Many health-care costs are indirect.
What exactly is cost? Is it some uniform, easily determined number? No. Cost has several dimensions-some more obvious than others, including:
- Direct costs
- Indirect costs
- Liability costs.
The company's direct expenditures for medical health services are the direct costs. It's important to know the actual dollar amount. In this era of rising costs, many companies are experience-rated. In other words, any change in medical bills paid by the insurer one year shows up immediately in premium changes the next year. If a company buys managed care and experiences certain cost reductions, it will want to make sure that lowered premiums reflect these savings the following year.
It will be hard to gauge the potential cost savings unless detailed expense information is available. Unfortunately, insurance companies often don't like to separate mental health expenditures from overall medical costs. Benefits managers may have to press the insurer to itemize the premium bill.
The more detail the benefits manager can obtain, the better. For example, it's useful to distinguish outlays for different levels of care, such as:
- Partial hospitalization
- Residential treatment
- Outpatient services.
Knowledge about how much money is spent on particular diagnostic categories is vital to designing optimal managed-care strategies. For example, how much goes toward drug and alcohol treatment, major psychiatric disorders or child and adolescent services? Other significant data include the actual fees: the average payments for the different levels of care and different diagnostic categories.
All this may seem like a lot of information to obtain. However, the data can and should be made available. Before a managed-care organization makes blanket statements about all the money it will save, it should perform a sector-by-sector analysis of the cost history of the company's medical plan. A company that's self-insured will be able to come up with the data more easily. Selecting the important information still may take effort, however. The company may have to work with an insurance carrier, if one processes the bills in an ASO (administrative services only) arrangement.
Many mental health services are provided by general medical personnel, as opposed to psychiatric physicians (as much as 50% in some estimates). That makes it even more important to itemize expenditures by diagnostic category whenever possible. The rule applies: You don't know what you can save until you know for what you've been paying.
An example of a direct cost is an insurance premium or hospital bill. Mental health problems, if left untreated, impose a myriad of other costs that may not be as measurable, however. Attaching a precise number to these indirect, hidden costs is more difficult. These include:
- Decreased productivity
- Sick leave
- Workers' compensation
- Work-force turnover and consequent hiring and training expenses
- Higher medical and surgical outlays.
The direct costs of an alcohol-impaired worker (inpatient detoxification and rehabilitation) are easy to determine. Other costs aren't as obvious, such as:
- Damage to people and to property caused by drunk driving
- Accidents and mistakes at work
- Medical bills for alcoholic hepatitis and cirrhosis
- Distraction for family problems
- Treatment needed for dependents.
These problems won't go away if left untreated, yet many companies place partial limitations on mental health benefits, whether or not the plan is subject to other forms of managed cost containment. They place limits on the number of outpatient visits or hospital days allowed, and cap total expenditures. These restrictions may apply for the year or for the insured's lifetime.
Such arbitrary limitations on benefits open the door to escalating indirect costs. They're ultimately irrational and counterproductive. Moreover, arbitrary and restrictive benefit limits defeat the purpose of managed care, which is to make informed decisions that balance cost and care in the best interest of the patient.
Besides direct and indirect costs, a company must be aware of liability costs that may arise. In the old world, providers submitted bills; companies and their insurers paid them. Costs rose, but if providers made clinical mistakes, at least they took full responsibility.
In the brave new world of managed care, the boundaries of practice liability are becoming blurred. Companies are venturing into new legal territory as they demand a say in deciding which services will or won't be provided. If a company (or a managed-care entity empowered by the company) disagrees with the provider about the care, then the company may share the malpractice burden.
Test cases are just now beginning to appear involving managed care. As reported in the Wall Street Journal, July 28, 1992, a California Appellate court recently issued the ruling that employers and insurers "can be held legally accountable when medically inappropriate decisions result from defects in the design or implementations of cost-containment mechanisms." Courts are beginning to award large monetary judgments in such disputed cases.
How this will play out is unknown. It's a good guess, however, that organizations must be prepared to assume new liability costs as they become more intimately involved in the details of delivering care.
The informed purchaser of managed care also must be aware of the new costs that may arise when market structures change. This makes it imperative that the firm investigate fully the kind of managed-care organization it's paying for. Does one form of managed care provide superior cost control? Let's take a look.
