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Health care plans covering outpatient x-rays and lab tests.

Between 1980 and 1990, national health care expenditures more than doubled from $250 billion to $666 billion per year. Hospital care, the largest single component of national health care expenditures, exceeded $250 billion in 1990 - equal to all health care expenditures just 10 years earlier.(1) As a consequence of these dramatic increases, employers and insurers during the 1980's began to include incentives in health care plans, encouraging outpatient treatment in lieu of in-hospital care.

Diagnostic x-ray (which also incorporates newer technologies referred to as diagnostic imaging) and laboratory testing are used to help determine the nature and extent of an individual's illness or injury as well as his or her general state of health. These procedures are performed whether or not an individual needs to be hospitalized, and they generally do not require hospitalization. Encouraging or requiring patients to have diagnostic procedures performed prior to hospitalization can reduce the length of hospital stay, and the corresponding expenses for room and board and other services. In some cases, x-rays or laboratory tests may provide additional information which changes the original diagnosis, thereby forestalling hospitalization. These diagnostic procedures have led to changes in insurance provisions covering outpatient x-rays and tests - often incentives to reduce hospital stays. At the same time, the frequency and length of hospital stays have been declining, attributable in part to the increase in outpatient services, including x-rays and laboratory testing, as well as other factors.

This report examines changes in diagnostic x-ray and laboratory testing during the 1980's, and changes in coverage for such services by employer-provided health care plans. Data on employer-provided benefits are from the Bureau of Labor Statistics annual Employee Benefits Survey, which tracks the availability of a variety of benefits, including health care, as well as detailed provisions of those benefits.(2)

Diagnostic procedures

Diagnostic x-rays and laboratory tests are a part of the care rendered in the treatment of an illness or injury, or as part of a routine examination. Diagnostic x-rays and other methods of imaging involve the taking and interpreting of internal pictures of the body and bodily functions. Methods of diagnostic x-ray and imaging include: general radiology, mammography, computed tomography, ultrasound, magnetic resonance imaging, nuclear medicine, and interventional radiology. (See box.) Chest x-rays are among the oldest and least expensive imaging procedures; in contrast, magnetic resonance imaging is one of the many newer, highly technical, and more expensive procedures.

Diagnostic laboratory tests, of which there are thousands, examine and analyze bodily tissues, liquids, gases, wastes, electrical impulses, and functions. Electrocardiograins and complete blood counts are two of the more common types of laboratory tests. Diagnostic imaging is performed by or under the direction of radiologists, and laboratory testing is done by pathologists. A primary care physician or specialist can perform some of the diagnostic procedures, if he or she has the proper equipment and trained personnel.

Outpatient diagnostic procedures are performed in three types of facilities: doctors' offices, outpatient departments of a hospital, or freestanding ambulatory care centers. These facilities, particularly ambulatory care centers, experienced rapid development throughout the 1980's.(3)

Trend away from hospitalization

As noted earlier, the rising cost of health care in general, and in-hospital care specifically, has led insurers and employers to encourage outpatient care. Moreover, stricter review of hospitalizations has become increasingly prevalent, as has the use of alternatives to hospitalization, such as extended care facilities or home health care. This trend has also been fostered by the Federal Government through its administration of Medicare.

Surgery is one of the most widespread examples of the trend away from in-hospital services. In many cases, patients are encouraged to have surgical procedures performed on an outpatient basis; surgical services may be reimbursed at a higher rate if performed without hospitalization. Some benefit plans even require that certain elective procedures be performed on an outpatient basis. For both in-hospital and outpatient surgery, second opinions are often encouraged or required to confirm the necessity of the surgery.(4)

When hospitalization is recommended, insurers and employers seek to verify the need for hospitalization, and minimize the length of stay. For example, health care benefit plans frequently require a patient to have the insurer certify the need for hospitalization. To minimize the length of stay, health care plans recommend or require that diagnostic x-rays and laboratory tests be performed prior to admission. And, insurers often dictate the length of stay, frequently encouraging recuperation at home rather than in the hospital.(5)

The Federal Government may encourage shorter hospital stays as well through the Medicare Prospective Payment System. Under this system, hospitals are paid a set amount per case according to the primary diagnosis. Each diagnosis is classified along with the patients's age, sex, treatment modality, and discharge status into a "diagnostic related group." Generally, the hospital receives reimbursement for each discharged patient based on the individual's diagnostic-related amount, regardless of the actual services received or number of days of care. Thus, hospitals may have a financial incentive to keep patient stays as short as possible.(6)

