Employee Benefits

The Growth of Pharmacy Benefit Plan Alternatives

2012-01-24T05:55:00.000-08:00

While there are many "alternative" pharmacy benefit plans discussed in the marketplace today, some of the newest ideas under discussion include:

Reference based pricing
Reverse copays
Coinsurance
Consumer directed health care (aka, Consumer-driven health care)

Reference Based Pricing

Reference based pricing (RBP) is a reimbursement mechanism in which payers set a ceiling price for medications that exhibit similar therapeutic benefits. While utilization of RBP in the United States is low, it has become one of the more popular pricing mechanisms for government and private-sponsored plans in Europe and over the past few years has gained considerable attention in the United States.

Under a reference based pricing program, managed care organizations (MCOs) and PBMs do not directly regulate drug pricing; rather, they attempt to constrain costs by setting a reimbursement threshold for individual drug classes.

Essentially, the payer determines a "reference price" or maximum reimbursement amount it will pay for drugs within specific therapeutic classes. The reference price is derived by analyzing cost and outcomes data and determining which drug in a class offers a reasonable clinical value among its peers at the lowest possible cost. The drug selected should have the ability to provide expected clinical outcomes to the greatest number of plan beneficiaries. The cost negotiated by the PBM becomes the reference price.

Typically, RBP is used for formulary or preferred medications. There is one therapeutic agent per category, which is priced based on RBP methodology. While employees or plan members have a choice of medications, if they select a medication that is priced higher than the reference drug, they are responsible for the price difference.

Advantages/Disadvantages. In general, RBP programs have shown the most success in countries that offer a national health care system, under which price setting, drug classification, and other policy decisions are highly centralized and administrative costs are lower.

However, U.S.-based proponents argue that despite differences in governance, RBP is still more effective than current cost-sharing methods at: (1) helping patients understand the true cost of their prescription drugs and therefore, becoming better health care consumers, and (2) creating competition among manufacturers. RBP proponents argue that this structure encourages pharmaceutical manufacturers to offer lower prices to PBMs and health plans in an effort to secure a position on formularies as the reference drug in a particular therapeutic or drug class.

Opponents argue that RBP creates an economic barrier to medically necessary drugs for lower income beneficiaries—the greater the price difference between the reference drug and the most expensive drugs in the class, the more likely that a beneficiary will decide to forgo the prescribed treatment or settle for a less costly treatment that may be clinically inappropriate for their condition. If the reference drug is a lower-priced generic, the difference between it and a new branded drug can be substantial, placing a potentially valuable drug therapy out of reach for many plan members.

Another issue influencing the potential viability of RBP is that unlike Europe, where reference based pricing is more prevalent, the U.S. has a free market system—where drug manufacturers are free to negotiate prices with various purchasers. Other challenges include the analysis of drug categories, selection of the right drug to be used as the therapeutic reference, and the determination of which agent provides the net lowest cost option. For example, payers may not benefit from RBP in all therapeutic areas. RBP is most appropriate for classes where there are significant differences in cost and outcomes for various branded and generic alternatives. The reference drug must also be the most appropriate choice available to treat the highest percentage of patients possible.

Within the current free market health system, RBP can present major pricing and administrative challenges that can dilute the cost savings generated. Determining the RBP involves careful analysis of cost, negotiation with manufacturers and several other steps. If that effort is spent on drugs that only benefit a small percentage of patients, particularly if those patients are also subject to prior authorization, or other administrative processes, the resulting cost-savings could be offset. However, despite concerns, some plan sponsors have opted to explore RBP. For employers who are considering or using RBP, it is important to note that patient education is critical to the potential success of the program. The plan sponsor's PBM must work closely with the employer to ensure that members understand the details of their pharmacy benefit and cost implications of RBP. The PBM must also work to help ensure members make health care decisions based not only on the cost of the drug, but on outcomes. In addition, the program must be carefully implemented by a PBM with expertise in negotiating pricing, understanding pricing trends, and working with physicians to provide necessary education.

While RBP could be viable for very large payers, and theoretically can result in significant cost-savings for the payer, there are many uncertainties. RBP should not be adopted without careful analysis of advantages and potential problems.

Reverse Copay

Under reverse copay, the payer/plan sponsor has a fixed allocation for pharmacy benefits for employees. Under a traditional copay benefit structure, the plan member would pay a set amount—typically ranging from $5 to $50—for each prescription. Under reverse copay, the plan sponsor would pay the copay—an amount established by the benefit design—and the member would pay the remaining amount. Some employers favor reverse copays because they are insulated from drug price inflation as their unit costs are fixed.

Reverse copay works particularly well for some high-cost categories of drugs. This strategy puts the onus on plan members to understand their pharmacy benefit and to work with their physician to carefully choose which drug can provide the greatest value based on their individual need. Furthermore, unlike some benefit plans today, reverse copay is relatively simple for the majority of plan members to understand. Employers with strong benefit communication programs and those who work with experienced PBMs may find some value with a reverse copay approach. However, as with other benefit design options, it requires monitoring to ensure the program does not penalize the sickest plan members as well as those with a limited income.

Coinsurance

Twenty to 30 years ago, most major medical health plans used coinsurance as opposed to copays. However, until recently this benefit design option had fallen out of favor because copays are simpler to implement, more predictable in price, and often more affordable for plan members. Recently, some health plans have begun to revisit the tactic of replacing or augmenting drug benefit copayments with coinsurance.

With coinsurance, employees/plan members pay a percentage of the cost of each prescription dispensed, often after meeting a deductible. When structured properly, coinsurance can help the plan sponsor to save their benefit dollars. Some plans, particularly those with traditional benefit designs, have realized savings of up to 20 percent upon implementation of prescription coinsurance.

There are many ways to structure coinsurance programs. One health plan, which offered $2 copays for generic drugs and $9 for brand-name drugs, switched to a coinsurance plan wherein employees paid 20 percent of a drug's cost, with a $50 out-of-pocket maximum for each prescription and an annual out-of-pocket maximum of $1,000 for single coverage and $1,500 for a family. While this structure shifts the responsibility of cost-saving to the plan member, it does protect against more catastrophic costs.

What Proponents Say About Coinsurance. Coinsurance can be used for a variety of drug therapy categories. For example, a plan may institute coinsurance for lifestyle drugs only. This allows limited coverage for popular drugs, such as Viagra and Propecia, while ensuring that the plan member has a greater financial stake in the decision to use a lifestyle drug.

Plan sponsors like the fact that coinsurance is readily understood by members: "If a drug costs $100 and my coinsurance is 20 percent, I pay $20.00 and my health plan pays $80.00." Coinsurance also helps the plan sponsor adjust for the cost of inflation; if drug prices increase by 10 percent, coinsurance passes a proportional amount of the increase to the beneficiary.

As with many of the alternative plans under discussion, coinsurance also allows the employee to pay the commensurate share of the cost of drugs, ensuring they become more cognizant of the actual cost of the drug. In fact, many employers believe that one of the most important features of a coinsurance plan is that it helps plan members to better recognize and appreciate the true cost of their pharmacy benefit.

What Critics Say About Coinsurance. One of the primary concerns many clinicians and consumer advocates have with coinsurance is that plan members never know what they are going to pay for a prescription. Copays are predictable ($10, 20, etc. per prescription). However, there are many variables affecting the price of prescription drugs under a coinsurance program, such as different prices by network pharmacies, time of year of purchase, price increases from the manufacturer, supply chain shortages, distribution, and so on. These constant changes in pricing can be especially challenging for members on a fixed income. In addition, members used to paying fixed copays may perceive coinsurance amounts as an indication that the medications are "not covered" thus creating confusion or resulting in under-utilization of the coinsured drugs.

Recognizing the impact of coinsurance and copays on members is perhaps one of the most important issues for plan sponsors considering this option. A recent study by the Rand Corporation noted that utilization of drugs decreases when out-of-pocket costs increase past a certain threshold.

Some analysts are concerned that if costly drugs have a high coin-surance rate, it may drive members to use less effective drugs to save money or to forgo treatment altogether, either of which could lead to higher overall health plan costs. Another key issue to consider is that many PBMs have found low satisfaction rates among members with coin-surance. While this may be due to uncertainty over cost, and may be attributed to poor benefit education, it is a factor that plan sponsors will want to consider.

Critical Coinsurance Issues to Consider. While there are concerns associated with this option, some plan sponsors may still want to proceed with exploring a coinsurance approach for their benefit. If so, there are some important steps that should be taken with the PBM or a consultant:

Examine what the plan sponsor and plan members are currently paying for copays.
Conduct a full analysis of historical claims. For example, if a $100 prescription has a $25 copay, switching to a 20 percent coinsurance may not provide the savings or value for either the plan sponsor or plan members' needs.
Analyze current claims data to better identify which therapeutic categories have the highest utilization, for what condition and by which plan members. A plan sponsor may want to forgo coin-surance if the price of the identified categories will increase costs significantly for chronic drugs.
Factor in rebates. A straight coinsurance program may reduce rebate income if the coinsurance is calculated on the net price of the drug (less estimated rebates). Plan sponsors that depend on rebates to offset PBM costs would have to give notice to their members that rebates would not be figured into the net price used for calculation of the coinsurance amount, thus potentially increasing out-of-pocket costs for members.
Talk to legal counsel if the plan decides to move to coinsurance. If the actual coinsurance amount is higher than what the price would be if discounts were added in, the plan could be subjecting itself to legal action. This occurs when there is a large rebate on a drug, reducing cost to the plan by an amount greater than the payer's coinsurance obligation. In effect, the health plan would make money at the expense of reducing costs for the member. While rare, this instance would result in perceived inequity and might precipitate a legal challenge.

One of the more important aspects to analyze when considering coinsurance is its potential impact on mail service. Mail service programs provide cost efficiencies for members as they can receive a 90-day drug supply for a 30-day copay. However, with coinsurance, there is no financial incentive to use the mail service and members who rely on mail service for drugs to treat chronic illnesses, or who prefer mail service for its convenience, will be penalized if a plan sponsor moves to a coinsurance design if the design extended to the use of mail service prescription drugs.

Mail service enables PBMs to offer pharmacy programs to employers for a lower cost as they can negotiate better rates with manufacturers and pass those savings along to clients. Additional issues involving mail service and coinsurance are that members may not have a clear idea of what their coinsurance is when they mail in a prescription every three months. This can reduce the efficiencies of mail service since a fixed copay is easily understood by members and there are few expenses, such as those associated with complicated member billings and bad debt (more likely to happen with coinsurance). These issues can be addressed, however, through education, mailings to members, online websites and a knowledgeable and strong customer service department within the PBM.

It is critical that payers work with a PBM experienced in developing pricing strategies to ensure that coinsurance amounts meet the goals of the employer without negatively influencing the plan member in terms of financial burden and potential negative outcomes.

Consumer Directed Health Care

While the pharmacy benefit designs discussed have generated considerable attention over the past few years, consumer directed healthcare (CDH) is currently creating the most excitement and debate within the pharmacy benefits marketplace. CDH has been a benefit option, albeit under a different name, since the 1980s in the form of high deductible plans. CDH plans include flexible spending accounts (FSAs), medical savings accounts (MSAs), health reimbursement accounts (HRAs), and most recently, health savings accounts (HSAs). The common thread among this profusion of acronyms is consumer control over dollars deposited in a tax-favored health care spending account.

Until very recently, the most prevalent form of CDH has been FSAs. Also known as IRS Section 125 Cafeteria plans, FSAs have allowed individuals to redirect a portion of their salary—generally between $2,000 to $5,000—into a tax-favored account. Recent CDH-friendly legislation has given rise to newer forms of CDH plans, namely, HRAs and HSAs. HRAs are emerging as the most popular type of CDH plan among employers and employees. HRAs differ from FSAs in that the employer (not the employee) funds the account and any unused funds may be rolled over from year to year (the use-it-or-lose-it rule does not apply). The employer funds the account as claims are submitted, and the funds are not considered a taxable benefit.

Many employers are also beginning to explore HSAs–part of the landmark Medicare drug bill passed in December of 2003. While the majority of consumers assume this legislation dealt with Medicare only, in reality, it also included several provisions for employer-sponsored health care benefits—HSAs among them. HSAs combine inexpensive, but high-deductible health insurance plans, with a tax-advantaged savings account. The concept behind HSAs is to encourage people to be more prudent in their management of medical expenses.

CDH and Prescription Benefits. Currently, even among employers offering a CDH benefit, most prescription costs are covered through a traditional, pharmacy benefit. However, fueled by employer demand for CDH, insurance plans and pharmacy benefit providers are looking to expand their CDH offerings by integrating a pharmacy component.

When considering a CDH plan, there are some important issues to explore. The ability to acquire outcomes and utilization data under a CDH plan has been virtually nonexistent to date, meaning employers have little idea as to where employees are spending their prescription benefit dollars. In addition, most CDH plans provide few opportunities to target programs to meet specific needs of employees.

However, one of the most important issues for plan sponsors to consider is whether the CDH plan has the ability to promote quality care and provide fair and affordable coverage for all plan members. According to a 2004 report entitled, "Rhetoric vs. Reality: Employer Views on Consumer-Driven Health Care," issued by the Centers for Studying Health Systems Change, a nonpartisan research group based in Washington, D.C., CDH plans could negatively impact outcomes by limiting the ability of patients with chronic conditions to secure preventive care. In addition, some health care advocates have significant concerns over selection issues. It is believed that healthier members will choose the CDH plan, leaving the more costly, sicker members in the insured plan.A survey conducted with employers by The Centers for Studying Health System Change reported that the majority of employees—more than 70 percent—had health care costs of less than $1,000 a year. Therefore, employers were concerned that by providing a $1,000 spending account, workers would spend more, thus increasing their total costs. Another recent employer survey reported that nearly one-third of the workforce secured health care coverage through a spouse; therefore offering coverage to those employees could increase costs without adding real value to the plan member and with the potential to waste the dollars of the plan sponsor.

Implementation of CDH plans can also be more expensive for the plan sponsor. Depending on the plan sponsor's existing capabilities, a significant investment (capital or outsourced) may be required in terms of increased customer services, systems integration, investment in interactive voice response (IVR) systems, online technology, as well as educational materials. While the vendor may offer these services, the plan sponsor will have to pay for them one way or another.

CDH plans must also provide comprehensive, rapid, and easy-to-access account information for employees and plan members. It is important for members to know what they have spent and how much remains for pharmacy coverage, inclusive of fees and discounts, so they do not spend in excess of the funds they have available.

In addition, it must be recognized that some plan members may not be ready to assume responsibility for health care purchase decisions. Without proper guidance, education, communication, and support, some might be tempted to discontinue their medications or make unwise decisions. This could lead to poorer outcomes requiring more expensive medical care, such as surgery or hospitalization.

Unfortunately, there is minimal data to help consultants and plan sponsors understand the implications of CDH. Preliminary results from a University of Minnesota study comparing the health care utilization and costs of CDH enrollees to traditional plan enrollees indicate that patient expenses, including pharmaceutical costs, were similar for each population. However, CDH enrollees showed an increase in demand for services. In fact, 65 percent of CDH enrollees were more likely to call customer service compared with 40 percent in the traditional plan.

While there are uncertainties surrounding this model, there are also some potentially positive attributes of such plans. CDH plans designed, managed, and implemented by experienced managed care organizations appear to have a better chance of addressing areas of concern while meeting the needs of employers and employees. Some of the benefits of CDH plans that should be considered by employers include:

Plan members with a deductible benefit design will appreciate first-dollar coverage and the ability to obtain some level of coverage for all drugs including those that are nonformulary. However, as plan members bear the full cost of their prescription drugs, and as they become accustomed to discussing drug pricing and alternative therapies with their providers, the rate of generic substitution will likely increase.
The tax savings achieved through CDH can be significant for employers. For every $1,000 deposited into a CDH account, the employer will save 7.65 percent, or $76.50 in payroll taxes.^[8] Furthermore, if CDH enrollees become more savvy health care consumers, plan sponsors can also expect to save in terms of lower claims costs and, ultimately, lower health care premiums.

The movement towards consumer-directed health care is part of a bigger picture in which individuals have more responsibility for their overall financial and physical health. However, until more data is available, employers will need to fully explore the pros and cons of CDH plans, and ensure they have examined other pharmacy benefit strategies proven to help lower outcomes and improve quality.

Why Plan Sponsors Are Considering Alternative Prescription Drug Plans

2012-01-20T04:33:00.000-08:00

In 2004, the nation's spending on prescription drugs was more than $200 billion. While this represents one of the largest segments of health care spending today, the good news is that pharmacy costs are moderating; growth in 2003 was 12.4 percent versus 19.7 percent in 1999. However, despite moderation, pharmacy costs continue to represent a significant portion of an employer's benefits expenditures.

Pharmaceutical manufacturers are often blamed for the high cost of prescription benefits. In reality, there is a complex array of factors influencing pricing that must be examined to find effective and meaningful solutions for employers and payers. Factors currently influencing price include:

Federal and state legislation;
Consumer trends within the marketplace;
Increasing utilization caused by an aging population; and
Growing demand as a result of society's fixation on prescription drugs as a cure for all ills.

To manage costs more effectively, payers are looking for solutions, and are often willing to try any option that appears to promise lower costs. Many of the newer drug benefit design options share a common theme; they place more responsibility and financial burden on the employee as a primary strategy to reduce costs to the employer.