For strict cost control, the health maintenance organization (HMO) form of managed care has distinct advantages over utilization review (UR) and preferred provider organizations (PPO). (See "Forms of Managed Care," page 110 for definitions.) HMOs have a fixed, predetermined budget. The cost of providing all services is known. Any overruns are absorbed by the HMO. This, of course, saves the payer company money in the current year. However, the cost still affects the system, because the HMO will have to tighten and restrict its operations, raise percapita fees for the subsequent year or go out of business.
UR and PPO firms don't have fixed budgets. They may promise to limit costs to a preset target based on previous year's expenditures. They may offer to share the risk of exceeding target limits. The actual expenditures, however, aren't guaranteed.
PPOs offer to save money by providing services at discounted rates. However, providers may increase the quantity of services to maintain or increase total revenues. Unless a UR-type gatekeeper arrangement is added to the PPO, overall cost control is problematic.
Adding UR arrangements presents a further dimension to the cost picture. HMOs and PPOs are service arrangements. Their primary business is providing care, albeit with different types of reimbursement contracts. UR firms, on the other hand, don't add any new care. They review care performed by others and, as such, they increase the administrative expense of the system. Estimates are that about 20% of all U.S. health care dollars go for administrative services. Many of these services are unnecessary duplications. Purchasers of UR-type managed care must figure out what their net savings would be and determine whether the administrative expenses are justified.
Evaluate the quality of providers.
Companies may contend that they aren't responsible for the care delivered to their employees. Ultimately they bear the risk, however. Because poorly functioning employees always will impact the company, employers must evaluate carefully the quality of the care their employees receive.
One measure of quality is the number of appeals filed in disputed cases. Another is the number of complaints received about the managed-care organization and its providers. However, if complaints and appeals are low, this doesn't necessarily mean the care is good. A managed-care organization may have good public relations. In addition, although quality care starts with attractive facilities and courteous answering of the phone, it doesn't end there.
It's evident, then, that no single measure of quality will suffice to gauge the effectiveness of service. Companies must assess the quality of a managed-care organization along several dimensions, including:
- Patient access
- Provider relations
- Expertise of personnel
- Thoroughness of evaluations
- Program flexibility
- Conflicts of interest.
- Patient Access .
Managed-care organizations limit benefits. They may simply eliminate them or pare them. They may have them but tell employees they can't use them (stringent UR) or make it difficult either for patients and providers to use them or to receive payment for them. Users who have to jump through too many hoops to get services may give up in frustration.
The operational complexity of a managed-care program also can impair the quality of services greatly. These administrative obstacles have become known collectively as the hassle factor and include:
- Complicated paperwork to receive benefits
- Long waiting lists for appointments
- Long waiting time in offices
- Difficulty obtaining information or help by telephone
- Inconvenient office locations
- Difficulty getting through the gatekeeper to see a specialist.
It appears that managed-care operations have made determined efforts to minimize the paperwork for patients. They have toll-free information lines that usually are answered promptly and courteously. Some managed-care organizations have built into their contracts financial penalties if they don't pick up the phone or supply appointments quickly enough. Conversely, some managed-care organizations receive a financial bonus if they exceed certain time targets.
Although these approaches have improved the accessibility of mental-health care at managed-care organizations, there are some notable exceptions. General medical HMOs that offer mental-health services as a sideline probably are the most likely to make access difficult. Patients usually must see a non-mental-health professional before being referred. Individuals who have specialized expertise recognize that such a delay can deter appropriate care. In certain cases (especially involving alcohol or drugs, in which denial of the need for help can be strong) it's important to act quickly. When the patient agrees to treatment, care must be immediately available.
The same criticism is true of PPOs that use internists or family doctors as gatekeepers. The health provider networks of some PPOs may not be extensive enough to accommodate clients promptly that have multicity locations.
Managed care often is seen as a massive intrusion into the medical professional's domain of decision making. This generally isn't true of HMO forms of managed care. These providers are on salary and work in a team atmosphere under one roof. Providers within UR setups and PPOs that have general medical gatekeepers, however, often are treated more as adversaries than colleagues.
The adversarial climate can be gauged most directly by the extent of paperwork required of the health-care provider. Filling out forms and talking to reviewers on the phone is a real cost that the provider must bear or pass on to someone else in the system.
