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.

Functional Approach to Evaluating Health Care Plans

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.

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.

Sample Pricing Model

Now that we have examined the Price and Use elements of the cost equation, let us bring them together in a pricing model.

Figure 1 is a sample pricing model designed to show how the basic element of pricing and utilization impact cost. For illustration purposes, it shows the net savings an employer can expect when transferring from a hypothetical fee-for-service indemnity plan to a standard PPO. HMO and POS plans pricing also can be used in this model and they are discussed later. The model helps illustrate some of the basic pricing components used to evaluate the net cost advantage of establishing a managed care plan. An important caveat is that this is a hypothetical illustration and not intended to predict actual savings for any specific plan sponsor or health plan. Actual savings can be affected by factors outside the parameters of the model, such as catastrophic claims, changes in membership demographics, and so on.

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Steps		Calculation
1.	2004 recorded medical claims (indemnity)	$ 5,000,000
2.	Covered employees	1,000
3.	Average 2004 claim cost per capita (lines 1/2)	$ 5,000
4.	Projected indemnity trend increase	×115.6%
5.	Projected 2005 claim cost per capita (lines 3 × 4)	$5,780
6.	Projected Aggregate 2005 Claim Costs (lines 5 × 2)	$ 5,780,000
Projected PPO In-Network Claim Costs
7.	Average 2004 claim cost per capita (line 3)	$ 5,000
8.	Projected PPO trend increase	×114.4%
9.	Projected 2005 PPO claim cost per capita before adjustments	$ 5,720
10.	PPO claim cost adjustments
	a. Increase value of in-network benefits (90 percent preferred)	×107%
	b. Average value of discounts from provider networks	×88%
	c. Average value of new utilization management controls	×95%
11.	Projected 2005 PPO claim cost per capita after adjustments	$ 5,117
12.	Expected average PPO participation (75 percent in-network usage)	×750
13.	Projected aggregate 2005 PPO in-network claim costs	$ 3,837,750
Projected Non-network Claim Costs
14.	Average 2004 claim cost per capita (line 3)	$ 5,000
15.	Projected indemnity trend increase	×115.6%
16.	Projected 2005 claim cost per capita (lines 3 × 4)	$ 5,780
17.	Non-network claim cost adjustments
	a. Increase value of in-network benefits (70 percent preferred)	×92%
	b. Average value of discounts from provider networks	n/a
	c. Average value of new utilization management controls	×97%
18.	Projected 2005 PPO claim cost per capita after adjustments	$ 5,158
19.	Expected average PPO participation (25 percent in-network usage)	×250
20.	Projected aggregate 2005 non-network claim costs	$ 1,289,500
Summary Comparison
21.	Projected aggregate 2005 claim costs for indemnity plan	$ 5,780,000
22.	Projected aggregate combined 2005 PPO claim costs (lines 13+ 20)	$ 5,127,250
23.	Projected aggregate claims savings (lines 21–22)	$ 652,750
	% Savings (lines 23/21)	11.3%
Note: Excludes additional costs of PPO network operations and UM administration. Assumptions: Plan sponsor with 1,000 covered employees under a standard nonmanaged indemnity health plan (80 percent coinsurance after $250 deductible) moving to a full-service PPO plan (90 percent benefit for in-network/70 percent for non-network, $250 deductible combined). All employees are in one location, with access to the PPO network; expect 75 percent total network utilization and 25 percent non-network usage.

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Figure 1: Sample Managed Care Pricing Model for 1,000-Employee Plan

The model uses a hypothetical plan sponsor with 1,000 employees incurring $5 million in recorded medical benefit costs in 2004, estimated to increase by 15.6 percent in 2005 in a completely unmanaged environment, to an estimated $5.8 million, as shown in steps 1 through 6.

With implementation of a PPO plan, the net expected plan costs would be a combination of in-network and non-network expenses. Steps 7 through 13 illustrate how the PPO in-network costs are projected. Using the starting point of historical indemnity claims, line 8 shows a lower expected trend of 14.4 percent, as compared with the 15.6 percent for non-managed plans, which produces a lower claims-per-employee cost, before PPO adjustments.

The PPO adjustments on line 10 include (a) an adjustment for higher in-network benefit level (90 percent versus standard 80 percent); (b) an adjustment for the estimated value of PPO network discounts; and (c) an adjustment to reflect the expected value of reduced utilization brought about by the precertification and concurrent review programs associated with the PPO.