However, employers cannot continue to shift costs to members as the sole tactic to reduce health benefit expenses. The industry must find ways to encourage employers to move beyond the latest benefit design trend to focus on strategies with the proven ability to manage costs and improve quality. These approaches will ensure that employers' pharmacy benefit management (PBM) programs are "customized" to better meet the demands of plan members and plan sponsors.

Plan Administration | Dental Plan

2012-01-16T01:11:00.000-08:00

The last item to be addressed is claims administration. The nature of dentistry and dental plan design suggests that claims administration is very important. While several years may lapse before an insured has occasion to file a medical claim, rarely does the year pass during which a family will not visit the dentist at least once. Therefore, claims administration capability is an extremely important consideration in selecting a plan carrier—and might very well be the most important consideration.

One key element of claims administration is "predetermination of benefits." This common plan feature requires the dentist to prepare a treatment plan that shows the work and cost before any services begin. This treatment plan generally is required only for nonemergency services and only if the cost is expected to exceed some specified level, such as $300. The carrier processes this information to determine exactly how much the dental plan will pay. Also, selected claims are referred to the carrier's dental consultants to assess the appropriateness of the recommended treatment. If there are any questions, the dental consultant discusses the treatment plan with the dentist prior to performing the services.

Predetermination is very important both in promoting better quality care and in reducing costs. These benefits are accomplished by spotting unnecessary expenses, treatments that cannot be expected to last, instances of coverage duplication, and charges higher than usual and customary before extensive and expensive work begins. Predetermination of benefits can be effective in reducing claim costs by as much as 5 percent. Predetermination also advises the covered individual of the exact amount of reimbursement under the plan prior to commencement of treatment.

Also important are alternate treatment provisions. These provisions enable the plan administrator either to approve the least costly, equally effective treatment option or to cover more expensive procedures only at the level of the less expensive alternative. Alternate treatment provisions, adopted by most plan sponsors, can reduce plan costs up to 5 percent.

Sponsor's Approach to Implementation | Dental Plan

2012-01-13T00:21:00.000-08:00

The last of the factors affecting plan costs is the sponsor's approach to implementation. Dental work, unlike medical care, lends itself to "sand-bagging" (i.e., deferral of needed treatment until after the plan's effective date). Everything else being equal, plans announced well in advance of the effective date tend to have poorer first-year experience than plans announced only shortly before the effective date. Advance knowledge of the deferred effective date easily can increase first-year costs from 10 percent to 20 percent or even more.

Employee contributions are another consideration. Dental plans, if offered on a contributory basis, may be prone to adverse selection. While there is evidence that the adverse selection is not as great as was once anticipated, many insurers continue to discourage contributory plans. Most insurance companies will underwrite dental benefits on a contributory basis, but some require certain adverse selection safeguards. Typical safeguards include the following:

Combining dental plan participation and contributions with medical plan participation.
Limiting enrollment to a single offering, thus preventing subsequent sign-ups or dropouts.
Requiring dental examinations before joining the plan and limiting or excluding treatment for conditions identified in the exam. The Health Insurance Portability and Accountability Act (HIPAA) limitations do not apply as long as the dental benefits are "limited in scope" and are available under a separate policy or rider.
Requiring participants to remain in the plan for a specified minimum time period before being eligible to drop coverage.

Characteristics of the Covered Group

2012-01-10T06:20:00.000-08:00

A second factor affecting the cost of the dental plan is the characteristics of the covered group. Important considerations include, but are not limited to, the following:

Age.
Gender.
Location.
Income level of the participants.
Occupation.

The increased incidence of high-cost dental procedures at older ages generally makes coverage of older groups more expensive. Average charges usually increase from about age 30. As one ages, the need for more expensive restorative services increases for those who need dental care.

Gender is another consideration. Women tend to have higher utilization rates than men. For a given age, costs among females are 10–15 percent higher than the costs among males. One study showed that women average 1.9 visits to dentists per year, compared with 1.7 for men. These differences may be attributable to a heightened sensitivity to personal appearance by women rather than to a higher need.

Charge levels, practice patterns, and the availability of dentists vary considerably by locale. Charge levels within the United States range anywhere from 75 percent to 135 percent of the national average, except for Alaska, California, and certain metropolitan areas. Differences exist in the frequency of use for certain procedures as well. There is evidence, for example, that more expensive procedures are performed relatively more often in Los Angeles than, say, in Philadelphia.

Another consideration is income. One study shows that dental care expenditures per participant were 5 percent to 30 percent higher for members of families with higher incomes. Generally, the higher the income, the greater the difference.

Essentially four reasons may account for income being a key factor. First, the higher the income level, the greater the likelihood the individual already has an established program of dental hygiene. Second, in many areas there is greater accessibility to dental care in high-income neighborhoods. Third, a greater tendency exists on the part of higher-income individuals to elect higher-cost procedures. Last, high-income people tend to use more expensive dentists.

Another important consideration is the occupation of the covered group. While difficult to explain, evidence suggests considerable variation between plans covering blue-collar workers and plans covering salaried or mixed groups. One possible explanation is differences in awareness and income levels. One insurer estimates that blue-collar employees are 15 percent to 25 percent less expensive to insure than white-collar employees.

Factors Affecting The Cost Of The Dental Plan

2011-12-30T08:38:00.000-08:00

A number of factors, including design of the plan, characteristics of the covered group, the employer's approach to plan implementation, and plan administration affect the cost of the dental plan.

Plan Design

Many issues must be addressed before a particular design that is sound and reflects the needs of the plan sponsor can be established. Included in this list are the type of plan, deductibles, coinsurance, plan maximums, treatment of preexisting conditions, whether covered services should be limited, and orthodontic coverage.

An employer's choice between scheduled and nonscheduled benefits requires a look at the employer's objectives. The advantages and disadvantages of scheduled versus nonscheduled plans, combination plans, and others have been described earlier in this chapter.

Deductibles may or may not be included as an integral part of the design of the plan. Deductibles usually are written on a lifetime or calendar-year basis, with the calendar-year approach by far the more common.

Numerous dental procedures involve very little expense. Therefore, the deductible eliminates frequent payments for small claims that can be readily budgeted. For example, a $50 deductible can eliminate as much as 10 percent of the number of claims. A deductible can effectively control the cost of claim administration.

However, evidence exists that early detection and treatment of dental problems will produce a lower level of claims over the long term. Many insurers feel the best way to promote early detection is to pay virtually all the cost of preventive and diagnostic services. Therefore, these services often are not subject to a deductible.

A few insurance companies are advocates of a lifetime deductible, designed to lessen the impact of accumulated dental neglect. It is particularly effective when the employer is confronted with a choice of (1) not covering preexisting conditions at all, (2) covering these conditions but being forced otherwise to cut back on the design of the plan, or (3) offering a lifetime deductible, the theory being, "If you'll spend X dollars to get your mouth into shape once and for all, we'll take care of a large part of your future dental needs."

Opponents of the lifetime deductible concept claim the following disadvantages:

A lifetime deductible promotes early overutilization by those anxious to take advantage of the benefits of the plan.
Once satisfied, lifetime deductibles are of no further value for the presently covered group.
The lifetime deductible introduces employee turnover as an important cost consideration of the plan.
If established at a level that will have a significant impact on claim costs and premium rates, a lifetime deductible may result in adverse employee reaction to the plan.

Most dental plans are being designed, either through construction of the schedule or the use of coinsurance, so that the patient pays a portion of the costs for all but preventive and diagnostic services. The intent is to reduce spending on optional dental care and to provide cost-effective dental practice. In addition, many believe that employees that participate financially in the plan make better use of it. Preventive and diagnostic expenses generally are reimbursed at 80 percent to 100 percent of the usual and customary charges. Full reimbursement is quite common.

The reimbursement level for restorative and replacement procedures generally is lower than that for preventive and diagnostic procedures. Restorations, and in some cases replacements, may be reimbursed at 70 percent to 85 percent. In other cases, the reimbursement level for replacements is lower than for restorative treatment.

Orthodontics, implantology (where covered), and occasionally major replacements, have the lowest reimbursement levels of all. In most instances, the plans reimburse no more than 50 percent to 60 percent of the usual and customary charges for these procedures.

Most dental plans include a plan maximum, written on a calendar-year basis, which is applicable to nonorthodontic expenses. Orthodontic and implantology expenses generally are subject to separate lifetime maximums. Also, in some instances, a separate lifetime maximum may apply to nonorthodontic expenses.

Unless established at a fairly low level, a lifetime maximum will have little or no impact on claim liability and serves only to further complicate design of the plan. Calendar-year maximums, though, encourage participants to seek less costly care and may help to spread out the impact of accumulated dental neglect over the early years of the plan. The typical calendar-year maximum is somewhere between $1,000 and $1,500. To put things in perspective: In 2003, only about 33 percent of people visiting a dentist spent from $300 to $999 annually, including insurance company payments, and just 23 percent spent $1,000 or more, including insurance company payments. Most claims are small (34 percent spent $100 or less), and therefore the maximum's impact on plan costs is minor.

Another major consideration is the treatment of preexisting conditions. The major concern is the expense associated with the replacement of teeth extracted prior to the date of coverage. Preexisting conditions are treated in a number of ways:

They may be excluded.
They may be treated as any other condition.
They may be covered on a limited basis (perhaps one-half of the normal reimbursement level) or subject to a lifetime maximum.

If treated as any other condition, the cost of the plan in the early years (nonorthodontic only) will be increased by about 5 percent to 7 percent.

Another plan design consideration is the range of procedures to be covered. In addition to orthodontics and implantology, other procedures occasionally excluded are surgical periodontics and temporomandibular joint (TMJ) dysfunction therapy. It is difficult to diagnose TMJ disorders, and many consider them a medical and not a dental condition. Claims are large, and the potential for abuse is significant.

Although rare, some plans cover only preventive and maintenance expenses. These plans are becoming more common in flexible benefit plans where employees often may pick either a preventive plan or one that is more comprehensive.

Orthodontic expenses, as noted, may be excluded. However, where these are covered, the plan design may include a separate deductible to discourage "shoppers." The cost of orthodontic diagnosis and models is about $300, whether or not treatment is undertaken. The inclusion of a separate orthodontic deductible eliminates reimbursement for these expenses. Also, orthodontic plan design typically includes both heavy coinsurance and limited maximums to guarantee patient involvement.

An indication of the sensitivity of dental plan costs to some of the plan design features discussed can be seen in the following illustration. Assume a nonscheduled base model plan with a $50 calendar-year deductible applicable to all expenses other than orthodontics. The reimbursement, or employer coinsurance, levels are as follows:

Diagnostic and preventive services (Type I): 100 percent.
Basic services, including anesthesia and basic restoration (Type II): 75 percent.
Major restoration, including oral surgery, endodontics, periodontics, and prosthodontics (Type III): 50 percent.
Orthodontics (Type IV): 50 percent.

There also is an annual benefit maximum of $1,500 for Types I, II, and III services and a lifetime maximum of $1,500 for orthodontics. Based on this base model plan, Table 1 shows the approximate premium sensitivity to changes in plan design. If two or more of the design changes shown in this table are considered together, an approximation of the resulting value may be obtained by multiplying the relative values of the respective changes.

Table 1: Model Dental Plan
Relative Value (in percent)
Base model plan	100%
Design Changes
Deductible
Remove $50 deductible	116
Lower to $25	108
Raise to $100	90
Benefit maximum (annual)
Lower from $1,500 to $1,000	95
Raise to $2,000	101
Coinsurance
Liberalize percent to:100—80—60—60^[*]	109
Tighten percent to:80—70—50—50^[*]	90
Orthodontics
Exclude	89
^[*] For Types I, II, III, and IV services, respectively.

The change in deductibles has a significant impact on cost, as much as a 10 percent reduction in cost to increase the deductible from $50 to $100. The change in benefit maximums has some impact, but it is minor. Coinsurance has a definite effect, especially changes in restoration, replacement, and orthodontic portions of the plan, all of which represent about 80 percent to 85 percent of the typical claim costs. Finally, the inclusion of orthodontics in the base plan is another item of fairly high cost.

Orthodontic Expenses | Dental Plan Design

2011-12-27T07:17:00.000-08:00

With possibly a few exceptions, orthodontic benefits never are written without other dental coverage. Nonetheless, orthodontic benefits present a number of design peculiarities that suggest this subject should be treated separately.

Orthodontic services, unlike nonorthodontic procedures, generally are rendered only once in an individual's lifetime; orthodontic problems are unlikely to recur. Orthodontic maximums, therefore, typically are expressed on a lifetime basis. Deductibles, which are applicable only to orthodontic services, also are often expressed on a lifetime basis. However, it is quite common for orthodontic benefits to be provided without deductibles, since a major purpose of the deductible—to eliminate small, nuisance-type claims—is of little consequence.

Because adult orthodontics generally are cosmetic and also because the best time for orthodontic work is during adolescence, many plans limit orthodontic coverage to persons under age 19. However, an increasing number of plans are including adult orthodontics as well, and many participants are taking advantage of this feature.

The coinsurance level for orthodontic expenses typically is 50 percent, but it varies widely depending on the reimbursement levels under other parts of the plan. It is common for the orthodontic reimbursement level to be the same as that for major restorative procedures.

Reflecting the nature of orthodontic work, and unlike virtually any other benefit, orthodontic benefits often are paid in installments instead of at the conclusion of the course of treatment. Because the program of treatment frequently extends over several years, it would be unreasonable to reimburse for the entire course of treatment at the end of the extended time. It would be equally unreasonable to pay for the entire course of treatment at its beginning.

Types of Plans | Dental Plan Design

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Combination Plans

This simply is a plan in which certain procedures are reimbursed on a scheduled basis, while others are reimbursed on a nonscheduled basis. In other words, it is a hybrid. While many variations exist, a common design in combination plans is to provide preventive and diagnostic coverage on a nonscheduled basis (i.e., a percentage of usual and customary, normally without a deductible). Procedures other than preventive and diagnostic are provided on a scheduled basis.

The principal advantage of a combination plan is that it provides a balance between (1) the need to emphasize preventive care, and (2) cost control. Procedures that traditionally are the most expensive are covered on a scheduled basis, and except where benefit levels are established by a collective bargaining agreement, the timing of schedule improvements is at the employer's discretion. Preventive and diagnostic expenses, however, adjust automatically, so the incentive for preventive care does not lose its effectiveness as dental care costs increase.

The combination approach shares many of the same disadvantages as the scheduled and unscheduled plans, at least for certain types of expenses. Benefit levels—for other than preventive and diagnostic expenses—must be evaluated periodically. Scheduled payments do not reimburse at uniform levels for geographically dispersed participants. And dentists may be influenced by the schedule allowances to adjust their charges. Also, actual plan payments for preventive and diagnostic expenses rarely are identified in advance. Finally, it can be said that the combination approach is more complex than either the scheduled or unscheduled alternatives.

Incentive Plans

This type, a second variation, promotes sound dental hygiene through increasing reimbursement levels. Incentive coinsurance provisions generally apply only to preventive and maintenance (i.e., minor restorative) procedures, with other procedures covered on either a scheduled or nonscheduled basis. Incentive plans are designed to encourage individuals to visit the dentist regularly, without the plan sponsor having to absorb the cost of any accumulated neglect. Such plans generally reimburse at one level during the first year, with coinsurance levels typically increasing from year to year only for those who obtained needed treatment in prior years. For example, the initial coinsurance level (i.e., the benefit paid by the plan) for preventive and maintenance expenses might be 60 percent, increasing to 70 percent, 80 percent and, finally, 90 percent on an annual basis as long as the individual visits the dentist regularly. If, in any one year, there is a failure to obtain the required level of care, the coinsurance percentage reverts back to its original level.

The incentive portion of an incentive plan may or may not be characterized by deductibles. When deductibles are included in these plans, it is not unusual for them to apply on a lifetime basis.

The incentive concept, on the one hand, has two major advantages. In theory, the design of the plan encourages regular dental care and reduces the incidence of more serious dental problems in the future. Also, these plans generally have lower first-year costs than most nonscheduled plans.

On the other hand, there are major disadvantages. First, an incentive plan can be complicated to explain and even more complicated to administer. Second, little evidence exists to suggest that the incentive approach is effective in promoting sound dental hygiene. Finally, this particular plan is vulnerable to misunderstanding. For example, what happens if the participant's dentist postpones the required treatment until the beginning of the next plan year?

Plans Providing Both Medical and Dental Coverage

The last of the variations is the plan that provides both medical and dental coverage. During the infancy of dental benefits, such plans were quite popular.

These plans generally are characterized by a common deductible amount that applies to the sum of both medical and dental expenses. Coinsurance levels may be identical, and sometimes the maximum applies to the combination of medical and dental expenses. However, recent design of these plans has made a distinction between dental and medical expenses so that each may have its own coinsurance provisions and maximums.

The advantages of this approach are the same as for the nonscheduled plan (i.e., uniform reimbursement levels, adjusts automatically to change, and relatively easy to understand). But this approach fails to recognize the difference between medicine and dentistry unless special provisions are made for dental benefits. It must be written with a medical carrier, whether or not this carrier is competent to handle both medical and dental protection; it makes it extremely difficult to separate and evaluate dental experience; and it shares the same disadvantages as the nonscheduled approach.

