Evaluating Demand-Side Approaches

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

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

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

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

Managed Care Outlook and Evaluation

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

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

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

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

Sample Hospital Credentialing Guidelines

1. Joint Commission on Accreditation of Hospitals (JCAHO) accreditation.
2. Contractual warranty of state license.
3. 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:

1. 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?
2. Qualified Providers: Does the health plan thoroughly check the credentials of all of its providers?
3. Staying Healthy: Does the health plan help people maintain good health and avoid illness?
4. Getting Better: How well does the plan care for people when they become sick?
5. 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

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%

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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.