1. Moral Hazard–Utilization Management Chapter 8

2. 2 Utilization Management In general, utilization management can be viewed as nonprice mechanisms to reduce moral hazard. In general, utilization management can be viewed as nonprice mechanisms to reduce moral hazard. The most common initial programs were inpatient based The most common initial programs were inpatient based Preadmission certification and Preadmission certification and Concurrent review Concurrent review

3. 3 Effects of Inpatient Utilization Review (UR) Wickizer, Wheeler, and Feldstein (1989) Wickizer, Wheeler, and Feldstein (1989) Preadmission certification and concurrent review Preadmission certification and concurrent review 1984–1986 quarterly utilization data 1984–1986 quarterly utilization data 223 insured groups—41 percent with the UR program 223 insured groups—41 percent with the UR program Utilization = f(UR, plan, market, and worker characteristics, seasonality, time trend) Utilization = f(UR, plan, market, and worker characteristics, seasonality, time trend) Results: Results: 3.7 fewer admissions per 1,000 3.7 fewer admissions per 1,000 20 fewer days per 1,000 20 fewer days per 1,000 No effect on length of stay No effect on length of stay

4. 4 Effects of Inpatient UR—2 Wheeler and Wickizer (1990) Wheeler and Wickizer (1990) Same 1984–1989 data Same 1984–1989 data Same model, but interacts UR with market characteristics Same model, but interacts UR with market characteristics To identify differential effects of UR To identify differential effects of UR Results: UR is more effective when Results: UR is more effective when Admissions per capita were higher Admissions per capita were higher Occupancy rate was lower Occupancy rate was lower Surgical specialists per capita was higher Surgical specialists per capita was higher HMO penetration was lower HMO penetration was lower

5. 5 Blue Cross/Blue Shield (BCBS) UR Utilization management techniques examined: Utilization management techniques examined: Preadmission certification Preadmission certification Concurrent review Concurrent review Retrospective review Retrospective review Denial of payment Denial of payment Mandatory second surgical opinion Mandatory second surgical opinion Case management Case management Discharge planning Discharge planning Source: Scheffler, Sullivan, and Ko (1991)

6. 6 Analysis of BCBS UM Data Y = a + bT + cQ + dUM + eREG + fPLAN +gHCE +hDEM + u Y = adm/1000, days/1000, length of stay, or inpatient $/1000 T = time trend Q = seasonality (quarterly dummies) UM = utilization management dummies REG = % hospital days reimbursed under PPS PLAN = %HMO, %PPO, Blue Cross market share, total membership HCE = Docs, beds, occupancy rate, mandated benefits, region DEM = age, race, gender Data: 56 BCBS Plans, 1980–1988, quarterly (2,016 observations)

7. 7 Table 8-1 Effects of BCBS Utilization Management Programs Admissions per 1,000 Members Days per 1,000 Members Average Length of Stay Inpatient Expenditures per Member Preadmission Certification and Concurrent Review - 5.3 %***-4.9 %***+0.4-2.6 %*** Mandatory Second Surgical Opinion +0.8+0.9+0.0+1.1 Retrospective Utilization Review +0.5+0.8+0.4+2.1 Denial of Payment-2.3*-4.5***-2.1***-2.0* Case Management+0.1+1.1-0.6 Discharge Planning+0.7+1.2+0.0-0.8 *,**,*** indicates that the coefficient is statistically different from 0.0 at the 90, 95, or 99 percent confidence interval, respectively. Source: data from Scheffler, Sullivan, and Ko (1991)

8. 8 Impact of Utilization Management on Readmissions Single UR company Single UR company Preadmission certification and concurrent review Preadmission certification and concurrent review Privately insured patients with cardiovascular disease Privately insured patients with cardiovascular disease 1989–1993 1989–1993 2,813 requests for a medical admission 2,813 requests for a medical admission 1,513 requests for a procedural admission 1,513 requests for a procedural admission Number of requests denied: Number of requests denied: 1 of 2,813 medical requests 1 of 2,813 medical requests 4 of 1,513 procedural requests 4 of 1,513 procedural requests Source: Lessler & Wickizer (2000)