Nonscheduled Plans | Dental Plan Design

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Sometimes referred to as comprehensive plans, nonscheduled plans are written to cover some percentage of the "reasonable and customary" charges, or the charges most commonly made by dentists in the community. For any single procedure, the usual and customary charge typically is set at between the 75th and 90th percentiles depending on the administrator. (The trend is toward the lower number.) This means that the usual and customary charge level will cover the full cost of the procedure for 75 percent to 90 percent of the claims submitted in that geographical area.

Nonscheduled plans generally include a deductible, typically a calendar-year deductible of $50 or $75, and they reimburse at different levels for different classes of procedures. Preventive and diagnostic expenses typically are covered in full or at very high reimbursement levels. Reimbursement levels for other procedures usually are then scaled down from the preventive and diagnostic level, based on the design objectives of the employer.

There are two major advantages to nonscheduled plans:

Uniform reimbursement level. While the dollar payment may vary by area and dentist, the percent of the total cost reimbursed by the plan is uniform.
Adjusts automatically for change. The nonscheduled plan adjusts automatically, not only for inflation, but also for variations in the relative value of specific procedures.

This approach also has disadvantages. First, because benefit levels adjust automatically for increases in the cost of care, in periods of rapidly escalating prices cost control can be a problem. Second, once a plan is installed on this basis, the opportunities for modest benefit improvements, made primarily for employee-relations purposes are limited, at least relative to the scheduled approach. Third, except for claims for which predetermination of benefits is appropriate, it rarely is clear in advance what the specific payment for a particular service will be, either to the patient or the dentist.

Preferred provider benefits are usually provided on an unscheduled basis. Reimbursement for services provided, however, is based on an agreed-upon discounted charge level, rather than the reasonable and customary charge. Deductible, coinsurance, percentage copayment, and other benefit provisions are generally applied to the discounted charge level, not the reasonable and customary amount.

Other approaches are, for the most part, merely variations of the two basic plans. Included in this list are combination plans, incentive plans, and dental combined with major medical plans.

Scheduled Plans | Dental Plan Design

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Scheduled plans are categorized by a listing of fixed allowances by procedure. For example, the plan might pay $50 for a cleaning and $400 for root canal therapy. In addition, the scheduled plan may include deductibles and coinsurance (i.e., percentage cost-sharing provisions). Where deductibles are included in scheduled plans, amounts usually are small or, in some cases, required on a lifetime basis only.

Coinsurance provisions are extremely rare in scheduled plans since the benefits of coinsurance can be achieved through the construction of the schedule (i.e., the level of reimbursement for each procedure in the schedule can be set for specific reimbursement objectives). For example, if it is preferable to reimburse a higher percentage of the cost of preventive procedures than of other procedures, the schedule can be constructed to accomplish this goal.

There are three major advantages to scheduled plans:

Cost control. Benefit levels are fixed and therefore less susceptible to inflationary increases.
Uniform payments. In certain instances, it may be important to provide the same benefit regardless of regional cost differences. Collectively bargained plans occasionally may take this approach to ensure the "equal treatment" of all members.
Ease of understanding. It is clear to both the plan participant and the dentist how much is to be paid for each procedure.

In addition, scheduled plans sometimes are favored for employee-relations reasons. As the schedule is updated, improvements can be communicated to employees. If the updating occurs on a regular basis, this will be a periodic reminder to employees of the plan and its merits.

There also are disadvantages to scheduled plans. First, benefit levels, as well as internal relationships, must be examined periodically and changed when necessary to maintain reimbursement objectives. Second, where participants are dispersed geographically, plan reimbursement levels will vary according to the cost of dental care in a particular area unless multiple schedules are utilized. Third, if scheduled benefits are established at levels that are near the maximum of the reasonable and customary range, dentists who normally charge at below prevailing levels may be influenced to adjust their charges.

Services under the typical dental HMO are also provided on a scheduled basis—in a fashion. Since the contract between the participating dentist and the HMO generally specifies the basis on which the provider will be paid by the HMO and also fixes the amount that can be charged to the participant, the schedule furnished to participants typically identifies the amount the participant is required to pay rather than the amount the plan pays.

Covered Dental Expenses

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Virtually all dental problems fall into 10 professional treatment categories:

Diagnostic. Examination to determine the existence of oral disease or to evaluate the condition of the mouth. Included in this category would be such procedures as X-rays and routine oral examinations.
Preventive. Procedures to preserve and maintain dental health. Included in this category are topical fluoride applications, cleaning, space maintainers, and the like.
Restorative. Procedures for the repair and reconstruction of natural teeth, including the removal of dental decay and installation of fillings.
Endodontics. Treatment of dental-pulp disease and therapy within existing teeth. Root canal therapy is an example of this type of procedure.
Periodontics. Treatment of the gums and other supporting structures of the teeth, primarily for maintenance or improvement of the gums. Periodontal curettage and root planing are examples of periodontic procedures.
Oral Surgery. Tooth extraction and other surgery of the mouth and jaw.
Prosthodontics. Construction, replacement, and repair of missing teeth. Examples include onlays, crowns and bridges, which are fixed prostheses, and dentures and partials, which are removable prostheses.
Orthodontics. Correction of malocclusion and abnormal tooth position through repositioning of natural teeth.
Pedodontics. Treatment for children who do not have all their permanent teeth.
Implantology. Use of implants and related services (e.g., over-dentures, fixed prostheses attached to implants, etc.), to replace one or all missing teeth on an arch.

In addition to the recognition of treatment or services in most of these 10 areas, the typical dental plan also includes provision for palliative treatment (i.e., procedures to minimize pain, including anesthesia), emergency care, and consultation.

These 10 types of procedures usually are categorized into three, four, and sometime five general groupings for purposes of plan design. The first classification often includes both preventive and diagnostic expenses. The second general grouping includes all minor restorative procedures. The third broad grouping, often combined with the second, includes major restorative work (e.g., prosthodontics), endodontic and periodontic services, and oral surgery. A fourth separate classification covers orthodontic expenses. Although excluded under most plans, implantology services are usually covered under a separate fifth classification.

Pedodontic care generally falls into the first two groupings.

Providers of Dental Benefits | Dental Plan Design

2011-12-05T00:12:00.000-08:00

Providers of dental benefits generally can be separated into three categories: insurance companies, Blue Cross and Blue Shield organizations, and others, including state dental association plans (e.g., Delta plans); self-insured, self-administered plans; and group practice or HMO-type plans. Insurance companies and Blue Cross/Blue Shield plans cover the largest share of the population. However, enrollment in self-administered, self-insured plans; plans employing third-party administrators; dental association plans; and HMOs is in an upsurge.

The types of dental benefit plans resemble today's medical plans. There are three basic design structures: the fee-for-service indemnity or reimbursement approach, the preferred provider (PPO) approach, and the dental health maintenance organization.

Insurance company-administered dental benefits and most self-insured, self-administered plan benefits are provided on either an indemnity or preferred provider basis. Under the indemnity approach, expenses incurred by eligible individuals are submitted to the administrator, typically an insurer, for payment. If the expense is covered, the appropriate payment is calculated according to the provisions of the plan. The indemnity plan payment generally is made directly to the covered employee, unless assigned by the employee to the treating dentist.

Preferred provider benefits are payable directly to the treating dentist, generally according to a contract, which fixes the reimbursement level between the dentist and the plan. In most instances, this payment actually may be lower than what would be charged to a direct-pay or indemnity patient.

The dental benefits of both dental service corporations and Blue Cross/Blue Shield plans are generally provided on a preferred provider basis. The major differences between indemnity and preferred provider benefits relate to the roles of the provider and the covered individual. Under either approach, the plan sponsor normally has substantial latitude in determining who and what is to be covered and at what level.

Under the group practice or HMO-type arrangement, a prescribed range of dental services is provided to eligible participants, often in return for a prepaid, fixed, and uniform payment. Services are provided by dentists practicing in group practice clinics or by those in individual practice but affiliated for purposes of providing plan benefits to eligible participants. Some individuals eligible under these arrangements are covered through collectively bargained self-insurance benefit trusts. In these instances, trust fund payments are used either to reimburse dentists operating in group practice clinics or to pay the prescribed fixed per capita fee. Group practice HMO-type arrangements, which often have cost, quality assurance, and administrative advantages but more limited provider selection, generally offer little latitude in plan design. As a result, the balance of this chapter, since it is largely devoted to the issue of plan design, may have limited application to these types of arrangements.

Differences Between Medicine and Dentistry Drive Plan Design

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Medicine and dentistry have many differences, and sound dental plan design recognizes these. These differences include practice location, the nature of care, cost, and emphasis on prevention.

Location

The practice of the typical physician is hospital-based, while many dentists practice almost exclusively in individual offices. Partly because of these practice differences, physicians tend to associate with other physicians with greater frequency than dentists associate with other dentists. This isolation, along with the inherent differences in the nature of medical and dental care, tends to produce a greater variety of dental practice patterns than is the case in medicine. In addition, practicing in isolation does not afford the same opportunities for peer review and general quality control.

Nature of Care, Cost, and Prevention

Perhaps contributing more significantly to the differences in medicine and dentistry are the important differences between the nature of medical and dental care.

First and perhaps foremost, because of the importance of preventive dentistry, the need for dental care is almost universal to ensure sound oral hygiene. Many individuals sometimes require only preventive or no medical care for years. Individuals routinely visit their dentists for preventive dental care, but in medicine the patient typically visits a physician with certain symptoms—often pain or discomfort—and seeks relief.

Dental treatment, because of its emphasis on prevention, often is considered elective. Unless there is pain or trauma, dental care is sometimes postponed. The patient recognizes that life is not at risk and as a result has few reservations about postponing treatment. In fact, postponement may be preferable to some patients—perhaps because of an aversion to visiting the dentist, rooted many years in the past when dental technology was less developed.

Because major dental care is not life-threatening and time-critical, dentists' charges for major courses of treatment often are discussed in advance of the treatment when there is no pain or trauma. As with any number of other consumer decisions, the patient may opt to defer the treatment to a later time or spend the money elsewhere.

A second difference in the nature of care is that, while medical care is rarely cosmetic, dental care often is. A crown, for example, may be necessary to save a tooth, but it also may be used to improve the patient's appearance. Many people place orthodontics into the same category, although evidence exists that failure to obtain needed orthodontic care may result in problems ranging from major gum disease to temporomandibular joint (TMJ) disorders in later life.

A third major difference between the nature of medical and dental care is that dentistry often offers alternative procedures for treating disease and restoring teeth, many of which are equally effective. For example, a molar cavity might be treated by a two-surface gold onlay, which may cost 10 times as much as a simple amalgam filling. In these instances, the choice of the appropriate procedure is influenced by a number of factors, including the cost of the alternatives, the condition of the affected tooth and the teeth surrounding it, and the likelihood that a particular approach will be successful.

There are other significant differences in medical care and dentistry that will have an effect on plan design. These include the cost of the typical treatment and the emphasis on prevention.

Dental expenses generally are lower, more predictable, and budgetable. The average dental claim check is only about $139. Medical claims, on average, are much higher.

The last significant difference is the emphasis on prevention. The advantages of preventive dentistry are clearly documented. While certain medical diseases and injuries are self-healing, dental disease, once started, almost always gets progressively worse. Therefore, preventive care may be more productive in dentistry than in medicine. Certainly the value of preventive dentistry relative to its cost is acknowledged.

Evaluating Demand-Side Approaches

2011-11-24T03:00:00.000-08:00

Demand-side approaches to improving quality of care can be considered under the broad heading of "demand management." Demand management has been defined as "the support of individuals so that they may make rational health and medical decisions based on a consideration of benefits and risks." Viewed in this way, traditional health promotion and disease prevention can be regarded as quality of care-related demand management. Much of the attention received by demand management has been directed at controlling utilization and cost of health care. Yet, there is intuitive appeal to the concept of modifying consumer behavior to improve quality of care. There is also some research evidence to suggest such an approach can be effective.

It has long been apparent that providing preventive services is an important element of quality health care. The U.S. Preventive Services Task Force, a panel of medical and health experts appointed by HHS, has published guidelines that have set the standard for quality in preventive care since 1989. Since that time, the NCQA has incorporated measures of delivery of selected preventive services into its HEDIS measures of MCO performance. Clearly, employers can improve the quality of care received by their employees by increasing employee demand for these preventive services.

Research also suggests that consumer-directed decision support, in the form of interactive video, can be effective in improving the appropriateness of medical treatment. This approach, referred to as shared decision-making programs, has produced dramatic changes in patient preferences for treatment of benign prostatic hypertrophy (BPH) or benign enlargement of the prostate gland. Patients with BPH participating in early shared decision-making programs showed a 44 percent to 60 percent reduction in surgery rates, opting more frequently for "watchful waiting" as an alternative. These results suggest the tremendous potential for targeted and well-designed demand management programs to improve quality. For more information on shared decision-making programs contact the Foundation for Informed Medical Decision-Making, Hanover, NH, atwww.healthdialog.com.

Another approach attempting to modify consumer care-seeking behavior has been the dissemination of information about provider quality. This approach has been used by the Minnesota Health Data Institute, the Cleveland Health Quality Choice program, the Foundation for Accountability (FAACT), the Pennsylvania Health Care Cost Containment Council, and others. Schneider and Epstein studied the impact of this approach, as implemented by the Pennsylvania Health Care Cost Containment Council in its Consumer Guide to Coronary Artery Bypass Graft (CABG) surgery. The Guide provided CABG mortality ratings of all cardiac surgeons and hospitals in the state. A telephone survey of patients who had undergone CABG in one of four hospitals included in the Guide revealed that only 12 percent of patients were aware of the Guide, and fewer than 1 percent knew the correct rating of their surgeon or hospital and reported that it had a moderate or major impact on their selection of provider. The authors concluded: "Efforts to aid patient decision-making with performance reports are unlikely to succeed without a tailored and intensive program for dissemination and patient education."

Despite the proliferation of physician report cards, there are few studies indicating that they influence consumer behavior. In a survey of employees in firms participating in the Minneapolis-based Buyers Health Care Action Group, health care consumers reported they were using employer-provided information on satisfaction and service-quality for physicians. A more recent survey of individuals with employer-sponsored health benefits reported that patients remain largely passive consumers of physician services.

More general approaches to demand management have produced suggestive, though less well-documented results. One such approach is telephonic nurse counseling. These services offer telephone access to nurses to discuss health issues in general and answer clinical questions in particular. Vendors of these services purport to be effective in reducing costs and improving appropriateness of health care, and they appear to have convinced a growing number of employers and health plans.

Telephonic nurse case management is also being targeted to patients with specific medical conditions, such as congestive heart failure, diabetes, and asthma. A variety of organizations offer this type of service, including pharmacy benefit management firms, MCOs, hospitals, and others. This approach appears to hold promise for improving compliance with state-of-the-art treatment through improved self-care and patient-provider communication.

The explosive growth of the Internet and its widespread use in the arena of health, suggests that it may be a medium that can contribute to health care quality improvement. Yet, its growth and use have raised a number of new quality-related issues. One study of Internet-derived information on clinical questions found that:

Eighty-nine percent of retrieved pages were not applicable to the question that prompted the search.
Fewer than 1 percent of pages consisted of original research or systematic reviews.
Sixty-nine percent of pages did not indicate an author.
Only 1 percent of pages provided information on financial or other conflicts of interest.
Fewer than 18 percent of pages gave the date they were posted or most recently updated.

While the Internet represents a tool with great promise for health care quality improvement, consumers, purchasers and providers should employ the same rigor in evaluating its application as we do for other quality improvement interventions.

The U.S. Department of Health and Human Services, Agency for Health Care Research and Quality has useful resources for consumer decision-making about health care quality. These resources and internet links can be found at www.ahcpr.gov. Another source—NCQA—has developed a suite of tools for employers to assist employees in accessing information on quality of care and using the information to make more informed patient choices. HealthChoices^TM offers an Internet portal, data on quality ratings, custom report cards, and other employee communication tools. These tools can be found at the NCQA web site at www.ncqa.org.

Demand management represents a wide variety of concepts and products with potential application to quality improvement. The most cost-effective of these are likely to be focused on well-defined, measurable target behaviors, and to include education and skill-building, monitoring, and reinforcement of target behaviors. Effective integration of such demand-management programs with supply-management programs will likely bring about the greatest impact on quality improvement.

Evaluating Supply-Side Approaches

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The resources required to significantly change provider behavior, whether at the level of the physician, hospital, or MCO, make it unlikely that relatively small purchasers of health care (e.g., individuals and small businesses) acting alone will be successful in driving this approach to quality improvement. However, by banding together in purchasing or policy making, a supply-side quality improvement agenda can be advanced. Business coalitions on health care have proliferated throughout the United States, most with a focus on controlling costs. Many, however, also have addressed issues of quality of care, with some effect. In Michigan, for example, the Southwest Michigan Healthcare Coalition championed the adoption of a uniform hospital database for analyzing severity of illness, health care outcomes, and cost. The information derived and published from the database has been used to identify deficiencies in quality and to inform and monitor quality improvements in area hospitals. The coalition is also active in promoting the concept of a statewide uniform provider database.

