis outcomes, but at least the ones I have seen do not distinguish between acute renal failure (such as that associated with sepsis, hypovolemia, or multisystem organ failure) and chronic renal failure where kidneys are irreversibly damaged. The UK has much better dialysis outcomes based on length of survival on dialysis or to transplantation. I took from the difference in survival – with the US having many more patients with survival measured in hours, days and a few weeks that we offer dialysis when patients have little chance of survival. That would be… Read more »

Pat S
Guest
Pat S

Almost all foreign systems use more doctor visits, more hospital admissions, and longer hospital stays than the US. However, the cost of the hospital stays and doctor visits are substantially lower than ours. Part of this is because payment to doctors is lower in most other countries than here, but the big difference is that a lot less is done to the patient as part of doctor visits and hospital stays — less surgery, fewer lab and imaging tests, fewer other procedures. That drives the cost down considerably, since the patients are mostly just visiting the doctor or resting in… Read more »

George Dawson, MD, DFAPA
Guest

“I’ve also never seen any data or analysis that addresses the culture of physician independence and autonomy in the U.S. vs. elsewhere. The tone of Dr. Dawson’s comment, for example, seems to suggest that insurers should just accept whatever doctors decide to do without question and pay the bill promptly and leave them alone. Doctors also earn significantly more money than their counterparts abroad and that applies, for the most part. to both PCP’s and specialists. Finally, there is the difference in the real and perceived litigation environment which impacts the impossible to quantify issue of defensive medicine” Nice spin… Read more »

Margalit Gur-Arie
Guest

I don’t understand why we continue to compare ourselves to other developed countries and their much lower costs of health care and in the next sentence come up with solutions that ignore the realities both here and there. There are 3 basic differences between what we do here and what “they” do there: 1) They provide health care to all 2) They have no profit drivers at the financial intermediary level 3) They pay less per every single unit of service Why can’t we do the same for starters? What are the skills that make managed care companies better than… Read more »

Barry Carol
Guest
Barry Carol

Pat S. – According to Paul Starr in his book, “The Social Transformation of American Medicine,” Kennedy turned down Nixon’s offer at the behest of organized labor. Their thinking was that with Nixon weakened by Watergate, Democrats would make significant gains in the 1974 election and would then be in a position to push through a single payer healthcare system over Nixon’s veto. Of course, Nixon resigned in August, 1974. Even though Democrats did indeed make significant gains in the election that year, a serious recession had set in and there was no longer any money for new entitlement programs.… Read more »

George Dawson, MD, DFAPA
Guest

I don’t know what planet everyone else is one but the managed care cartel has used progressive utilization review in any setting where I have worked and the rules are as arbitrary as ever. The idea that managed care strategies have to do with “waste” or “inefficiency” always strikes me as humorous because they are basically financial decisions that are devoid of any clinical decision making. Financial and business decisions have long supplanted medical decision making and the clearest example is “case managers” telling physicians when to discharge patients from hospitals. The financial decision making by PBMs is even worse… Read more »

Gary O.
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Gary O.

From Dr. Dawson’s vantage point “managed care strategies …are basically financial decisions that are devoid of any clinical decision making.” To him, “the clearest example is ’case managers’ telling physicians when to discharge patients from the hospital.” Rather than looking at an unneeded day spent in the hospital as a potential correctable defect in the way health care is being delivered, both in terms of quality of care and inefficiency, Dr. Dawson chooses to create a false dichotomy of either managed care or no clinical decision making. If such a mindset pervades the medical community, no wonder we are having… Read more »

George Dawson, MD, DFAPA
Guest

“Rather than looking at an unneeded day spent in the hospital as a potential correctable defect in the way health care is being delivered, both in terms of quality of care and inefficiency, Dr. Dawson chooses to create a false dichotomy of either managed care or no clinical decision making. If such a mindset pervades the medical community, no wonder we are having such a problem reducing preventable and excessive hospitalizations” Neat rhetorical device. Unfortunately it is not a “false dichotomy” when you are face to face with one of these case managers who is backed by administrators and is… Read more »

Jeff Goldsmith
Guest
Jeff Goldsmith

Brian, I don’t think third party type utilization management ever completely disappeared. It became focused on pharmaceuticals and later in high technology imaging, spawning two industries that have moved those respective markets. The resurgence in health costs in the late 1990’s wasn’t due to relaxed UR. Rather, high tech imaging, specialty pharma and the early phase of cardiac stenting, were big cost drivers. There was a very modest resurgence of hospital admissions, the main focus of UR activity, and then in 2003, without a lot of external help, hospital admissions began a decade long deceleration, finally reaching “negative growth” in… Read more »

Pat S
Guest
Pat S

Much of the 90’s anti-managed care pushback was unfair and unwarranted. In “As Good as it Gets” Helen Hunt’s son had asthma, and was supposedly being forced by her HMO to be managed only by treating acute episodes in the ER. No HMO in the world would take that approach, since the use of relatively inexpensive maintenance drugs — eventually ordered by the Park Avenue consultant who entered the case — is so much cheaper and more effective and so well understood that it would be stupid to do anything else. Attacks on insurer refusal to pay for bone marrow… Read more »