These adjustments total an 10.5 percent reduction, which when multiplied by line 9, yields a net 2.3 percent increase in 2005 claims costs per employee in the PPO network. The expected average usage of the PPO network is 75 percent, so the claims of an average of 750 employees (and their covered dependents) will flow through the network side of the equation. (Note: The actual degree of network utilization will depend largely on the success of employee education about the PPO plan and the accessibility of network providers to employee locations.) While the illustration assumes 100 percent availability of PPO network providers, this assumption is generous, and in the majority of instances there will be some employees who live outside the available service area and therefore continue to receive indemnity benefits (80 percent after deductible).

However, that is only half of the story. The plan sponsor needs to understand that non-network benefits also are impacted, as shown in lines 14 through 20. Starting again with unadjusted 2004 claims per employee of $5,000, we apply the nonmanaged trend level (15.6 percent) to get a projected claims cost of $5,780 per employee before adjustments. The PPO non-network adjustments, on line 17, include (a) net benefit because of lower reimbursement levels and penalties for noncompliance (70 percent versus indemnity of 80 percent); (b) no adjustment for network discounts; and (c) a smaller adjustment for UM features, since the stand-alone programs generally are not as comprehensive as those integrated into the PPO plan operations. Assuming 25 percent non-network usage among eligible participants (line 19), the non-network plan costs are increased about 3.2 percent between 2004 and 2005 versus 15.6 percent in the indemnity plan.

On a composite basis, total projected 2005 PPO claims costs (network and non-network) are shown at $5,127,250 (line 22) as contrasted with the original projected indemnity claim costs of $5,780,000 (line 21), resulting in an estimated savings of $652,750 or 11.3 percent less than nonmanaged care. Instead of a 15.6 percent cost increase for 2005, the plan sponsor would see about 2.5 percent. As mentioned above, this pricing model is used here for illustrative purposes only. Actual network discounts and UM adjustments will vary among networks and vendors. The point here is to understand some of the components that impact the value of PPO plan pricing.

The results become more significant over longer periods. Assuming the above trend rates for indemnity and PPO plans, total costs for a non-managed plan would continue to outpace the PPO plan. For example, by 2010, the nonmanaged plan could reach per capita claim costs over $11,930 while the PPO plan would be about $10,048, a difference of 15.8 percent per capita. In addition, the PPO in-network usage would likely increase over time as more participants become accustomed to the network provider panel; this would only further differentiate the two costs.

Point-of-service plans also can be evaluated using the same model with essentially the same methodology. There would be higher expected UM savings, because of the addition of primary care referral management which would be significant, since referral management more directly controls utilization of medical services.

Health maintenance organizations' net savings are not as easily evaluated using the above pricing model, especially when capitation is the method of provider reimbursement; with provider revenues capped, the frequency of services (utilization) is a more direct concern for the provider. When capitation reimbursement is used, the traditional methods of evaluation shown in the pricing model become obscure. The fixed revenue of capitation translates into a fixed level of paid claims. In fact, if all providers within an HMO are capitated, the premium becomes one fixed prospective payment to providers plus administrative costs of the plan.

Patient Care Models

A prime example of how managed care companies are continually developing new models to better manage the total health care delivered to their membership can be seen in the new forms of patient care treatment. Standard utilization management programs are evolving into more proactive forms of health management.

Figure 1 depicts a framework for evaluating how three patient care models apply to members and their providers at various levels of illness. The general U.S. population has a wide variety of health needs based on differing demographics and health histories and, thus, people respond to different types of patient care. It is essential that a managed care company approach its broad membership base with a high level of sensitivity to these differences so that each member's healthcare needs are handled in the most appropriate manner, as opposed to forcing the entire membership case through a uniform and general set of UM protocols and methods.

Figure 1: Patient Care Model

 

Many industry experts believe that a patient care treatment focus will be a critical defining aspect of managed care in the 21st century. There will be a shifting emphasis from micromanaging episodes of care for an entire population to proactively managing each member's continuous health status, using the patient care model that most effectively addresses each member's specific needs. The models include the following:

