Elements of Utilization Management

While price management is the first step in managing the health care cost equation, some regard it as a "one-time" savings once the plan sponsor gains discounts. This is not entirely correct since continuing price management is crucial to controlling ongoing costs. However, the long-term cost advantage of managed care rests in its ability to reduce the rate of increase of utilization. The rate declines, with stronger and stronger forms of managed care thereby, ideally, reducing the number of units of unnecessary health care services delivered. Reducing that number is the principal function of medical utilization management (UM).

Primary Utilization Management

Primary utilization management programs can be found in all forms of managed care and they are often the principal controls in managed indemnity and PPO plans. These programs have generally focused on controlling hospital confinements, either through reducing the number of admissions and/or reducing the average length of stay. The following programs are typically included:

1. Precertification reviews the medical necessity of inpatient care and identifies potential case management opportunities prior to admission.
2. Concurrent review monitors patient care during hospital confinements with the intent of managing the length of stay by identifying alternate settings that can provide less costly care.
3. Discharge planning assesses whether additional services are needed following discharge and prepares the patient's transfer to less costly alternate settings for treatment (e.g., a skilled nursing facility or home health care).
4. Large case management provides a continuous process of identifying members with high risk for problems associated with complex, high-cost health care needs and of assessing opportunities to improve the coordination of care.

Primary UM programs are typically handled by telephone (e.g., a toll-free help line) to the managed care company's central member services offices, although selected cases may be supplemented with local on-site review, either through clinical representatives of the managed care company or through contracted medical professionals.

Expanded Utilization Management

Expanded utilization management programs are more commonly included with stronger forms of managed care, such as POS and HMO plans, although they are increasingly available with PPO plans on a stand-alone basis. Some programs are fairly sophisticated, combining protocol-based telephonic intervention services with more intensive clinical analysis of specific treatments of care. Because of the nature of HMO and POS plans, many of these advanced UM programs are initiated by the primary care physician and are ideally transparent to the member. Provider compliance with the requirements of these programs is essential to managing care. Elements of these programs often include the following:

1. Referral management is the primary UM technique differentiating HMO and POS plans from PPO plans. It requires members to access care through their PCPs, who then manage referrals to specialists within the provider network. Properly handled, referral management, also known as the "gatekeeper" approach, ensures that high quality care is delivered in the most cost-effective setting possible by coordinating care through one source (the PCP) and eliminating unnecessary or inappropriate care.
2. Outpatient precertification requires prior authorization from the managed care company for certain outpatient surgical and medical procedures, with the intent being to reduce unnecessary, inappropriate, and potentially harmful procedures.
3. Managed second surgical opinion replaced voluntary second surgical opinion programs which had been widely used in the 1980s and requires the member to contact the managed care company, which evaluates the necessity of surgery and recommends less invasive medical treatment if appropriate.
4. On-site concurrent review complements telephone-based concurrent review in basic UM services by placing clinically trained nurses at hospitals and other inpatient facilities to review the necessity of continued confinements, proposed tests, and procedures.
5. Centers of excellence include a network of designated, nationally recognized medical facilities that perform selected, highly sophisticated, and high-cost procedures (e.g., organ transplants, open-heart surgery, and advanced forms of cancer treatment). The managed care organization typically negotiates preferred rates with the centers.
6. Prenatal advisory services (also called prenatal planning and maternity management services) help identify women who may be at risk for delivering low-birth-weight, preterm, or unhealthy babies and provides education and counseling on proper prenatal care.

Most managed care companies use sophisticated protocols and medical guidelines to develop and administer their UM programs. Whether their operations are centrally based or located in local member service centers, today's UM programs are highly automated and integrated with the claims payment systems, so that there are minimal delays in the handling of member claims after UM procedures are approved. Similarly, the managed care company will usually provide toll-free numbers for both members and providers and extended customer service hours to decrease the "hassle factor" often associated with having to preauthorize confinements, referrals, or outpatient procedures.