Providing feedback on hospital and medical staff performance, with encouragement to initiate quality improvement activities, can produce significant results. This approach was applied by Medicare in its Cooperative Cardiovascular Project, yielding improvements in the use of state-of-theart care for acute myocardial infarction and reducing mortality for this condition.

Large employers and purchasing coalitions can use quality data to selectively contract with providers. A survey of business coalitions found that 35 percent directly contract with providers, and 20 percent contract with "centers of excellence" for high-cost and/or high-risk conditions or procedures. The value of such contracts may be enhanced by incorporating pay-for-performance provisions. JCAHO has published principles that are instructive in designing pay-for-performance programs. These principles can be found atwww.jcaho.org.

While guidelines can be a useful tool in quality improvement, a number of concerns have been raised about the ways in which guidelines are currently developed and implemented. A study of clinical practice guidelines found that fully half of those published did not adhere to established methodological standards.

For information on business coalition activity in your area, contact the National Business Coalition on Health at www.nbch.org.

Larger businesses and health care purchasing cooperatives may have the ability to influence quality of care more directly through their managed care purchasing decisions. By increasing the numbers of covered lives at stake in a managed care bid process, large employers and purchasing cooperatives can generally enhance the responsiveness of MCOs to the quality evaluation described above. This can help ensure the selection of an MCO with superior quality. Ensuring that the MCO will maintain or improve quality of care, however, may require the purchaser to take additional steps.

When contracting with an MCO, the following approaches to promoting CQI are recommended:

Identify key deficiencies in the MCO's QA/CQI and stipulate that they be remedied in a specified reasonable period. Failure to remedy deficiencies in the agreed-upon period should result in financial penalties to the MCO. In a self-insured, administrative-services-only arrangement, this penalty may be a significant portion of the MCO's administrative fee (e.g., 10 percent). In a fully insured arrangement, the penalty may be cost sharing by the MCO in noninsured, employer health-related costs (e.g., worksite health promotion/disease prevention).
Specify reliable and valid measures to be used to track MCO quality over the life of the contract. Ideally, these will be measures already tracked by the MCO and will include appropriateness of care, excellence of care, and satisfaction. It may be necessary to stipulate that the MCO adopt new measures, or to hire an independent organization to do the MCO quality measurement.
Require periodic reporting of the above quality measures and track the MCO's performance. Arrange to meet with key MCO staff to review the reports. Financial penalties and rewards should be specified in the contract for failing to meet or exceeding agreed-upon targets for improved performance, respectively.

By monitoring MCO performance in routine reports, providing feedback in periodic meetings, and reinforcing CQI with financial rewards and penalties, employers can continue to enhance the value of their health care expenditures over the life of an MCO contract. This approach has been taken by the Pacific Business Group on Health in negotiating more than two dozen performance guarantees with 13 California HMOs. Of more than $8 million at risk for meeting performance targets, nearly $2 million was refunded for sub-par performance. Eight of 13 plans missed their targets in the area of childhood immunization. Most plans met or exceeded their targets in such areas as satisfaction, cesarean section rates, mammography, Pap smear, and prenatal care.

Evaluating Managed Care Organization Quality

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One of the great potential advantages of purchasing health care through a managed care organization is the cost-effective ongoing quality assurance and continuous quality improvement that these plans can provide. The question for the employer/purchaser of an MCO is how to evaluate the quality of its supplier's QA/CQI programs. One approach to this question is to look for accreditation by an independent organization that has evaluated the quality of the MCO. Today, there are two major accrediting organizations for MCOs: the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) and the National Committee for Quality Assurance (NCQA).

The NCQA is the most experienced of the MCO accrediting organizations. It has reviewed a majority of MCOs in the United States. The NCQA accreditation process involves a review of MCO quality-related systems, including quality improvement, processes for reviewing and authorizing medical care, quality of provider network, and members' rights and responsibilities. Documentation of these processes provided by the MCO are analyzed, and a site survey is conducted involving both physician and administrative reviewers.

In addition to its process-oriented assessments, the NCQA has developed the Health Plan Employer Data and Information Set (HEDIS®) to help standardize the measurement and reporting of health plan performance. HEDIS measures have become the basis of performance measures produced by many health plans and purchasing coalitions.HEDIS has measures applicable to commercial, Medicaid, and Medicare plans. In the area of effectiveness of care, the measures include such items as breast cancer screening, controlling high blood pressure, and follow-up after hospitalization for mental illness. In the area of access/availability of care, measures include getting needed care and getting care quickly. In the area of satisfaction, HEDIS incorporates the Consumer Assessment of Health Plans (CAHPS) instrument—a reliable and valid survey and reporting kit developed by a consortium of Harvard Medical School, the RAND Corporation, and the Research Triangle Institute under the sponsorship of the Agency for Health Care Policy and Research.

Based upon these reviews, and MCO performance on HEDIS and CAHPS, the MCO is granted one of the following levels of accreditation status:

Excellent: Demonstrated performance that meets or exceeds NCQA requirements for consumer protection and quality improvement (QI), and HEDIS results among the highest scoring plans nationally or regionally.
Commendable: Demonstrated performance that meets or exceeds NCQA requirements for consumer protection and QI.
Accredited: Performance meeting most of NCQA's requirements for consumer protection and QI.
Provisional: Compliance with some, but not all, of NCQA's consumer protection and QI requirements.
Denied: Failure to meet NCQA requirements for consumer protection and QI requirements
Suspended: NCQA accreditation for a plan has been withdrawn to investigate and implement corrective action
Under Review: Accreditation is under review at the request of the plan
Discretionary Review: NCQA is assessing the appropriateness of a plan's current accreditation status.

NCQA has a similar process for accreditation of PPO plans based upon assessments of access, service, and qualified providers. PPO accreditation levels are Full, One-Year, Provisional, and Denied.

The performance of health plans can be compared using accreditation level and HEDIS measures. Individual plan performance and performance benchmarks can be accessed through NCQA's Quality Compass (see www.ncqa.org). NCQA has also created an economic model for projecting the comparative performance of health plans. The Quality Dividend Calculator^TM projects cost savings that an individual employer can expect from choosing a high quality MCO. Projections are based upon how health care quality as measured by HEDIS reduces absenteeism and increases productivity among employees. The calculator is also available through the NCQA web site. It should be noted that not all health plans collect and publish HEDIS data, and although NCQA audits HEDIS data, the data are collected and analyzed by the health plans themselves, with the potential for bias that is inherent in this approach.

The approach of the Joint Commission on Accreditation of Healthcare Organizations to accrediting MCOs is comparable to that of the NCQA and results in assignment of an MCO to one of the following categories of accreditation: provisional accreditation, accreditation with commendation, accreditation with or without recommendations, conditional accreditation, or nonaccreditation.

In assessing health plan quality of care, it would be worthwhile to ask the following questions:

Has your MCO applied for accreditation from either NCQA or the Joint Commission on Accreditation of Healthcare Organizations?
If so, when was your most recent review, and what category of accreditation did your MCO receive?
Will the MCO provide a summary of the findings of the accreditation process?

A list of health plans reviewed by NCQA for accreditation is available on-line at http://www.ncqa.org. While reviewing the results of these accreditation processes can be informative, the accreditation organizations explicitly warn that they do not warranty any third parties (e.g., employers) regarding the quality of care of an MCO. In addition, many MCOs have not yet undergone accreditation. Therefore, whenever an employer or employee is purchasing MCO services, it would be advisable to do some additional evaluation, including contacting your state departments of insurance and/or public health, reviewing some minimal documentation related to MCO quality, and making a site visit.

State governments generally have some regulatory authority over MCOs operating within their borders. This regulatory authority may reside with the department of public health, the department of insurance, or some combination of these. A call to one or both of these agencies in your state, asking for information about the status of a particular MCO, can be informative. If the MCO of interest is an HMO, you may want to ask for a copy of the HMO's annual report, which must be filed with the state department of insurance.

Requesting and reviewing the following information from the MCO also can be helpful:

Credentialing criteria/processes for network physicians, hospitals, and ancillary providers (e.g., laboratory, X-ray, home health agencies): Do these criteria and processes include those mentioned above under physician and hospital quality? Are provider credentials verified by the MCO, or do they accept a provider's self-report? How frequently are providers recredentialed? Does the recredentialing process include routine, systematic consideration of member complaints, member satisfaction, and other quality indicators?
A copy of the most recent quality assurance, quality management, or CQI plan and annual report (individual provider and patient identifiers can be removed to protect confidentiality): Does the plan include reliable and valid measures and standards of appropriateness of care, excellence in care, and satisfaction with care as described above? Are providers educated about these measures and standards? Are performance measures documented and routinely fed back to providers? Is meaningful reinforcement and support provided for performance improvement? Are there credible, specific documented examples of performance improvement over the preceding year?
Routine provider quality profiles (i.e., sample reports on provider performance routinely analyzed by the MCO): How reliable, valid, and useful to quality improvement are the data contained in the reports? To what extent has the quality performance monitoring described in the QA plan been incorporated into MCO reporting systems?
Reimbursement formula for physicians in the MCO: Are there substantial financial incentives for physicians to withhold necessary care? Conversely, are there substantial financial incentives for physicians to provide quality care? (It has been this author's observation that MCOs providing such financial incentives are more likely to have reliable and valid measures of physician quality and systems for monitoring and feedback of these measures.)
Preventive care programs offered and participation rates: What preventive care programs does the MCO offer, at what location, and with what frequency? What member cost sharing, if any, is required? What are the participation and success rates for these programs?
Plan-wide measures of quality: Will the MCO provide the most recent report of performance using HEDIS measures? Did it use survey instruments recommended in HEDIS for assessing member satisfaction and health status? If not, how did it ensure the reliability and validity of the instruments? What were the response rates to these surveys?

An additional step that can be immensely helpful in assessing the quality of an MCO is to conduct a brief site visit to "kick the tires." In this author's experience, it is not uncommon to come away from such a visit with an entirely different assessment of MCO quality than is conveyed in written material from the organization. Consultants with some knowledge of managed care can be helpful but are not necessary. For a site visit to be most helpful, the following guidelines are recommended:

Allow four to eight hours for the visit.
Try to limit the time devoted to marketing and formal presentations.
Arrange to meet key staff, including the medical director and the heads of member services, quality assurance, utilization management, and finance: What is their relevant training and experience? Are they credible and involved? What is their level of commitment?
Devote the most time on site to direct observation and questioning of MCO operations staff, and listening to staff on the telephone in member services, claims administration, and utilization management: What is their relevant training and experience? What is their level of commitment? What is the quality of their customer service? Do they document members' complaints, concerns, and questions, and follow up? Do you see signs of a pervasive CQI program with posted performance standards and measures?
Discuss quality-related information provided prior to the site visit (see above). What are the processes for collection and quality control of data? What were the most successful improvement initiatives in the preceding year? Review minutes of the most recent quality assurance committee meetings.
Assess the philosophy of the MCO: Is it a good fit with your own and that of your organization? Is the MCO interested in you as a customer, your quality concerns, and your business needs?

Patient, member, and/or physician confidentiality should not be a barrier to conducting a site visit as long as reviewers are willing to sign confidentiality agreements.

For larger employers, all of the above elements can be incorporated into a formal competitive bid process involving multiple MCOs. A nationwide effort, spearheaded by the National Business Coalition on Health and Watson Wyatt Worldwide, has been joined to gather MCO responses to a standardized Request For Information (RFI). Information on this initiative, named eValue8, is available at www.evalue8.org.

Other resources to consider when evaluating MCO quality include the following:

National Committee for Quality Assurance (NCQA), Washington, DC. www.ncqa.org
America's Health Insurance Plans (AHIP), Washington, DC. www.ahip.org
National Coalition on Health Care, Washington, DC. www.nchc.org
Institute for Health Care Improvement (IHI), Roxbury, MA. www.ihi.org
Centers for Medicare & Medicaid Services, Baltimore, MD. www.cms.hhs.gov
Agency for Healthcare Research and Quality (AHRQ), Rockville, MD. www.ahrq.gov
Foundation for Accountability, Portland, OR. www.facct.org

Evaluating MCO quality, like physician and hospital quality assessment, can be a time-consuming process. Yet, this may be a relatively small investment of time when weighed against the resources spent by employer and employee on health care and the risks posed by the purchase of poor-quality health care.

Evaluating Hospital Quality

2011-11-12T03:33:00.000-08:00

Some of the same approaches to quality assessment described for physicians can be applied to hospitals. A useful starting place for assessing a hospital's quality is its accreditation. Accreditations to look for include these:

Current, unrestricted license from the state.
Current, unrestricted, nonprobationary accreditation from the Centers for Medicare & Medicaid Services for participation in Medicare and Medicaid.
Current, unrestricted, nonprobationary accreditation from the Joint Commission on Accreditation of Healthcare Organizations.

The Joint Commission on Accreditation of Healthcare Organizations has an extensive process for assessing hospital quality with an on-site survey. Beginning January 1, 1995, the Joint Commission made available summaries of the results of its new surveys. These summaries, however, are brief and offer only general information. In addition, the Joint Commission's surveys were at one time criticized by the Inspector General of the U.S. Department of Health and Human Services as "unlikely to detect patterns, systems, or incidents of substandard care." Among the improvements implemented by the Joint Commission in an effort to address these concerns are the inclusion of outcomes measures in its review process, such as acute myocardial infarction, congestive heart failure, and complications of surgery.

General information on hospital facilities, personnel, and services are published annually by the American Hospital Association. This information can sometimes be helpful in making inferences about quality for particular conditions or procedures. For example, if you are having a high-risk delivery, you may wish to choose a hospital that has an advanced level nursery, including a dedicated neonatal intensive care unit. Or if you are planning a percutaneous transluminal coronary angioplasty, you might be well-advised to choose a hospital that offers high-quality emergency coronary artery bypass graft surgery, in the event it may be required.

The Centers for Medicare & Medicaid Services makes data publicly available on hospital performance through its Medicare Provider Analysis and Review (MEDPAR) files. In some states (e.g., Pennsylvania and New York), data are publicly available on hospital performance for specific conditions and procedures. These data can include the volume of cases, outcomes (mortality and complication rates), average length of stay, and average cost per case. Whether or not such data are publicly available for the condition or procedure of interest to you, you may wish to consider approaching the hospital administration directly with the following questions:

What is the hospital's volume of admissions for the condition/procedure of interest?
What is the complication/mortality rate for the condition/ procedure as performed at the hospital?
What is the success rate for the treatment/procedure at the hospital?
What is the average length of stay for the condition/procedure?
What are the results of your patient satisfaction survey for the most recent period (including response rate)?
Does the hospital participate in any managed care networks (e.g., HMO, PPO, or POS plans)?
Has the hospital been designated as a center of excellence for the condition/procedure by a health plan?

The final question will apply to only a small number of conditions/ procedures and hospitals. Nevertheless, one can find designated regional and national centers of excellence for high-risk, high-cost conditions/ procedures, such as organ transplantation, open-heart surgery, and burns. The National Institutes of Health also designates research centers for selected conditions. One might postulate that these centers are more likely to provide quality care for these conditions because of their successful research programs.

One variable to consider in assessing hospital quality is whether it is a major teaching hospital (defined as more than 0.097 teaching residents per hospital bed set up and staffed for patient care). Such hospitals have been found to have a lower risk of death than other hospitals, when evaluated for mortality due to hip fracture, stroke, coronary heart disease, and congestive heart failure.

The question pertaining to volume of patients treated with a particular condition or procedure can be extremely useful as a surrogate measure of quality. More than 20 years of research and dozens of published studies have linked better outcomes to hospitals and doctors delivering higher volumes of particular health care services. Research has confirmed the link of high volume to better outcomes in acute myocardial infarction (hospitals with more than 6.3 Medicare patients with acute myocardial infarction per week on average), major cancer surgery (hospitals with more than one Medicare patient per year on average for a given procedure), and carotid endarterectomy, surgery removing blockages from the carotid arteries to prevent stroke, (hospitals with more than 62 Medicare patients undergoing the procedure per year).

In interpreting hospital satisfaction survey results, it is important to consider the validity of the survey instrument and response rates. Ask whether the survey is based on a standard instrument that has been evaluated for its reliability and validity. If the survey has a response rate of less than 50 percent, the results should be considered suspect. Research suggests that nonrespondents to such surveys have lower levels of satisfaction than respondents.

HealthGrades.com Inc. is an organization that provides hospital quality rating information on the world wide web (www.healthgrades.com). Much of the HealthGrades quality rating system relies on publicly available Medicare data. A study of the ability of HealthGrades ratings to discriminate between individual hospitals in the processes and outcomes of their care was published by a team of researchers at Yale University. They found that HealthGrades ratings could accurately identify groups of hospitals that performed better in quality than other hospital groups. HealthGrades ratings did poorly, however, when it came to discriminating between two individual hospitals on their processes of care or mortality performance. The Leapfrog Group is an organization of large purchasers of health care that strives to create big leaps in health care safety, quality and value. The group recognizes hospitals conforming to their standards, publishing their performance on a number of measures of safety, quality and value on their website at www.leapfroggroup.org.