• Health enhancement programs, which help assess the broad lifestyle of the individual member, provide broad-based education on proper self-care techniques, and provide more tailored, individualized counseling on preventive care, such as stress management, nutrition and weight control, smoking cessation, and safety instruction. Working with case managers, members can improve their personal health awareness, identify specific risk factors that may affect their future health care needs, and tailor specific behavioral change programs to help avoid potential health problems.
• Disease management is more appropriate for those members with identified chronic conditions (e.g., asthma, diabetes, heart disease, some types of mental illnesses) that require continuous monitoring and occasional, or regular, treatment. According to the American Medical Association, more than 105 million Americans suffer from one or more chronic disease, including those above, which accounts for a major share of the total national healthcare tab. Broader in scope than traditional UM programs, which primarily focus on managing specific episodes of care, disease management is a more systematic approach to health management, coordinating all levels of care, including prevention, control, and self-care to maximize cost savings and improve the quality of care delivered. It involves physicians as well as patients, and sometimes workplace medical personnel, in following clinical treatment guidelines, in educating patients on self-care, and in proactive intervention of chronic situations. Case managers monitor prior treatment history and current treatment regimes as well as ensuring that information is provided to physicians and patients. The Disease Management Association of America (www.dmaa.org/definition.html) lists six critical components for any full service DM program, including:
  1. Population identification processes.
  2. Evidence-based practice guidelines.
  3. Collaborative practice models to include physician and- support-service providers.
  4. Patient self-management education, which may include-primary prevention, behavioral modification programs and compliance/surveillance.
  5. Process and outcomes measurement, evaluation and- management.
  6. Routine reporting/feedback loop, which includes communication with both patient and physician.
  Disease management holds considerable potential in addressing the high costs associated with chronic healthcare conditions, however the evolution of these programs require national standards for measuring clinical performance as well as the willing participation of both patient and provider.
• Case management programs deal with specific, severe illnesses, in order to avoid unnecessary, inappropriate, or excessive care. Ideally, the member progresses through the prior stages of the patient care continuum to minimize the need for large case management, or at least start case management before the health problem has already reached the severe phase.

Increasingly, managed care companies are employing clinical specialists with expertise in areas of more common case management activity, such as AIDS, cancer, high-risk pregnancy and neonatology, head and spine injury, pediatrics, cardiovascular disease, and organ transplants. At this point, patient care shifts from primary care to highly specialized disciplines.

Carve-out arrangements, for benefits such as prescription drugs, mental health and substance abuse treatment, and certain medical/surgical expenses (e.g., lab, maternity) are becoming increasingly popular among larger plan sponsors that wish to apply case management on specific services. Some companies have developed highly specialized expertise in such areas. On the other hand, many diseases cannot be easily isolated into specific types of treatment and therefore must be treated more holistically. Cancer treatment, for example, often stretches across the spectrum of medical services—surgery, inpatient medicine, drugs, lab, and X-ray therapy—and treatments must be coordinated to ensure the best quality care of the patient in the most cost-effective manner possible.

As an important supplement to managed care plans, many plan sponsors are implementing wellness programs, designed to keep employees healthier over the long run and, thereby, reduce health care costs and increase productivity. Such programs also have the benefit of reducing turnover and absenteeism, which can have real savings for companies. Wellness programs are taking on more emphasis, particularly as the aging population encounters greater risks from chronic conditions which emerge from unhealthy lifestyles.

According to the Surgeon General and the Centers for Disease Control and Prevention (CDC), 61 percent of adults Americans are overweight or obese, which can directly increase risks associated with a wide range of health problems including heart disease, diabetes, stroke, cancer, respiratory ailments, arthritis and pyschological disorders. A recent study at Emory University blames obesity for 27 percent of the rise in healthcare spending between 1987 and 2001 with the proportion of obese Americans rising from 13.5 percent to 23.8 percent during that time period.

Combine those figures with the Surgeon General's estimate that less than one third of adults get the recommended daily amount of physicial exercise and over 40 percent are sedentary the risk for further explosion of healthcare costs because of poor lifestyle choices is obvious. Alternatively the potential for prevention is the focus of corporate wellness programs.

While many larger corporations have instituted various levels of wellness programs, ranging from in-house exercise facilities to discount programs at health clubs or weight-reduction programs, it has been difficult to quantify the actual long-term effectiveness of many initiatives since most programs are voluntary in nature and studies suffer from a selection bias in favor of those members who generally lead healthy lifestyles.

Achieving broad participation in wellness programs continues to be a significant challenge, especially among those members who suffer from poor lifestyles. Plan sponsors need to create supportive positions which provide employees with encouragement and rewards for healthier lifestyle choices. Plan sponsors need to avoid possible discrimination against employees who are overweight or may not excercise on a regular basis, even if the intent is to encourage them to lead healthier lives. In addition, healthcare privacy rules under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) require employers to advise employees in advance about how they may use any personal health information and they must strictly maintain protection of such information.