If a company is considering going with a UR or gatekeeper PPO, its benefits specialists should talk to some of the providers first (both individual practitioners and hospitals). They need to find out how much of the provider's time is eaten up by reporting to reviewers and how much the care is, in their opinion, inappropriately disallowed. When providers are unhappy and are battling with the managed-care organization, quality of care is bound to suffer.
Companies can get a sense of the quality of care through an assessment of the credentials, supervision and ongoing training of all personnel involved in the managed-care operation. This includes reviewers, evaluators and managerial staff, as well as the actual network of providers.
UR operations often use relatively inexperienced nurses or social workers to conduct telephone reviews of physician and hospital activity. The review process is based on checklists and cookbook protocols.
In essence, the reviewers are mere clerks and have little clinical training. When purchasing UR managed care, find out how much clinical experience the reviewers have and whether they actually provide care.
Similarly, HMOs and PPOs commonly use internists, general practitioners or family practitioners to conduct face-to-face gatekeeping activities. They may not have the expertise needed for mental-health cases.
- Thoroughness of evaluations .
- Program flexibility.
Problems concerning mental health require greater interpretive skill than all other medical conditions and are the least amenable to prefabricated assessments. Managed-care purchasers should make sure that reviewers are available who have at least the same level of expertise as the providers they're monitoring.
The ability of the managed-care operation to provide state-of-the-art services also needs to be assessed. Organizations should look into the managed-care operation's internal organization to see that it continually educates and updates its staff. Are case conferences held? Does it have an established supervisory structure that includes multidisciplinary team management (including MDs, PhDs, social workers and psychiatric nurses)?
The network of providers must be scrutinized. This is vital, whether the setup is an HMO, PPO or UR. This involves more than looking at credentials. Many times, any provider who possesses a license, malpractice insurance and appropriate office hours is accepted into a network. Purchasers should find out whether the managed-care operation has met its providers. They also should question the quality standards the managed-care operation has used in selecting these individuals.
The precertification, concurrent review and follow-up processes in most UR systems are done on the telephone. The reviewer uses standardized criteria to diagnose the problem. No matter how expert the reviewer, the ability to formulate a diagnosis by telephone in all but emergency situations raises critical doubt about the accuracy of the assessment.
Since the reviewers often neither see nor talk to the patient and may perform only a perfunctory telephone analysis, they always know less about the patient than the provider does. The reviewer, who has a mandate to prohibit unnecessary care, often doesn't know the whole story and must accept the word of the provider. The provider, knowing more than the reviewer, may alter or reinterpret the clinical data to ensure that his or her game plan, not the reviewer's, is carried out. The reviewer and provider often divert time and resources to this game, and the patient's care suffers.
- The use of telephone protocols by UR arrangements
- The implementation by UR and HMO organizations of arbitrary limits on the number of sessions a patient can take or the amount the patient can spend. These fixed criteria leave the burden of recovery on the patient. Given the chronic and variable nature of some mental illnesses, the ethical nature of such arrangements is questionable. Imagine such a limit on treatment for diabetes
- The use of third-party telephone reviews and checklist protocols by UR and HMO firms. These don't permit the efficient transfer of resources to the cases most in need.
Purchasers should inquire about how clinical decisions are made. They should be wary of programs that can deny care based on rigid rules of medical necessity without providing a comprehensive assessment and treatment plan design that's based on face-to-face interviews.
Consumers rarely project that they will have mental health needs. They often choose their plans based on lower out-of-pocket expenses and the inclusion of a range of medical services. HMOs are prepared to address mental-health emergencies, but treatment for chronic problems often is extremely limited. The lower the level of treatment provided, the greater the HMO profits. Thus, the quality of care can be compromised by the financial incentives that are built into the system.
Similarly, UR organizations have an inherent vested interest to undertreat. The clearest example is a case in which a UR firm has a contractual agreement with the payer to share any mental health savings, based on a predetermined formula. (Professional tenets forbid fee-splitting arrangements. These would seem to apply to the provision of a direct financial incentive of splitting the money saved.) Such formulas seem to pit the payers against the employees and the providers.
Thus, purchasers should know precisely how the managed-care organization makes its money. They should be aware of any conflict-of-interest arrangements that may directly impinge on clinical decisions.