Additional resources to consider when evaluating hospital quality include the following:

American Hospital Association, Chicago. www.aha.org
Centers for Medicare & Medicaid Services, Baltimore, MD. www.cms.hhs.gov
Joint Commission on Accreditation of Healthcare Organizations, Oakbrook Terrace, IL. www.jcaho.org

Assessing hospital quality, both initially and on an ongoing basis, can be a labor-intensive process. As in the case of physician quality assessment, this kind of assessment and more should be obtainable with economies of scale through a quality health plan offering a provider network

Evaluating Physician Quality

2011-11-07T00:07:00.000-08:00

Most assessments of physician quality begin with the physician's training, experience, and professional certifications. The literature on the link between these factors and quality is limited. Nevertheless, these characteristics can serve as a starting point for evaluating a physician's level of knowledge and skills, which we might postulate would be related to the appropriateness and excellence of his or her practices. In addition, a review of physician credentials might reveal that small proportion of physicians for whom glaring quality-of-care problems have been identified. Characteristics to consider in this assessment include the following:

Current unrestricted license to practice in your state.
Current unrestricted license to dispense prescription drugs from the state and the Federal Drug Enforcement Administration.
Certification by a specialty board recognized by the American Board of Medical Specialties.
Current active, unrestricted hospital staff privileges.

The latter of these criteria may not apply to physicians who choose not to see patients in a hospital setting. It may be difficult, however, to determine if a physician's privileges were dropped as a result of his or her own choice or because of a quality-driven decision by the hospital. The advantages of using a physician with hospital privileges include having continuity of both inpatient and outpatient care and having the benefit of the hospital's QA and/or CQI program apply to your physician. This latter benefit includes hospital access to the National Practitioner Data Bank, a national database on physician quality problems that is not accessible to the public.

Conspicuously absent from the above list is malpractice experience. There are questions about the extent to which malpractice experience is a reflection of physician quality. On the other hand, research indicates that any history of malpractice claims, paid or unpaid, is associated with an increased likelihood of future claims. Therefore, it may be worth evaluating a physician's malpractice claim history, if only to reduce your risk of being involved in a future malpractice claim.

A physician's credentials can be evaluated directly by employees, by benefit managers, or by health plans. The following are some of the resources for employees and benefit managers to consider in conducting such an evaluation:

American Board of Medical Specialties. www.abms.org
American Medical Association, www.ama-assn.org
HealthGrades, www.healthgrades.com
Federation of State Medical Boards, www.docinfo.org

The state physician licensing board is a good place to look for answers to questions about the state licensing status of individual physicians. Most states have such information available on-line. A review of information available from state licensing boards has been assembled by Public Citizen Health Research Group and can be found at www.citizen. org/hrg. Some malpractice claim information on individual physicians may be available from the court clerk in the jurisdiction(s) where the physician has practiced.

The quality-related issues described above pertain to all physicians, regardless of their specialty. When assessing physician quality as it relates to specific diagnoses or conditions, additional factors should be considered. For example, physicians being evaluated for their quality in performing a particular surgical procedure should be asked such questions as these:

What kind of advanced training and/or certification has the physician had in performing the procedure?
What is the annual volume of the procedure performed by the physician?
What is the complication/mortality rate for the procedure as performed by the physician?
What is the success rate for the procedure as performed by the physician?
What is the average length of hospital stay for the procedure?
What is the average length of disability following the procedure?

The applicability of these and other questions will vary by specialty, condition, and procedure. Generally speaking, however, the quality of a physician's performance, as in the example of percutaneous transluminal coronary angioplasty described above, is related to the frequency with which he or she performs the procedure. For some conditions and procedures, there may be regional or national research centers or centers of excellence. Helpful resources in learning about such centers, and obtaining consumer information about various health issues include the following:

National Cancer Institute, Cancer Information Service. Tel: 800-4-CANCER
American Cancer Society local affiliates
American Heart Association local affiliates
American Lung Association local affiliates
National Institute of Mental Health. Tel: 800-421-4211

The National Committee for Quality Assurance, in collaboration with the American Heart Association, American Stroke Association and American Diabetes Association, has developed programs to recognize physicians demonstrating that they provide high quality care for patients with selected common chronic conditions, including diabetes mellitus, cardiac conditions, and stroke. Information about these programs and a database of recognized physicians is available at www.ncqa.org. These recognitions are being tied to rewards in four metropolitan areas through Bridges to Excellence—a coalition of employers, physicians, health plans and patients. Coalition members agree to financial incentives to be paid to physicians for providing high quality care as demonstrated through the physician recognition programs described above. These programs are part of a movement toward pay-for-performance in health care, that can be expected to grow in breadth and depth in the years to come. The Centers for Medicare & Medicaid Services, for example, is conducting the Physician Group Practice demonstration combining Medicare fee-for-service payments with a bonus pool to reward improvements in the management of care and services.

If your physician participates in any managed care programs, he or she may receive periodic performance report cards from the MCO and may be willing to share the results with you. Some of these results may be published. For example, the Pacific Business Group on Health has published performance data on medical groups that make up California health plans (though the data are not broken out by individual physician). The Pennsylvania Health Care Cost Containment Council published heart attack mortality data for physician groups. While "report cards" on physicians promise to be increasingly available, they should be interpreted with caution. A number of potential pitfalls with such reports have been identified. For example, multiple physicians may participate in a patient's care, making it difficult to assign primary responsibility for the patient's outcome to any one physician or medical group. In a study of physician report cards for diabetes care, Hofer and colleagues found that they were unable to reliably detect true practice differences among physicians at three practice sites. They also found that physicians could easily "game" the reporting system by avoiding or deselecting patients with high prior cost or with poor adherence or poor response to treatment.

Finally, there is a large body of research suggesting that physician– patient communication is related to the quality and outcome of care. Perhaps the best way to evaluate a physician's communication skills is to do so firsthand, scheduling an office visit to get to know a physician you may not already be familiar with. If you make such a visit, it may be helpful to prepare both general questions and questions particular to your circumstances in advance of your appointment.

Investigating even this minimum set of criteria for physician quality care requires a significant investment of time and resources. And such assessments should be repeated periodically to ensure that there has been no change in physician status. The extensive nature of this undertaking points to one advantage of purchasing medical care from a health plan that includes a network of providers. The various aspects of physician quality described above and others can be consistently and rigorously assessed by the plan on an ongoing basis, with associated economies of scale.

Is Quality Of Care Important?

2011-11-03T04:44:00.000-07:00

Quality of health care is an important issue for employer and employee purchasers for a number of reasons. First, there are widespread documented errors in the delivery of health care services. Second, there is substantial evidence for extensive overuse and underuse of various health care services. Third, poor quality of care erodes the value of health care purchases. Fourth, failure to exercise due diligence in evaluating quality of care may impact an employer's liability for a bad outcome of care. And, finally, lack of attention to quality of care can have negative consequences for an employer in employee relations and relationships with providers and others in the local business community.

Errors in the Delivery of Health Care Services

More than a decade ago, the Harvard Medical Practice Study found that injuries caused by medical management occurred in 3.7 percent of hospital admissions in New York State. Among these injuries were drug complications, wound infections, and technical complications. Fully 27.6 percent of these injuries were the result of negligence, and 13.6 percent of the injuries led to death. Extrapolating these results to all U.S. hospital admissions in 1997, as many as 98,000 Americans may have died because of errors during their hospitalization in a single year. Other studies have confirmed the order of magnitude of this estimate for injuries during hospital admissions. Yet, we must assume this is a gross understatement of the impact of medical errors, given that it does not include injuries because of outpatient care.

The Institute of Medicine focused attention on the impact of errors in medicine through the work of its Quality of Health Care in America Project. Its first published report—To Err is Human: Building a Safer Health System—notes: "More people die in a given year as a result of medical errors than from motor vehicle accidents (43,458), breast cancer (42,297), or AIDS (16,516)." The group estimated that preventable adverse events resulted in total national costs of between $17 billion and $29 billion, over one-half of which are direct health care costs. More recently, a study of 20 percent of all Medicare hospital admissions in the year 2000 found that patient safety errors resulted in excess lengths of stay ranging from 1.34 days for accidental puncture or laceration to 10.89 days for post-operative sepsis. The excess charges associated with these errors were $8,271 and $57,727, respectively. Excess mortality was also associated with these patient safety errors, from 2.16 percent for accidental puncture or laceration to more than 21 percent for postoperative sepsis. Clearly, medical errors have a significant negative impact on employer health care costs, as well as employee health outcomes and productivity. These findings beg the question of what employers and individuals can do to help minimize the likelihood and the impact of medical errors in the health care services they purchase and receive a question to be taken up later

Overuse of Health Care Services

Investigators have long noted dramatic geographic variations in the use of health care services, without apparent differences in the health of the populations being served. For example, one study showed that Medicare hospitalization rates were 60 percent higher in Boston than in New Haven, yet Medicare mortality rates did not differ between the two cities. A recent study of Medicare end-of-life spending found that beneficiaries in higher spending regions of the United States received approximately 60 percent more care than beneficiaries in lower spending regions, without finding consistent differences between these groups in quality of care or access to care.

There is a large and growing body of research on the extent of medical care that is inappropriate or unnecessary. Studies of appropriateness of care have found that as much as 32 percent of selected procedures are inappropriate. An excellent example of research supporting this estimate is the series of studies commissioned by the State of New York Cardiac Advisory Committee on the appropriateness of various cardiac procedures in New York State. Evaluation of coronary angiographies (inserting a catheter into coronary arteries and injecting contrast material) found that 20 percent were of uncertain appropriateness and 4 percent were clearly inappropriate. When percutaneous transluminal coronary angioplasty (PTCA) (using a balloon catheter to open blood flow through a coronary artery) was evaluated, 38 percent were of uncertain appropriateness and 4 percent were clearly inappropriate. At some hospitals, as many as 57 percent of PTCAs were either inappropriate or of uncertain appropriateness. In a companion study, inappropriate and uncertain use of coronary artery bypass graft surgery was found to be 2.4 percent and 7 percent, respectively. Though these rates may appear relatively low, they have significant health implications, given that the average mortality rate for patients undergoing surgery in the study was 2 percent, and the complication rate was 17 percent.

These are but a few examples of research suggesting that inappropriate and unnecessary medical care has substantial negative consequences both for employee health and the cost of health care.

Underuse of Health Care Services

Another deficiency identified in health care quality is the failure to apply services known to be beneficial in improving health. In a study of patients hospitalized for acute myocardial infarction (heart attack), Marciniak and colleagues found that between 11 percent and 68 percent of patients nationwide did not receive particular standard treatments for this condition, despite being "ideal candidates" for therapies. An earlier study found that internists and family physicians were less knowledgeable about, and less inclined to practice, state-of-the-art advances in treatment of acute myocardial infarction than were cardiologists.

Similarly, a study of patients with diabetes treated in primary care offices found that between 55 percent and 84 percent of these patients did not receive optimal services recommended for their condition according to national guidelines in use. Optimal use of services varied by location of practice by as much as 238 percent. A recent study of 439 indicators of quality of care for 30 conditions and preventive care among a random sample of adults in 12 U.S. metropolitan areas found that only 54.9 percent received recommended care. Quality of care varied by medical condition, from a high of 78.7 percent of recommended care received for senile cataract to a low of 10.5 percent of recommended care for alcohol dependence.

Some studies suggest that physicians are more likely to underuse health care services when treating women, particularly black women. Research by Roger, et al. found that women with unstable angina (chest pain from blockages in arteries supplying blood to heart muscle) were 27 percent less likely to undergo non-invasive cardiac tests, and a startling 72 percent less likely to receive invasive cardiac procedures. Even within Medicare managed care health plans, black plan members were found to receive poorer quality of care than white plan members, specifically for eye examinations for patients with diabetes, for beta-blocker use after heart attack, and for follow up to hospitalization for mental illness.

There is also evidence to suggest that underuse varies by type of health plan. For example, a study found that Medicare patients with joint pain who were enrolled in HMOs reported less improvement in symptoms than similar fee-for-service Medicare beneficiaries. Yet, other research suggests no significant difference between quality of care in HMO and fee-for-service environments in such areas as hypertension and diabetes.

Failure to apply services known to be beneficial in improving health is a substantial and widespread problem. Clearly, this type of quality problem has negative implications for employee health and productivity. The implications for cost of care are more variable, because some of the underused services may result in a net increase in direct medical care costs, despite being effective in preventing negative and costly health outcomes. Nevertheless, in purchasing health care for ourselves or for employees, these are services we would want to receive as part of state-of-the-art quality in health care delivery. Whether one looks at quality from the perspective of individual providers, practices, or health plans, these landmark studies shed new light on deficiencies in quality of care, and suggest how appropriate to health care is the maxim: "Let the buyer beware."

Employer Liability

One reason employers should be concerned about health care quality is their potential liability for managed care programs they may purchase. The evidence for payer liability for managed care stems from two legal cases: Wickline v. State of California and Wilson v. Blue Cross of Southern California. In Wickline, the court concluded that a third-party payer can be legally liable for negligence in utilization review decisions. In Wilson the court determined that a third-party payer cannot escape liability for negligent utilization review based on the argument that the treating physician bears all legal responsibility for a hospital discharge decision.

In Fox v. Health Net, the estate of Nelene Fox was awarded damages from a managed care organization for its refusal to cover bone marrow transplantation and high-dose chemotherapy for advanced breast cancer. The total jury award was $89 million, $77 million of which was punitive damages. Some observers believed that the impact of this case on the liability of employers and MCOs was limited by the Employee Retirement Income Security Act (ERISA).

In the case of Goodrich v. Aetna U.S. Healthcare, a jury awarded the widow of David Goodrich $120 million for delays in approving coverage of high-dose chemotherapy and bone marrow transplantation for a form of stomach cancer. Although ERISA did not apply to this case because Goodrich was covered under a state-sponsored health plan, the size of the award and legislative action in 10 states to limit ERISA protection raised concerns about the exposure of MCOs and employer-sponsored health plans to litigation and resulting damage awards. More recent developments have mitigated these concerns. A 2003 study of the impact of state managed care liability statutes found that these statutes had produced no appreciable increase in liability exposure. In a 2004 ruling by the U.S. Supreme Court in Aetna v. Davila, the court essentially voided these statutes and found that employer-sponsored health plans cannot be held liable for damages for denial of coverage. While these developments represent a shift toward reduced liability of third-party payers for poor quality, negligent managed care processes, it nevertheless seems prudent for employers to address the issue of quality of care in their medical benefits plans as a matter of risk management.

Employee, Provider, and Community Relations

When medical benefits decisions are made without substantive consideration of quality of care, employees can take away the message that their health and well-being are not valued by their employer. This message can undermine one of the key objectives of offering medical benefits: to promote the recruitment and retention of employees. Incorporating quality assurance and continuous quality improvement (CQI) processes into medical benefits decisions, and effectively communicating these processes to employees, can help avoid the employee relations pitfall of employee dissatisfaction with their medical benefits.

Disillusioned providers also can undermine the extent to which employees value their medical benefits. Employee opinion may be influenced by negative assessments from physicians about the quality of an employer's health plan. In addition, physician performance may be adversely affected by a poor quality health plan, with consequences for employee health and productivity.

Failing to demonstrate a commitment to quality assurance and CQI in health care decisions can leave employers vulnerable to the charge of neglecting corporate social responsibility as well. This can have obvious negative implications for community relations.

Value of Medical Care Expenditures

The value of health care services can be defined as the health benefit per dollar spent. Chassin and the National Roundtable on Health Care Quality observed that errors in the delivery of health care services, as well as overuse of services, can reduce the value of health care services by both decreasing the numerator and increasing the denominator of this equation. Conversely, by reducing errors and overuse, the value of health care services can be increased. (The impact of underuse on value is more variable, as it tends to move the numerator and denominator in the same direction.) Most businesses would not view as prudent the practice of purchasing from suppliers based upon price alone. When viewing health plans and providers as you would view other suppliers to your business, considerations of quality and service, as well as cost, become essential components of the value equation.

Competing Societal Views

2011-10-31T02:42:00.000-07:00

While most professionals dealing with consumer-driven health care focus on the elements of the plan, to some degree the views on consumer-driven health care plans are influenced by societal and/or political views. Proponents of the concept view the plans as giving plan participants "ownership/individual responsibility" over their own health treatments, spending, and choice of providers and to some degree for their own health status. Skeptics of consumer-driven health care fear this approach will reduce the health insurance risk pool, as healthy individuals move to high deductible policies, leaving the very sick and those with chronic illnesses in a shrinking risk pool and paying higher and higher premiums.

Supporters of consumer-driven health care believe this approach provides individuals with greater independence in the purchase of health care and provider selection. It also enables them to use the providers of their choice regardless of their employer or employment status. Certainly, consumer-driven health care can be a way to break the health care link between employer and employee. Individuals do not need an employer to set up an HSA. The individual only needs to have a high deductible health plan—which may or may not be offered by the employer. Skeptics of the plans see this elimination of employer "paternalism" as dangerous to the employee and to the community. These skeptics fear that without employer "paternalism" and its considerable role in restraining health care cost increases and improving health care quality through their greater bargaining power, health care will become even more expensive and less effective.

What both the proponents and the skeptics seem to ignore are two facts about employers and consumer-driven health care. First, poor health among employees causing both absenteeism and "presenteeism" has significant real dollar costs for employers. Consequently, employers have both an economic interest in keeping employees healthy and on the job and in controlling the cost of the health care necessary to accomplish that. The employer's role in helping employees find the most efficient providers and procedures is part of that cost control effort.