Managed Care Backlash On Pricing And Utilization Management

While the large shifts in membership towards managed care plans achieved the intended consequences of lessening the high rate of healthcare costs increases during the mid- to late-1990s, there was tremendous resistance from both members and the provider community. With most people having to choose their physician from a directory for the first time in their lives and with both members and providers now forced to run a gamet of utilization controls and rules, it did not take long for public dislike of managed care to grow to noticeable proportions. Managed care in general, and HMOs in particular, became openly villified and commonly ridiculed within the main stream media, in political discussions and even in major motion pictures.

An August 2004 Kaiser Family Foundation survey found significant member dissatisfaction with the results of managed care, in terms of their interraction with providers. Sixty percent felt physicians had been forced to decrease the amount of time spent with patients, as a result of managed care, and 56 percent felt it was more difficult for patients to see a specialist physicians when needed. While an overwhelming 79 percent of those surveyed felt that their employer was doing the best it could to provide affordable health insurance coverage, there were strong feelings that managed care had made no difference in keeping health care costs down (63 percent) and that managed care had contibuted to decreasing the quality of care provided (49 percent).

By the late 1990s, many provider organizations and "vertically integrated" health systems (e.g., where a large hospital system also owns a number of physician practices) had formed to bargain for better reimbursement rates and to counter what they perceived as oppressive utilization controls by insurers and HMOs. Even the federal government intervened to protect patients' rights, most notably with the Newborns' and Mothers' Health Protection Act of 1996 (NMHPA), which prohibited most managed care plans from restricting a hospital stay in connection with childbirth to less than 48 hours following a vaginal delivery or 96 hours following a delivery by caesarean section. Prior to that legislation, many HMOs and managed care plans were routinely approving only one day for normal vaginal deliveries.

With mounting public and political pressure, by 2000 many managed care plans, including most of the national insurers, had either discontinued or dramatically scaled back their cost containment efforts. Many opponents of managed care felt these developments signalled the end of managed care as a defining feature of the healthcare industry.

In particular, many managed care plans abandoned capitation as a form of physician reimbursement, although some global cap systems were retained or modified for larger provider groups. Recent studies indicate that most capitation models switched back to discounted fee schedules, although some new physician incentive models have been introduced in various markets, many of which now tie physician incentives to quality measures such as HEDIS (Health Plan Employer Data Information Set) which is issued by the National Committee on Quality Assurance (NCQA). Most managed care plans also eliminated, or greatly reduced their reliance on, the more restrictive forms of utilization management, such as pre-authorization for hospitals stays. Many HMOs also loosened rules regarding specialist from a primary care physician referrals, either for selective specialists (e.g., annual OB/GYN exams) or for all referrals in what has been commonly called "open access" HMO plans. Some HMOs continue to offer full referral plans at a lower cost for those plan sponsors that still want the tighter cost controls.

However, the evidence shows that the relief from price increases in the mid-1990s was not permanent. Trend rates have again risen at double-digit rates since 2001, after many of the pricing and utilization management changes were instituted. 

Whether rising healthcare trend rates are directly attributable to the reduction of managed care controls is difficult to measure, however recent reports indicate that many managed care companies have started to selectively reintroduce utilization controls. Techniques making a revival include tighter concurrent hospital stay reviews and implementing thresholds on the number of treatments for certain procedures (e.g., MRIs, CAT scans). The key difference is that plans are using detailed data analysis to target those services which offer little or no clinical benefit while being careful not to reduce access to potentially beneficial services.

In addition, some managed care companies have begun to introduce new selective provider networks, which focus upon only those providers which have been shown to achieve demonstrable quality outcomes and costeffective results. These "tiered" networks offer the future possibility of refined managed care products, where members can receive highest benefits for using providers from the selective list, a middle level of benefits for the broader network and lowest benefits for non-network providers. Alternatively, the selective network may focus on certain specialties (e.g., cardiology, gastroenterology, orthopedics) and be offered along side existing PPO or HMO network options.

The point of acknowledging these recent developments in the managed care field is to make the reader appreciate the importance of analyzing, in detail, exactly what types of pricing and utilization management techniques are being employed by the managed care plan being examined. Every PPO is not just like every other PPO. Every HMO is not just like every other HMO. Those are just product labels. Remembering that managed care is about process, not products, can help the reader understand what truly differentiates various health plan options.