How, then, can effective management be accomplished without jeopardizing quality? Reducing the adversarial relationship between payer, provider and consumer is a variable that's key to resolving many of the quality problems of existing managed-care arrangements. The goal of managed care should be the integration of financing and delivery of clinical care. Managed-care operations that combine financial and clinical expertise will integrate the mental-health market and improve its efficiency. When cost concerns dominate clinical care or cost factors are ignored completely, the market is more fragmented, and turf battles cause efficiency to decline.
To reduce adversarial relations, all parties must contribute to financial and clinical planning. First, employees need to know how much their company plans to spend. They may wish to respond to this plan and should learn how to use this benefit best. Then employers and employees can select the kinds of treatment protocols they would find most useful. They must figure out, not only how much money to spend, but on what they want to spend it. For example, do employer and employees want to pay for:
- Schools associated with long-term care for adolescents
- Halfway houses
- Post-care chemical dependency treatment.
The decisions about what to cover should take into consideration current knowledge about effectiveness of treatment. Clearly, the move away from long-term inpatient care to various outpatient settings, such as day hospitals and residential and school settings, can be a significant element in cost reduction. Similarly, the trend away from open-ended therapy to briefer, more directed therapies will influence the selection of treatment options. There's a greater awareness of the need for continuity of treatment with-in a continuum of treatment options. An efficient managed-care organization will oversee this process. As unnecessary care is eliminated and costs are controlled, the breadth of coverage may increase, to include more options than would be possible under traditional policies.
Principles of a quality managed-care program.
The following principles form the foundation for a quality-oriented managed-care program that integrates the financing of care with the delivery of service. They're based on eliminating adversarial relationships. They also respond to the quality issues discussed above.
- The managed-care firm shouldn't share in any cost savings. (Cost savings belong exclusively to the payer.) Compensation for managed-care services shouldn't be based on the amount or type of mental-health services arranged for consumers. Rather, compensation should be based on a fee for managing the program. This eliminates financial conflicts of interest, as are seen in some of the current HMO or UR arrangements.
- Payer and consumer should determine together how much to spend for mental health. Once that amount has been determined, there should be no incentives that would encourage either reduced service (as in HMO or UR set-ups) or increased service (as in fee-for-service arrangements). The task of managed care is to find the right providers to meet consumers' needs and still keep within the predetermined budgetary constraints.
- The managed-care organization needs to integrate financial and clinical decision making and provide expert consultation to the payer and consumer to help them arrive at a budget that pays for necessary mental-health services.
- As part of the budgetary planning process, managed care must provide the expertise for a benefit design that allows for flexibility. Dollars can't move freely to purchase the needed services if they're constrained by a rigid benefit system that's designed solely to limit costs.
- Managed care should develop treatment plans based on direct face-to-face evaluations with consumers, which begin at the start of the clinical process. The provider and consumer need to agree on a treatment plan, as mediated by the managed-care organization, before treatment begins. This eliminates the current UR setups, in which the managed-care firm argues with the provider about the treatment without knowing anything about the case. This requires the managed-care organization to possess clinical expertise that matches the expertise of the providers who deliver the bulk of the care. Case management follows a case from beginning to end and must integrate payer, consumer and provider needs.
- The most efficient managed-care operations will build on existing employee assistance program (EAPs). Managed care is a logical extension of the work of EAPs. The EAP developed, in part, through its ability to understand and integrate the work and social functioning of the employee. A well-functioning EAP has community resources, enabling it to propose appropriate treatment.
- Treatment plans and benefit design shouldn't be arbitrary. It doesn't make sense to limit payment arbitrarily for a given number of illness episodes. For example, medical plans aren't limited to covering only two heart attacks. Why should coverage for chemical dependency be limited to only two relapses? If relapses do occur, treatment plans should be altered.
The best EAPs traditionally foster the hands-on approach. The EAP clinician who has met with the worker face-to-face and has a working relationship with the company's personnel and medical departments is in the best position to make the appropriate referrals.
In addition, although EAPs haven't previously been endowed with any specific cost-control mission, they do channel referrals on the basis of a provider's track record of quality, accompanied by an efficient use of limited resources. Furthermore, EAP clinicians have become proficient, beginning-to-end case managers because the goal always has been to make sure that an optimally functioning employee returns to the workplace.
By applying the above principles, benefits administrators can design rational managed-care systems that will achieve their company's objectives without causing many of the quality problems inherent in the managed-care models that are commonplace today.
Personnel Journal, March 1993, Vol. 72, No. 3, pp. 106-111.