Second, the major obstacle to enrolling substantial numbers of individuals into consumer-driven health care could well be, as one case study found, that the plans must be carefully explained and supported. At least to date, employers are the most effective source of providing the initial introduction, explanation, and coaching necessary to fully maximize the benefits of consumer-driven health care. Individuals are likely to discount or dismiss information offered directly from health plans and insurers as simply a "sales pitch." Government has rarely successfully taken on the mission of pushing a specific insurance plan that government was not financing, nor is there an effective agency in existence today to take on that role. Even if such an agency existed, would it be trusted?

Will We Actively Accept Consumer-Driven Health Care?

Clearly the limited experience to date with consumer-driven health care cannot tell us whether this approach can materially contain costs and improve health or is simply the "new" new thing to cure the problem of escalating health care costs. Certainly, with an estimated 98,000 lives per year lost to medical "mistakes," a significant percentage of medical care determined to be unnecessary or ineffective, and an epidemic of obesity and its accompanying diseases, the sheer waste from not becoming better health care consumers seems abundantly obvious.

But will individuals actually take responsibility and make the effort to drive their health decisions? The experiences with smoking and drunk driving in the last two decades suggest publicity and a change in social mores actually can achieve better individual health behavior. Public campaigns driven by determined individuals as well as organizations but with relatively little involvement from government, considerably reduced smoking and its resulting diseases and reduced drunk driving and its deaths and injuries. These campaigns certainly did not end these health hazards, nor did they lead to a net reduction in health costs, but they did reduce the hazards and slow the rate of cost increases. On balance, consumer-driven health care is not a silver bullet for rampaging health costs, but it could be a shot in the arm for containing health care cost increases and improving health.

Three-Year Study of One Employer with CDHC, PPO, and HMO

2011-10-28T05:41:00.000-07:00

In a study of one self-insured employer with 20,000 employees, the researchers compared almost 3,700 "contracts" (each single employee or family coverage was considered a contract) for plan years 2000, 2001, and 2002, covering groups enrolled in an HMO or PPO for all three years and a group enrolled in an HMO or PPO in 2000 and then enrolled in a consumer-driven health care plan in 2001 and 2002. The researchers found those enrolling in the consumer-driven health care plan tended to be wealthier than enrollees in the other groups, with little difference in age and in number of enrollees among the groups.

The consumer-driven health care group began the period with fewer significant medical diagnoses than the PPO or HMO groups. Yet the consumer-driven group's diagnoses by the end of the year equaled or exceeded the HMO group, but remained less than that of the PPO group. Over the period, the consumer-driven health care enrollees had lower total expenditures than the PPO enrollees, but more than the HMO enrollees. Total hospital and doctor costs were significantly higher for the consumer-driven health care group than the HMO or PPO group, but drug costs for the consumer-driven group were significantly lower. The consumer-driven health care group also experienced a significant increase in hospital admissions, even though that plan provided no-cost preventive services.

This study's researchers feared the consumer-driven health care plan design skewed enrollee behavior because there was no copayment after the deductible was met each year. The researchers theorized this plan design may have encouraged the consumer-driven health care members to consume the medical accounts, but warned the data were too limited to support such a conclusion. The researchers cautioned their study had three limitations—it covered only one employer, some consumer-driven health care participants may have had "pent up" demand for health services, and the data systems of the three plan alternatives were not consistent, which could have skewed reporting of usage.

On balance these studies provide fairly divergent outcomes, making it impossible to conclude that the plans are guaranteed to succeed or to fail. But certainly, the plan designs indicate that plan design is important, regardless of the consumer-driven focus.

Start-Up Experiences of Three Different Employers | Consumer-Driven Health Care

2011-10-25T05:00:00.000-07:00

One set of researchers looked at just one year's experience for three employers—a nation-wide financial services firm, a national health care provider, and a small manufacturer with about 2,600 employees.

The Small Employer Financial Services Firm

This employer offered the consumer-driven health care plan as one of several options. The decision to offer a consumer-driven health care plan was driven primarily by employee concerns about the availability of physicians, rather than employer concern about cost. While focus groups prior to enrollment indicated employees reacted positively to the consumer-driven health care plan concept, enrollment in the first year was only two percent, although in the next year's enrollment period that doubled. But the plan design of a $1,500 deductible and only a $1,000 personal care account certainly could have discouraged many participants.

In fact, the researchers found employees with salaries of $80,000 or more were more than twice as likely to enroll in the consumer-driven health care plan as other employees. Men and those with family coverage also were slightly more likely to enroll in the plan. Only 46 percent of enrollees used all of their personal care accounts and those who left the plan after only one year used less of their accounts (and hence forfeited their right to rollover the balance into the next year) than those who elected to renew consumer-driven health care coverage. Almost all of those enrolled in the consumer-driven plan re-enrolled the next year.

The Small Manufacturer

The manufacturer, a self-described paternalistic employer, was motivated to adopt consumer-driven health care by cost considerations, but did not want to simply shift costs to employees. While the employer preferred to use the consumer-driven health care as a total replacement, concern about provider access led the employer to offer the new plan along with the existing PPO coverage at one of its two major locations. The consumer-driven health care plan garnered a 12 percent enrollment. Benefit personnel stated that getting employees to understand how the consumer-driven health care plan worked was the major obstacle to enrollment. Consumer-driven health care enrollee demographics did not differ from those enrolled in the preferred provider organization (PPO). Nevertheless, 2002 health expenses for the consumer driven health care enrollees were only $1,492 compared to $2,837 for PPO enrollees—about half of the PPO enrollees' cost. For the next plan year, the company planned to provide a consumer-driven health care plan as a total replacement at its second major site.

The National Health Insurer

One of the nation's largest health insurers used its employees in one of its major locations as an experimental group to launch its consumer-driven health care product. The next year the employer offered the product to all employees. The employer was driven by cost concerns and believed it had exhausted all means of cost control other than involving the consumers in cost control. In the first year, the employer began offering five plan options, including two consumer-driven health care plans, one of which was the lowest cost health plan option. The employer contributed a fixed amount for all employees regardless of the plan chosen, which was less than the full cost of any plan option. Although personal accounts such as "health reimbursement accounts" that permit annual rollovers of unused account balances are generally considered to be a necessary incentive in the consumer-driven health care model, this employer's consumer-driven health care plan did not permit such rollovers. Only 6 percent of employees enrolled in the consumer-driven health care option during the first year.

In the second year coverage was offered to all employees, and the cost of the nonconsumer-driven health care plans was more than $50 per month greater than the consumer-driven health care plan. At that point enrollment in the consumer-driven plan increased to 21 percent for those outside the major location.

In terms of risk selection, there were no age differences in those enrolling in consumer-driven health care and other plans. But as seen with other early plans, enrollees tended to be higher-earning workers. Also, those who worked in actuarial, financial, and other risk decision roles were more likely to enroll than other employees. The consumer-driven health care option had remarkably favorable selection, with its enrollees having prior year total claims of only about 50 percent of nonenrollees' claims. The consumer-driven health care enrollees at the end of their first year in the plan showed a 30 percent decline in their claims from the prior year, even with their already low rate of claims. There was no substantial year-end spending in the accounts. Just 31 percent of consumer-driven option enrollees spent their entire accounts. Only 8 percent of those enrollees exceeded the plan deductible.

Who's Using It? | Consumer-Driven Health Care

2011-10-22T02:25:00.000-07:00

While the consumer-driven health care concept has gained a recognizable benefits presence within the last three years, health providers have been working on these plans since 1998. By 2001 major insurers had joined the market (see Figure 1). The Federal Employees Health Benefits Plan (FEHBP) inclusion of several consumer-driven plans with HRAs in the open enrollment for the 2004 plan year and with HSAs in 2005 may provide a considerable boost for consumer-driven health care plans among other employers. With thousands of federal employees across the nation and with a reputation as an excellent plan with reasonable premiums and multiple options in most locations, the FEHBP may serve to "legitimize" the concept even among cautious health care purchasers.

Figure 1: Consumer-Driven Health Care Vendor Timeline

Viewed from late 2004, less than two years after the authorization for HRAs and only a few months after federal legislation was enacted boosting HSAs and high deductible plans, data are just beginning to be available. While these data offer some positive trends for consumer-driven health care plans, the data are not extensive enough to form a definitive analysis of their long-term effects. For example, most employers had already established and communicated their 2005 health benefit options before the tax-advantaged HSAs and requirements for the accompanying high deductible health plans were enacted into law.

Surveys conducted prior to the 2004 law's enactment of favorable consumer-driven health care features revealed considerable employer interest in consumer-driven health care, albeit with some skepticism. The broad-based Kaiser Family Foundation/Health Research and Educational Trust (KFF/HRET) 2004 Annual Survey of Employer Health Benefits shows 10 percent of employers offering a high deductible health plan option to employees, up from 5 percent in 2003. However, only 3.5 percent of those firms offer a personal or health savings account option along with the high deductible health plan.

According to Deloitte Consulting's 2004 Consumer-Driven Health Care Survey, 19 percent of respondents already offer some type of consumer-driven health plan option, up from 11 percent in 2003. The 2004 KFF/HRET Survey also indicates 27 percent of employers say it is at least somewhat likely they will offer workers a high deductible health plan with a personal or health savings account option in the next two years. That appears consistent with results from Deloitte Consulting's survey, in which 29 percent of respondents said they are currently reviewing consumer-driven options and may offer one in the near future, and 14 percent report they will definitely be offering such a plan in 2005 or 2006. While the KFF/HRET Survey found larger companies are much more likely than smaller companies to be thinking about implementing a consumer-driven health plan option in the near future, this may be because 60 percent of firms with three to 199 workers, reported they were either "not too familiar" or "not at all familiar" with consumer-driven health care. As more consumer-driven health care plan products are marketed to small employers, those employers may embrace the concept.

Health Savings Accounts

2011-10-19T08:54:00.001-07:00

In 1997, Congress waded timidly into tax-favored medical savings accounts (MSAs) that could be carried forward from year to year, if coupled with a high deductible health insurance policy. No other health coverage could be offered by the employer. But these Archer MSAs, named for their chief proponent in the Congress, House Ways and Means Committee Chair Bill Archer, were limited to small employers. Congress also originally limited the number of MSAs to no more than 600,000 accounts in the entire country and imposed numerous other limitations. In 2000, the restriction on the number of MSAs was dropped, but in fact the number of MSAs never approached even the legally permitted number of accounts.

Proponents of consumer-driven health care plans were able to move forward using the IRS-authorized HRAs, but these accounts had the considerable disadvantage of permitting only employer funding. Employees who needed more tax-favored money to pay out-of-pocket expenses could not supplement the employer account with pretax dollars. Consumer-driven health care proponents were finally able to convince Congress that an account funded by either employers or employees or both on essentially a tax-free basis could truly provide a boost to consumer-driven health care and increase participants' active involvement because the participant would see the account as "my money" not the employers. Congress adopted HSAs as part of the Medicare Modernization Act (MMA) and the IRS has moved quickly to provide additional guidance on their usage.

Because HSAs offer much more flexibility in funding and encourage participant savings, most employers are likely to want to use an HSA, rather than an HRA or a traditional health care flexible spending account offered under a cafeteria plan. Unlike HRAs and health FSAs, which by law can be coupled with any type of health plan or insurance or stand alone as the only employer health benefit, an HSA can be used only if it is coupled with a high deductible plan that meets specific criteria.

The high deductible plan's annual deductible must be at least $1,000 for individual coverage or $2,000 for family coverage. Out-of-pocket limits, excluding premiums, cannot exceed $5,000 for an individual policy or $10,000 for a family policy in 2004. (This amount will be adjusted for inflation annually.) These out-of-pocket limits could provide for higher deductibles than the $1,000 and $2,000 deductible limit, so long as the combined deductible and copay limits do not exceed the out-of-pocket limits.

Table 1 compares the features of the HSAs (first made available in 2004), the IRS-authorized HRAs, and the long-established health FSAs.

Table 1: Comparisons of Health Care Savings, Reimbursement, and Flexible Spending Accounts
	Health Savings Accounts (HSA) (Medicare Act of 2003)	Health Reimbursement Arrangements (HRA)	Cafeteria Plan Health Flexible Spending Arrangements (FSA)
Eligibility Requirements
Who Can Set Up the Account	Individuals or employers, if the account holder is covered by a "high deductible plan" and no other health insurance, except specifically listed coverages.	Only employers.	Only employers.
Funding
Who Can Contribute	Employers and employees.	Only employers.	Employers and employees.
Carry Over of Unused Balances from Year to Year	Yes. No annual or lifetime limits on the amount that can be carried over or accumulated.	Yes. In employer plans, employers may impose annual or lifetime carryover limits.	No.
Transfer of Account Balances	HSAs can accept rollovers from other HSAs and Archer MSAs.	There is no specific mechanism for HRA rollovers, although employers could agree by contract to do so.	No.
Permissible Reimbursements
General Coverage	HSAs can pay for "qualified medical expenses" incurred by the account holder, his or her spouse, and dependents.	Same as HSAs.	Same as HSAs.
Health Insurance Premiums	HSAs generally may not pay other health insurance premiums on a tax-favored basis, except certain premiums paid by. COBRA beneficiaries; individuals receiving federal or state unemployment benefits; and Medicare-eligible individuals (The exception for Medicare-eligible individuals does not apply to Medigap premiums.)	Yes.	No.
Payment for Long-Term Care Insurance Premiums	Yes.	Yes.	No.
Payment for Long-Term Care Services	Yes.	No.	No.
Over-the-Counter Drugs	HSAs may pay if the expense is a qualified medical expense.	Same.	Same.
Tax Treatment
Tax Status of Employer Contributions	No federal income or employment taxes on amount up to funding limits (see below).	Not subject to federal income or employment taxes.	Same as HRAs.
Tax Status of Contributions by Individual	Subject to funding limits, contributions are deductible even if the individual does not itemize deductions Employers can allow employees to make pretax, contributions using IRC §125 cafeteria plans. No deduction for individuals enrolled in Medicare Part A or B or dependents claimed on another's tax return.	Employees cannot contribute to HRAs.	Employee contributions to health FSAs generally are made on a pretax, salary-reduction basis and are not subject to employment taxes.
Tax-Favored Funding Limits	In 2004, the lesser of: The annual deductible under the individual's high deductible health plan, or $2,600 ($5,150 if family coverage), indexed for inflation each year, reduced by the individual's contributions (if any) to Archer MSAs for the year. The funding limit will be increased for individuals age 55 and older by $500 in 2004 and increased by $100 per year to a maximum of $1,000 in 2009.	No limits.(Employers may impose a limit.)	No limits. Employers may set plan-specific limits.(The fact that participants forfeit unused account balances each year imposes de facto limit and the FSA plan document may impose a limit.)
Earnings on Accounts	Earnings generally are not taxable, but may be subject to the IRC § 511 unrelated business income tax rules.	Employers generally maintain HRAs as notional accounts so there are no earnings.	Same as HRAs.
Distributions	No income tax on medical reimbursements or on timely distributions of excess contributions. All other distributions are subject to federal income tax plus a 10% penalty tax, but no penalty tax is applied to distributions after the account beneficiary becomes Medicare eligible, disabled, or dies.	Only to reimburse qualified medical expenses.	Only to reimburse qualified medical expenses.
Employer Compliance Issues
ERISA	Not ERISA plans, even if funded by employers, unless (1) ERISA generally applies to the employer, and (2) the employer limits the employees' ability to move their funds to other HSAs beyond restrictions imposed by IRC; restricts the use of HSA funds beyond restrictions permitted by tax law; makes or influences HSA fund investment decisions; represents the HSAs are ERISA plans; or receives any payment or compensation in connection with HSAs.	HRAs sponsored by employers subject to ERISA generally are ERISA plans.	Same as HRAs.
Nondiscrimination Rules	Comparable employer HSA contributions to all comparable employees participating in an HSA for each coverage period; HSA contributions made through a cafeteria plan are subject to the cafeteria nondiscrimination rules, not the general HSA comparability rules.	HRAs are subject to the general nondiscrimination requirements for self-insured medical expense reimbursement plans.	Health FSAs are subject to both the general nondiscrimination requirements for self-insured medical expense reimbursement plans, and to the cafeteria plan nondiscrimination rules.
COBRA Health Continuation	Not subject to COBRA.	COBRA continuation coverage rules apply.	Same as HRAs.
Trust Requirement	HSA assets must be held in a trust or custodial account.	No trust required.	Same as HRAs.
Vesting Requirement	HSA beneficiaries must be 100% vested in their account balances at all times.	No vesting requirements.	Same as HRAs.

Tax-Favored High Deductible Health Plan Requirements

2011-10-09T08:52:00.000-07:00

A high deductible health plan, generally defined as one having a deductible of at least $1,000 for individual coverage and $2,000 for family coverage, provides part of the incentive for the employee to be a wise consumer of health care. The individual will have to pay at least this deductible amount either from the "health account" or out-of-pocket before the plan will begin to pay for health expenses. This high deductible policy is the basic tool for engaging the individual as an active "consumer," ideally making an informed decision as to whether treatment may be advisable and then shopping for the most efficient provider to deliver that treatment. "Efficient" cannot be a proxy for "cheapest." The decision must weigh both cost and quality of the outcome.