9. 9 Length-of-Stay (LOS) Reductions among Utilization Review Cases for Selected Diagnoses and Procedures LOS Reduction (% of Utilization Reviews) Diagnosis or ProcedureNumber of Reviews Median Total Days Requested 0 Days1 Day 2+ Days Medical Admissions Angina6143.085.7%9.9%4.4% Congestive heart failure4167.081.59.98.7 Cerebral vascular accident4145.083.68.58.0 Arrythmia/conduction disturbance3703.083.59.57.0 Myocardial infarction3137.081.810.57.7 All Medical Admissions28135.082.610.27.2 Source: Lessler and Wickizer (2000), Table 2

10. 10 Length-of-Stay Reductions among Utilization Review Cases for Selected Diagnoses and Procedures Diagnosis or ProcedureNumber of Reviews Median Total Days Requested 0 Days 1 Day 2+ Days Surgical Procedural Admissions Catheterization4561.089.56.83.7 Coronary bypass surgery2578.068.417.014.6 Valve replacement/valvuloplasty889.077.314.08.0 Carotid endarterectomy695.071.013.015.9 Head/neck vessel replacement4710.083.02.114.9 All Procedural Admissions15134.081.011.08.0 Source: Lessler and Wickizer (2000), Table 2

11. 11 Source : data from Lessler and Wickizer (2000)

12. 12 Prevalence of Denials of Care Analysis of coverage requests from two medical groups in California Analysis of coverage requests from two medical groups in California MG1: 1/97–12/99—146,997 cases MG1: 1/97–12/99—146,997 cases MG2: 1/98–12/00—329,382 cases MG2: 1/98–12/00—329,382 cases Exclude inquiries about coverage under capitated rates and drug/vision/dental/behavioral services Exclude inquiries about coverage under capitated rates and drug/vision/dental/behavioral services Source: Kapur, Gresenz, and Studdert (2003)

13. 13 Table 8-3 Distribution of Coverage Requests and Outcomes MG1MG2 % of Requests % Denied % of Requests % Denied All Services 100%10%100%8% Diagnostic225145 DME823315 Inpatient6394 Nonacute24<19 Obstetric4<148 Other1713114 Surgery84163 Source: data from Kapur, Gresenz, and Studdert (2003)

14. 14 Source: Kapur, Gresenz, and Studdert (2003), Exhibit 2

15. 15 Source: Kapur, Gresenz, and Studdert. (2003), Exhibit 3

16. 16 Effects of Gatekeepers Harvard Vanguard (formerly Harvard CHP) Harvard Vanguard (formerly Harvard CHP) Eliminate prior approval of referrals to specialists as of April 1, 1998 Eliminate prior approval of referrals to specialists as of April 1, 1998 Previously in effect for 25 years Previously in effect for 25 years Compare randomly selected cohorts of 10,000 members in each 6-month period for the 36 months prior and 18 months after elimination Compare randomly selected cohorts of 10,000 members in each 6-month period for the 36 months prior and 18 months after elimination Source: Ferris et al. (2001)

17. 17 Table 8-4 Visits to Specialists and Generalists before and after the Elimination of Gatekeeping GatekeepingNo Gatekeeping Difference (P Value) Average number of specialty visits per patient per six-month period 0.78 0.00 (0.35) Average number of first visits to specialists per patient per six-month period 0.190.22+0.03 (<0.001) Average number of primary care visits per patient per six-month period 1.211.19-0.02 (0.05) Visits to specialists as a proportion of all primary care visits 39.139.5+0.4 (0.58) Initial visits to specialists as a proportion of all specialty visits 24.728.2+3.5 (<0.001) Source: data from Ferris et al. (2001)

18. 18 Discussion Questions  Consider the evidence presented in this chapter and Chapter 7. What sort of strategies would you suggest to a managed care firm to deal with the moral hazard problem? Would your strategies differ for inpatient and ambulatory services? If so, how?

19. 19 Discussion Questions  Chapter 1 suggested that managed care firms have suffered from a backlash against their utilization management efforts. Suppose managed care plans were to largely abandon utilization management efforts. What effects would this have on their claims experience? What effects would it have on enrollment? What decision rule would you use to determine whether a UM program should be implemented or continued?