High deductible health plans could be self-insured by the employer or purchased through state regulated insurance companies. These health plans could offer first-dollar coverage for preventive care. Generally, a high deductible health plan participant cannot be covered by any other health insurance plan except for certain "permitted coverages." Permitted coverage includes coverage for dental, vision, specified diseases, and per diem hospital reimbursements, as well as payments for health care from disability or auto insurance.

Note that the high deductible plan does not have to be offered by or paid for by the employer. Individuals could purchase these plans independently. And under current tax law, the employer could reimburse the individual for the coverage on a tax-free basis and could contribute to the individual's HSA. Such individual purchases, reimbursed by the employer, may be especially attractive to small businesses and independent contractors. Much depends on how the consumer-driven health care plan market grows.

Individually Controlled Account for Health Costs

A key element of consumer-driven health care includes a "personal account" under the control of the individual. This account can be used for health care expenses, including copayments, deductibles, health care items, or services not covered by the plan. These accounts can be structured in several ways and go by various names. However, to take full advantage of favorable tax treatment, most of these accounts will fall under one of three legally recognized accounts:

health flexible spending arrangement and/or account (health FSAs);
health reimbursement arrangements (HRAs); and
health savings accounts (HSAs).

Cafeteria Plan Health FSAs

Health FSAs have been popular since the mid-1970s and usually operate as part of a "cafeteria plan," as defined under the federal tax code, and so named because these plans allow an employer to offer employees a selection of various benefits. Health FSAs are funded on a pretax basis by the employer or the employee annually in advance of the coming plan year. Amounts contributed to FSAs also are not subject to FICA taxes, adding another level of savings for both the employer and the employee. The big drawback with FSAs is the "use-it-or-lose-it" rule. Health FSAs do not allow unused balances to carry over from year to year. This "use-it-or-lose-it" feature of FSAs has long been recognized—and criticized—as punishing the "thrifty" employee and encouraging unnecessary health care spending.

Health Reimbursement Arrangements

By early 2002, the Internal Revenue Service (IRS) and its parent agency, the U.S. Department of Treasury, were besieged with insurance companies seeking guidance on the tax treatment of a high deductible health insurance product that would be coupled with an annually funded health care account in which the unused balances would be carried over from year to year. These plans and accounts met with a sympathetic view, perhaps because the IRS realized the insurance market was going to offer them with or without IRS guidance. And as health care costs began to escalate again after a few years of relatively modest growth, the accounts seemed to make sense.

The IRS ruled that health reimbursement arrangements (HRAs) funded solely by the employer and permitting unused amounts to be carried over from year to year, would qualify as health benefits exempt from federal income tax. But the IRS specifically prohibited the use of employee contributions, including arrangements that in effect would be financed with employee money.

Presumed Requirements for Success | Consumer-Driven Health Care

2011-09-27T09:44:00.000-07:00

Consumer-driven health care must engage and inform the individual on the issues of health care costs by providing information on health care costs, quality, and outcomes, so that individuals can escape the notion that more expensive health care is better care. Consumer-driven health care relies on several presumptions necessary for its success:

The individual will shop and use health care more carefully when he or she has a greater financial "investment" in that care—and shares in the savings from that shopping and use.
Once the individual has the health information on the most efficient and least intrusive methods of treatment, no matter who is paying the bill, the patient will choose the least invasive treatment from the highest quality provider with the best outcomes history.
Accurate quality measures and information sources are being developed and available which make this choice easier.
These improved sources of information and better health care quality measures are readily available and accessible today through health information technology systems and continue to evolve.

To achieve these goals, proponents of consumer-driven health care believe the employer through the health plan must:

educate employees as to the true cost of medical services and their role in managing health care spending,
hold the employee more responsible for medical purchase decisions through innovative plan designs with built-in incentives,
provide clinical and financial information to enable employees to be true health care consumers, and
provide proactive clinical management and coaching to optimize provider efficiencies and courses of treatment.

Proponents of consumer-driven health care believe as health care consumers become more financially responsible for the real cost of health care services, both demand and total health care spending will stabilize—and perhaps even decrease.

Elements of Consumer-Driven Health Care

2011-09-24T00:13:00.000-07:00

At its most basic level, consumer-driven health care is a variation of the oldest "insurance," which was designed to cover only catastrophic losses and to leave the burden of minor losses on the individual; and, when medical care is needed, selecting the best and lowest cost health care providers.

Consumer-driven health care plans come in various forms. Some simply consist of "tiered" network providers or tiered services. Others literally can permit the insured to design the entire plan, choosing the level of deductibles, copayments, and services covered. The premium is based on those choices. The employer contributes a stipulated dollar amount for the premium and the employee pays the remainder for the plan that he or she designed.

Most consumer-driven health care plans typically combine several of the following elements:

a high deductible health insurance plan,
a health account that can be carried over from year to year to cover minor health expenses and/or expenses not covered by the health "insurance,"
free or very low-cost preventive care,
information sources and tools both to educate the individual on health issues and to find the highest quality health care providers at the lowest cost,
a conveniently accessible health "coach" or "consultant" to help plan participants obtain and use existing health information, answer questions about the individual's health issues, and provide guidance on use, choice, and interaction with health care providers, and
in cases of serious chronic conditions or illnesses, a proactive medical professional who may contact the patient on a regular basis and act as liaison and coordinator among the patient and his or her medical providers.

To date, most consumer-driven health care plan participants are in employer-sponsored health benefit programs. The critical features of these plans are designed to educate employees as to the true cost of medical services and their role in managing health care spending. The plans use innovative plan design with built-in incentives to give the employee freedom in medical purchasing decisions and hold the employee more financially responsible for those decisions. But, importantly, these plans provide clinical and financial information enabling employees to be true health care consumers and to shop for the best "deal." Most also provide proactive clinical management and coaching to optimize provider efficiencies and courses of treatment.

As health care consumers become financially responsible for more of the real cost of health care services and receive more information on treatments available, outcomes, and the quality of the health care provider, proponents of consumer-driven health care plans believe these plans will motivate employees to purchase more efficient and effective health care. This motivation will then reduce both demand and long-term health expense.

E-Health Development Stages

2011-09-20T02:21:00.000-07:00

Managed health care is an excellent industry for capitalizing on the benefits of e-commerce, the collective aspects of which are referred to as e-health. The development of e-health capabilities for managed health care companies falls broadly into the following stages:

Quality web page awareness is the simplest stage in development, with web page development now readily available through business and consumer software applications. Virtually all health plans have at least a basic web page, with company information and product portfolio information. While the basic web page may allow hyper links to other Web sites, most information is static and no transactional capabilities or data inquiry are allowed.
Building basic interaction capabilities with constituents, which includes members, providers, and plan sponsors. Virtually all national and many regional/local health plans and carriers have varying abilities to provide e-mail communication and to access detailed databases for information retrieval. However, these interactions tend to be limited to specific functions, such as accessing on-line provider directories or pulling down health plan information.
Building self-service capabilities for constituents marks a critical leap in the use of Internet technology since it requires real-time transactional competence combined with the ability to coordinate data from various information systems. This stage is the biggest growth area for health care plans in the 2000–2002 time period, as they increase their ability to offer on-line enrollment, referrals, and claim submission. While this stage will greatly improve the administrative quality of plan operations, most transactions are still "stove-pipe," with the constituent interacting in a specific function.
Transformation into seamless integrated operations is the ultimate stage in e-health development for health plans, wherein all transactions are real-time and span end-to-end across different operations, without interruption. Cross-functional electronic capabilities will enable specific business areas and systems (e.g., claims, plan eligibility) to interact simultaneously to serve the customer. In addition to further improving administrative capabilities, this stage holds significant potential for accelerating a patient's access to proper treatment, such as in the integration of information needed for effective disease management programs.

The Benefits of E-Health Development

At the center of the e-health evolution is the health plan member, who is the ultimate consumer of medical services as a patient. Eligibility data, enrollment data, claims data, treatment data, payment data all converge on the member/patient. Members are becoming more self-sufficient as they become more empowered with usable information, which in turn helps them maximize the value of their health plans. For members, the benefits of e-health include:

Maintaining personal health and family eligibility information;
Selection of a primary care physician as well as being able to inquire about other types of providers;
Checking on claim status, family eligibility, and flexible-spending account reimbursements;
Accessing health plan information such as the summary plan description; and
Searching general health care information about specific illnesses or general health topics.

Empowered and satisfied members reduce the administrative burden on plan sponsors. With e-health tools to speed up and improve operational duties, the plan sponsor can concentrate more on tailoring its benefit programs to best fit the needs of its employees. For plan sponsors, the benefits of e-health transactions include:

Plan set-up and maintenance, which can review for state benefit requirements and proper underwriting of benefit plans;
On-line member enrollment, which can provide immediate notification of enrollment errors and provide for direct production of member ID cards; and
On-line summary plan description, booklet, and certificate of coverage editing and production.

Similarly, with reduced manual intervention and paperwork, medical providers can return to practicing medicine and focusing on the best medical solutions for their patients. For providers, e-health benefits include:

Ability to submit claims electronically;
Checking patient plan benefits and eligibility;
Maintaining patient rosters for each type of health plan; and,
Receiving reimbursements electronically.

The E-Mergence of E-Health

2011-09-17T04:44:00.000-07:00

Perhaps no single nonclinical factor holds greater promise in fostering the continued evolution of health care delivery and financing in the United States than the explosive growth of "e-health," which uses the Internet and Web-based technology to dramatically enhance communication and information transfer among various health care constituents.

Information technology has been vitally important to the health insurance industry for decades. In fact, the insurance industry was one of the earliest, broad-scale users of mainframe data systems for record keeping and claims processing. Today, few health plans could operate effectively without fully automated eligibility, billing, claims and medical management systems.

However, the advent of the Internet has dramatically changed business operations throughout the country, in virtually every industry. The impact in health care is monumental, with the ability to greatly expand the flow of information among providers, health plans, plan sponsors, and consumers unlike any venue to date.

Realities of Managed Care Today

Managed care is the prevalent means of health care coverage for most Americans. As a result, the vast majority of medical claim payments today are already discounted or reimbursed in some negotiated manner. With the continued consolidation of managed care organization (MCO) and health care systems, coupled with the tremendous financial pressures placed on hospitals and health care systems because of Medicare/Medicaid payment reductions in the late 1990s, discounts in many metropolitan areas have reached practical limits. While there will continue to be active management of unit costs, the days of purely discounted managed care are past.

Similarly, the days of micro-inspection forms of utilization management are waning. Many of the largest MCOs have significantly loosened or eliminated their prospective methods of utilization approvals for many medical services. Some HMOs have even eliminated the referral management systems between primary care physicians and specialists. In lieu of a prior PCP referral, these plans often have higher copayments for direct, self-referred specialist treatment. Such "open access" plans provide greater flexibility for plan members in seeking care as well as eliminating the time-consuming processes previously required for referrals.

As managed care continues to evolve, it is evermore apparent that the key to effective health care is getting the right patient the right medical service at the right time. Central to facilitating this process is the need to significantly change communication and knowledge-sharing within the patient/provider relationship, including:

Immediately accessible and correct data on plan benefits, member eligibility, and claims status;
Increased patient knowledge of illness and treatment options;
Continuous communication among the patient, the provider, and the health plan to aid in the timely and appropriate level of medical service.

Increasing consumer demand in health care delivery is aiding this evolution. As information becomes more timely, more accurate and more usable, consumers will be more willing to accept responsibility for their health care, and to be more involved in specific decisions regarding the quantity, quality, and cost of health care selected. This degree of increased "consumerism" is leading a paradigm shift in an industry which traditionally placed the patient largely outside of the decision-making circle.

Realities of E-Commerce Today

Virtually all sectors of American business have incorporated some degree of e-commerce strategies into their business operations, whether through sales distribution on external Web sites or e-mail communications with other business partners through the Internet. The growth of business-to-business (B2B) relationships has improved communication and information management among suppliers and business vendors. Likewise, the growth of business-to-consumer (B2C) applications on the Internet has generated new sales and marketing opportunities as well as a wider variety of direct customer services.

Furthermore, the Internet has created a time compression in information exchange previously unseen in corporate business, especially within service-based industries. Web-based service models, which rely much more on the use of automated assistance, can be created, changed to meet consumer preferences, or completely eliminated in much shorter time periods than traditional service models, which were largely dependent on human assistance.

Through Internet-based technology, many service-based companies and consumer product manufacturers, can make changes in product/service type and distribution and can even respond to market pricing changes in a fraction of the time previously required. As consumers grow increasingly able to access this quicker form of information, those companies who do not take full advantage of Internet technology will find themselves at a great competitive disadvantage.

The Internet also facilitates the ability of different companies to blend their specialized expertise in various new combinations. With the formation of unique partnerships, "virtual" companies can create end-to-end product/service development and management. This permits the quick formulation of new types of products, often faster than a single company could devote internal resources to accomplish the same objective.

The Overshadowing of the Uninsured

2011-09-14T03:28:00.000-07:00

Despite the increased emphasis on health care issues in the 1990s, the number of uninsured Americans continues to steadily rise. While economic growth generally increased family income levels over the past 15 years, the costs of health coverage have risen faster dampening the expansion of health coverage for many working families. Wherein 34.7 million people, about 13.9 percent of the U.S. population, were uninsured in 1990, an estimated 44.3 million Americans, or 16.3 percent of the population, were without health insurance by 1998.^[28]

According to U.S. Census Bureau figures, the total percentage of uninsured Americans moved up to 15.6 percent by 2003, as shown in Figure 1.

Source of Health Funding	2003 U.S.Population (millions)	% of Population
Employer Funded	174.0	60.4
Direct Funded	26.8	9.3
Subtotal Private Coverage	200.8	69.7
Medicare	39.5	13.7
Medicaid	35.7	12.4
Military	10.1	3.5
Subtotal Public Coverage	85.3	29.6
Uninsured	44.4	15.4
TOTAL U.S.Population	288.2	See below
Note: Numbers and percentages do not add up to 100 percent, as many Americans have duplicate coverage or may be covered by more than one source (e.g., retirees who have Medicare coverage and also supplemental private coverage). Source: "Inventory, Poverty and Health Insurance Coverage in the United States: 2003," U.S. Census Bureau; Department of Labor, www.census.gov.

Figure 1: Sources of Healthcare Funding 2003

The disparity of the uninsured is most evident when the data is examined by race: 10.6 percent of white Americans are uninsured, as compared to 19.6 percent for African Americans, 27.5 percent for native Americans, 18.6 percent for Asian Americans and 32.8 percent for Hispanics (regardless of racial origin). Geography makes a difference, with the highest rates of uninsured in Texas (24.6 percent), New Mexico (21.3 percent), California (18.7 percent), Nevada (18.3 percent) and Wyoming (16.5 percent).

Aggravating the problem is higher costs of health insurance for smaller businesses, which do not have the same ability to spread risks or to self-insure as larger companies. Other concerns deal with employers who feel pressured to pass along additional costs to their employees if health care costs continue to increase faster than general inflation, or if employers face additional costs due to legislation permitting plan members to sue plan sponsors.

Some studies also point to a fundamental structural change in the movement of employment in explaining some of the reduction in employer-based health insurance. Employer funded healthcare accounted for 64.2 percent of healthcare funding in 1987, which dropped to barely 60 percent in 2003 (see above). During the same period there was a similar reduction in the number of Americans working in the manufacturing sector, from 24 percent in 1987 to 18.8 percent in 2002. Many of those workers shifted to the personal services sector, which hosts a significantly lower rate of health insurance coverage; 69.4 percent in manufacturing in 2002 compared to 43.2 percent for the personal services sector.

The growth in public and private initiatives on ways to extend coverage to the uninsured, especially children, underscores the societal importance being placed on tackling this issue. Without consistent health care coverage, medical treatment is often deferred until conditions reach acute stages. Patients lacking health insurance often flood hospital emergency room, many seeking primary care that would normally be delivered in a physician's office. The number of ER visits jumped 23 percent over five years, from 89.8 million visits in 1998 to 110.2 million in 2002, General health also can be further jeopardized without regular preventive care and recommended screening tests.

The apparent correlation between increases in health care costs and the growth in the number of uninsured persons underscores the importance of continuing to evolve managed care in a manner that can continue to control costs and make benefits more affordable. As public policy is shaped to further extend coverage, managed care programs will continue to be an important vehicle used to deliver health coverage.

Development of Defined Contribution: Consumer Driven Health Plans

2011-09-10T03:33:00.000-07:00

An increasing number of plan sponsors are considering a new strategy for their health benefits, to maintain control of employer costs while giving plan members an increasing degree of choice and decision-making. While managed care continues to be the main component of most employers' health benefits, employees are demanding a greater ability to select those plans which best suit their individual needs—another aspect of increased consumerism.

Some analysts see the defined contribution concept as being driven by the convergence of several factors, including:

General backlash against the restrictive nature of managed care plans;
Broad popularity and acceptance of 401(k)-style retirement plans where the member acts much more as a "informed consumer" of their benefits package;
Rapid rise of Internet access to help members gain information about medical care choices; and
A sense that accountability demanded by end-consumers will have more real impact on health plans and providers than can be demanded by the plan sponsor (e.g. members ultimately vote by their enrollment).

Historically, healthcare plans have been "defined benefit" in nature. The plan sponsor defined the benefit by picking the plan fetaures (e.g., copay levels, deductibles, coinsurance, etc.) which then applied to all covered participations—much in the way pension plans were historically "defined benefit" with a rigid formula for determining benefits at retirement age.

The new defined contribution form of healthcare plans is conceptually akin to today's popular 401(k) retirement plans in that the plan sponsor would contribute a fixed amount for each employee's health benefits, often tied to either the lowest-cost plan available or some composite index of available plans. Then, plan participants typically would be able to select from several types of health plans often including several managed care plans and perhaps traditional fee-for-service.

Any difference between actual plan premiums and the plan sponsor's contribution would be paid by those participants who select that particular health plan. In this manner, the fixed contribution serves to cap current and future plan sponsor costs, with any future premium cost increases being borne in whole or in part by plan participants.

Several impediments still remain before defined contribution health plans gain broader acceptance, including:

Lack of consistent performance data among competing managed care health plans, or no data in the case of traditional fee-for-service plans;
Plan sponsor concerns about employees making poor selections relative to their health needs or high-risk employees being able to qualify for affordable coverage;
Rising health care costs, and employee contributions, forcing some participants to drop coverage altogether further increasing the number of working uninsured.

Nonetheless, there is significant plan sponsor interest in the development of the defined contribution health plan strategy. Key changes to the federal tax code included in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 may help foster greater plan sponsor move towards defined contribution health plans. The law extended and expanded the concept of health savings accounts (HSAs) which allow members to set aside dollars for medical expenses on a tax-favored basis and to roll over unused funds year to year, from job to job or into retirement.

HSAs must be set up in conjunction with a high-deductible health plan (HDHP), which for 2005, requires a minimum $1,000 deductible for an individual and $2,000 for a family. A "safe harbor" list of preventive services may be covered at 100 percent, before the deductible, such as annual physicals, immunization and certain screening services. Otherwise, the HSA, which can be funded either by employee contributions on a tax-free basis or by employee contibutions on a pre-tax basis through a cafeteria-style plan, serves to cover most or all of the high-deductible, after which the plan starts covering expenses at a coinsurance level.

The plan can be integrated with a PPO network, such that different coinsurance rates apply, after the deductible, for network versus non-network physicians. UM controls can also apply for selected services (e.g., precertification for hospital admission).

The whole concept is centered around putting the member more in charge of the utilization of services, by making tax-preferred funding available to handle the more common but less-costly healthcare decisions that typically face an individual or family. The concept has been dubbed consumer-driven health care (CDHC)

Managed Care Outlook and Evaluation

2011-09-06T06:36:00.000-07:00

At the start of the 21st century, the health care insurance system in the United States is at a brink. Managed care plans have grown to dominate the system, as noted above. While managed care has saved plan sponsors significant costs over the past 20 years, as compared to traditional fee-for-service plans, the system is now facing increased criticism from virtually all constituents for its complex processes, administrative burden, and perceived access restrictions to desired providers. Some believe that managed care plans have effectively run their course and, as a result, many provider organizations and legislatures, at both the state and federal level, are pressing for fundamental changes to dramatically revise or eliminate much of what the managed care industry has built.

However, proponents of managed care generally see beyond the immediate system problems and point to an ongoing evolution of the health care delivery and financing system. Managed care, in this context, is not an end point, but a continually improving process to control costs and demonstrably improve the quality of care delivered. At the center of the evolution is a huge paradigm shift in health care accountability, with members in much greater control of information and selecting those health plans and providers who demonstrate results in improving quality of healthcare and controlling unnecessary costs.

This shift towards increased consumerism in health care challenges the long-held premise that important health care decisions were primarily delegated to physicians and that health plan costs were primarily hidden from members through the third-party insurance coverage system. Health plans are investing heavily in new technology and data management systems to help members get access to information that can support a much broader role for them in making health decisions.

They also are using these new tools to help physicians practice evidence-based medicine. Improved performance will be increasingly expected as providers gain greater exposure to the best practices and outcomes measurement. Transforming health care delivery into a systematic, evidence-based approach based on best practice also will require proper realignment of financial incentives with clinical practices. Provider compensation models, which historically have relied on discounted fees in a managed care environment, also will continue to evolve to reward demonstrated quality.

Evaluating Managed Care Proposals: Site Visits

2011-08-28T01:00:00.000-07:00

Once the plan sponsor has narrowed down potential vendors based on an evaluation of the proposal responses to the RFP, visits to the sites of the finalists' operations are recommended to further verify the written materials and to meet the staff responsible for operating the health plan. Agendas for such meetings vary, although it is common for the plan sponsor to list specific areas they wish to discuss during the visit. Most site visits will seek to at least interview and question those health plan personnel who will service the business. It is also common for the bidding company to demonstrate the computer systems that are used to support its business, including claims administration, member services, UM protocol programs, and other medical management information systems.

Because there are often expert staff from different areas of the bidding company present at the site, it is advisable for the plan sponsor to consider bringing individuals who have the appropriate expertise to ask the necessary questions and understand the operation. Preparation is important in this phase, and the consultant should help the plan sponsor establish objectives for the site visit and conduct a post-visit debriefing to make sure all outstanding issues and questions have been addressed. For plan sponsors with multiple locations, it may be appropriate to conduct site visits in each of the principle locations because health plan management and operation may vary from site to site.

In addition to the site visit, the plan sponsor may wish to consider contacting current customers of the bidding companies to assess references. Employer and employee satisfaction of managed care will be largely affected by the ability of the managed care company to follow through on commitments and meet the objectives of the plan sponsor. HEDIS reports provide one means of plan comparisons for plan sponsors. While surveys show members are generally satisfied with managed care, satisfaction rates will vary among different managed care plans.

Evaluating Managed Care Proposals: Quality Assurance

2011-08-25T08:58:00.000-07:00

Traditional indemnity health plans do not actively monitor the quality of care being delivered. Members select the providers, and the providers are responsible for the quality of care. The growth of managed care has spawned increased interest in quality assurance. Because much of the cost savings from managed care comes from restricting the utilization of unnecessary services, MCOs must ensure that standardized UM controls and rules do not interfere with appropriate health care delivery. Thus, insurers and HMOs are investing in methods to measure quality and ensure that quality health care is being provided. In evaluating MCO proposals, quality assurance programs are a critical component.

Assuming that the general network configuration matches well with employee locations, the plan sponsor must next understand how the managed care company selects its network providers and what types of quality assurance mechanisms are incorporated into network management. The provider is "front line" with plan members, and members' overall plan satisfaction level is often determined by their interaction with providers. This point cannot be overstated since the principal element in managed care plans is the deliberate alignment of contracted providers with membership. Not surprisingly, therefore, many quality assurance programs place considerable emphasis on the selection and credentialing process for providers.

Selection is primarily focused on ensuring that there are sufficient numbers of providers within a geographic area to ensure adequate availability of providers to patients. The plan also must ensure that there is a sufficient mix of PCPs and specialists to meet membership needs.

Credentialing helps ensure that providers meet acceptable levels of expertise and professionalism. While each managed care company has its own set of credentialing requirements, the following are representative of some of the standard areas considered:

Sample Physician Guidelines

Graduation from an accredited medical school.
Valid state license/Drug Enforcement Administration (DEA) registration.
Clinical privileges at a licensed participating hospital.
Current malpractice coverage/history.
Federation check of state licensure.
No mental/physical restriction on performing necessary services.
No prior disciplinary action/criminal conviction or indictment.
No prior involuntary termination of employment or contract.
No evidence of inappropriate utilization patterns.
Agreement to follow utilization programs, including periodic on-site review of procedures and adherence to contractual obligations.

Sample Hospital Credentialing Guidelines

Joint Commission on Accreditation of Hospitals (JCAHO) accreditation.
Contractual warranty of state license.
Agreement to participate in the various utilization control programs.

While credentialing does not guarantee the provision of quality medical care, it is an important indicator of the managed care company's commitment to provide high-quality levels of care for plan members. Several national independent organizations have evolved to monitor and establish criteria for health plan evaluation. The best known national organization is the National Committee on Quality Assurance (NCQA) which began accrediting HMOs in 1991. More than 70 percent of all HMO members are currently in NCQA-accredited plans across the country. NCQA also began accrediting PPO plans in 2000 and now also offers accreditation of Managed Behavioral Health Organizations (MBHOs).

NCQA accreditation is granted for a period of three years to new health plans that have in place sound organizational structures and processes to monitor and improve the quality of care and service provided to its members and meet NCQA's rigorous standards, which fall into five broad areas:

Access and Service: Do health plan members have access to the care and service they need? Does the health plan resolve grievances quickly and fairly?
Qualified Providers: Does the health plan thoroughly check the credentials of all of its providers?
Staying Healthy: Does the health plan help people maintain good health and avoid illness?
Getting Better: How well does the plan care for people when they become sick?
Living with Illness: How well does the plan help people manage chronic illnesses?

While NCQA accreditation is completely voluntary, most HMOs and other managed care plans actively seek accreditation. An increasing number of large employers now require managed care plans to either have received NCQA accreditation or have an established plan towards gaining accreditation in order to be offered to plan members. Thirty states now recognize NCQA accreditation as meeting regulatory and licensing requirements for health plan. NCQA accreditation has become a way for plan sponsors to measure the performance of a health plan and assess the value of their health care purchase.

Evaluating Managed Care Proposals: Network Adequacy

2011-08-22T02:27:00.000-07:00

To properly understand competing health plan alternatives and to select an appropriate managed care option, a plan sponsor may hire an agent, broker, or consulting firm that specializes in evaluating group/health and managed care plans. This analysis typically results in the development of a request for proposal (RFP), which is a detailed document that provides information to managed care companies about the plan sponsor and invites those companies to offer proposals in response to the request. Thoroughly evaluating and comparing multiple RFP responses can be an exhausting process and this is where the assistance of a qualified professional can be most valuable. Managed care consultants each have their own method of evaluating proposals depending on the plan sponsor's objectives and their own experience. Commonly, different weights are assigned in the evaluation of various portions of the RFP, with competing companies being compared on the weighted results of their total proposals.

Typically, the first step is to conduct a review of network adequacy which helps determine each managed care company's access to providers. This first step, often called a request for information (RFI) is a shorter, less formal document than the RFP. The RFI usually focuses on producing a "site match" process which maps member home or work locations against proposed geographic provider networks. Later, in the RFP process, the site match is supplemented with a more detailed "disruption analysis," which compares members' most commonly used physicians to those in competing networks. The results will show the number of members who would need to switch providers in the new managed care plan.

Minimizing member disruption is important for two reasons: to improve member acceptance of the managed care program since fewer members will need to switch providers in order to receive favorable network benefits, and to increase the probability of increased network utilization. On the other hand, a close provider match should not be the sole basis for network selection, especially if the managed care company otherwise fails to demonstrate proper price management and utilization controls. A broad network does not necessarily mean effective cost control or provision of quality health care.

Network configuration and provider adequacy are also important criteria in examining the adequacy of a network. Networks must be well-dispersed geographically and include the necessary medical disciplines to be able to deliver services at all levels of care. That is a difficult challenge in many parts of the country since managed care network development varies significantly across the United States. Differences in population demographics, availability of medical care and hospital facilities, the influence of local provider associations, and the statutory regulations of medical providers have influenced the ability of managed care vendors to build viable, cost-effective networks and products.

Broadly speaking, those areas with higher HMO member penetration have a greater degree of developed provider networks for all managed care products. Figure 1 shows a 2003 InterStudy analysis of the 10 highest (over 30-percent HMO penetration) and 10 lowest states (less than 10 percent penetration).

Top 10 States	HMO Penetration	Lowest 10 States	HMO Penetration
California	48.5%	North Dakota	0.4%
Massachusetts	38.7%	Mississippi	0.8%
Connecticut	37.8%	Wyoming	2.4%
New York	32.4%	Idaho	2.8%
Missouri	32.3%	Montana	5.2%
Pennsylvania	31.7%	Alabama	3.8%
Rhode Island	31.7%	South Carolina	6.5%
Kentucky	31.2%	Arkansas	7.1%
Maryland/WDC	30.6%	Kansas	7.8%
Colorado	30.3%	Nebraska	8.8%
New Mexico	30.3%	Iowa	9.5%

Figure 1: 2003 HMO Penetration for Selected States

Not too surprisingly, managed care networks have flourished in more populated metropolitan areas, and thus in the larger states along the east and west coasts. However, there are some pockets of networks in some select less populated areas (e.g., New Mexico). To the extent HMO market penetration is indicative of the availability and acceptance of managed care alternatives, these data show that managed care plans are evolving at different paces across the country. This presents a very real challenge for the plan sponsor with multiple employee locations across the country that wants to maintain a uniform approach to its health plan offerings. This challenge is significant, since over 30 percent of the population in most metropolitan areas are covered by health plans for companies which are headquartered elsewhere.

Although most national managed care organizations are able to provide uniform administrative systems for managed care plans, the underlying delivery platform may vary from area to area in order to conform to accepted practices within those areas. Plan sponsors need to be aware of these possible differences in advance of committing to a given managed care product so they can be prepared to accept modifications in plan design or product offerings and thus take advantage of the best offerings available in each geographical area. Frequently, this may result in selecting several different managed care organizations, depending on which is strongest in a given geographic area of the country.

The plan sponsor also may consider whether to seek bundled versus unbundled managed care services. The bundled approach provides as many services as possible—access to a network, contract negotiations, UM, QA, claims and reporting—from a single vendor, such as a national managed care company or regional HMO. A bundled approach simplifies administration by reducing the number of organizations and contracts to be managed.

Conversely, the unbundled approach allows the plan sponsor to contract directly with a variety of organizations for different services or to develop its own network through direct negotiations with providers. In an unbundled approach, one company may be used for utilization management and quality assurance, another for claims payment. Sometimes, the plan sponsor handles some functions internally, hiring staff to assume the new responsibilities. Some plan sponsors feel that the unbundled approach is the best way to obtain the best quality services because the different vendors theoretically have specialized expertise in the area chosen. Unbundling is more common with prescription drug and mental health services. An obvious disadvantage to this approach is the resulting administrative complexity occurring with multiple vendors.

Some larger employers find themselves somewhere in the middle between the purely bundled and the purely unbundled approach. For example, an employer may contract with one vendor to insure the indemnity plan and one or more HMOs and/or PPOs to serve the employer's different geographic locations.

Functional Approach to Evaluating Health Care Plans

2011-08-19T06:12:00.000-07:00

A thorough evaluation of employee needs, company compensation philosophy, and other considerations, in a functional approach model, are critical steps before adopting any managed care plan. Like the managed care spectrum analysis, using a functional approach to evaluating health plans provides a way to compare plan sponsor needs and objectives across the spectrum of health plan alternatives.

Planning orientation addresses the plan sponsor's readiness to implement a health care program that requires a long-term commitment. Indemnity and PPO plans are better in a shorter-term orientation because changes in plan design can be adopted fairly easily without a large disruption to the membership population. HMO and POS plans are typically less flexible in plan design, and because members are required to select a PCP, they may be more reluctant to switch physicians if the plan sponsor later decides to change managed care plans. Thus, the plan sponsor must be fairly comfortable with the HMO or POS plan at the outset and be willing to avoid frequent intervention.
Member satisfaction is often difficult to obtain because there are many aspects to satisfaction: provider access, quality of care, claims processing, member service responsiveness, and adequate and appropriate communications. Managed care plans require greater member understanding of process and procedure than do traditional plans and often limit choice; initial member satisfaction is commonly not high. However, as participation grows, members usually reach a comfort level with how managed care operates. HMO membership survey results show improving satisfaction rates. This seems to be particularly true among longer-term members.^[19] It is important for the plan sponsor to understand and address member concerns with managed care. In today's environment of negative public peception of managed care as an industry, it becomes even more important for the plan sponsor to focus on those items most critical to their employees. This often requires deliberate and frequent two-way communications (e.g., the use of focus groups) and regular surveys to ascertain how changes to the healthcare plan are being perceived.
Provider choice becomes more restricted as managed care becomes stronger. Most employees are concerned with being able to select their physicians without outside interference and to choose when, where, and how to receive health care services. Managed care products are deliberately designed to steer members to more cost-effective providers and treatment settings, which limits freedom of selection. HMOs and POS plans, which require the use of a PCP to access services, are the most restrictive. However, members who are pleased with their PCPs may not express dissatisfaction with this aspect of the plan.
Cost savings, as discussed in the managed care pricing analysis above, is best achieved with stronger form managed care plans, which have proven abilities to control both the price and use components of the cost equation.
Cost containment features are more prevalent and stronger with stronger forms of managed care programs. In particular, it is important to understand precisely what forms of pricing and utilization management are used by the managed care company, to know if those will have an impact on the healthcare cost patterns of the employee population.
A broader range of financial reporting/funding alternatives is generally more available with fee-for-service and PPO plans because these plans typically reimburse providers on a "reasonable and customary" or fee schedule basis. Some POS and HMO plans can offer funding alternatives; however, commercial HMOs are typically restricted, by statutory regulation, to offering only prospective funding. Furthermore, the extent to which HMOs reimburse providers on a capitated basis affects the value of experience rating to the plan sponsor; that is, claim payments are more or less equal to the sum of prospective cap payments made to providers. HMOs commonly have had difficulty in providing detailed utilization and cost reports because of the nature of paying on a capitated basis.