These efforts to reduce hospitalizations coincide with evidence that such reductions are taking place. The rate of hospitalization per 1,000 lives dropped from 109 in 1964 to 91 in 1990. For those individuals who were hospitalized, the average length of stay dropped from 8.9 days in 1964 to 6.7 days in 1990. Furthermore, the number of hospitals in the United States dropped from a high of just over 6,300 in the mid-1970's to about 5,800 in the late 1980's, perhaps, in part, a consequence of continuing efforts to reduce inpatient care.(7)

Trends in cost and coverage

The effect of employer, insurer, and government initiatives to contain the cost of health care by reducing or eliminating hospital stays may have had unforeseen results. By 1989, the rate of growth of hospital care expenditures was declining. Furthermore, the proportion of national health costs resulting from hospital care expenses declined from 41 percent in 1980 to 38.5 percent in 1989.(8) At the same time, the use of outpatient services rose rapidly. According to one study, outpatient expenses rose 142 percent from 1983 to 1989. Among the outpatient expenses increasing the most during the 1980's were diagnostic x-ray (120 percent) and laboratory procedures (159 percent).(9) There are a variety of factors that may have led to the rapid rise. Among those cited by the experts are:

* the availability of newer and more costly diagnostic equipment and tests;

* the concern for malpractice charges, which may lead to increased testing;

* the trend away from hospitalizations;

* the increased installation of diagnostic equipment in physicians' offices;

* the growth of ambulatory care facilities, often financed by groups of physicians;

* widespread insurance coverage of diagnostic services.(10)

Both in-hospital and outpatient x-ray and laboratory procedures are universally covered by employer-provided health care benefits. In-hospital services are generally covered the same as room and board charges. Outpatient services, especially in recent years, are more likely to be covered the same as physician office visits.

Outpatient diagnostic x-ray and laboratory service coverage has changed considerably over the last decade. In 1981, 84 percent of full-time workers in medium and large private establishments with health care benefits had "first-dollar" coverage for x-ray and laboratory services. First-dollar coverage means that benefits are paid by the plan without requiring the employee to share the costs. Often first-dollar coverage was available only up to a specified maximum, either per procedure or per year. Once the maximum was met, typically coverage was then subject to a plan deductible (a dollar amount paid by the employee) or a coinsurance (a percent of costs paid by the employee).

The 16 percent of workers without first-dollar coverage in 1981 were required to pay a deductible before receiving diagnostic x-ray and laboratory benefits, and then they shared the remaining costs with the plan. Such provisions became more widespread during the 1980's, covering 20 percent of workers with health care benefits in 1983, 39 percent in 1986, and 70 percent in 1991. (See table 1.) This change in coverage reflects efforts by employers and insurers to reduce unnecessary utilization of outpatient diagnostic procedures and to have employees share more in the costs of their benefits.


Coverage patterns were similar for full-time employees in small private establishments - 67 percent of workers with health care benefits had coverage of x-rays and testing subject to overall plan deductibles and coinsurances in 1990. In State and local governments in 1990, however, nearly half the workers with health care benefits had x-rays and testing covered in full. This reflects the prevalence in State and local governments of Health Maintenance Organizations (HMO's) and Blue-Cross/Blue-Shield plans - both of which frequently have first-dollar coverage for x-rays and testing.

Variations by type of plan

While all health care plans will generally cover diagnostic x-rays and laboratory tests, there are frequently restrictions on coverage. For example, plans may require that such testing be associated with the treatment of a specific injury or illness. In this way, patients are limited to tests recommended by their physician. Health care plans also specifically exclude dental x-rays from their services covered. Dental x-rays are routinely covered by dental insurance plans.

Significant differences emerge, however, when coverage by the type of medical plan is examined. Health care benefit plans were classified by the Employee Benefits Survey as either fee-for-service plans, health maintenance organizations (HMO's), or preferred provider organizations (PPO's). Fee-for-service plans allow covered employees to seek treatment from any medical care provider; the provider or employee is reimbursed after the service is received. HMO's are prepaid health care plans that require employees to receive services from specified providers. PPO's, a type of fee-for-service plan, allow employees to choose their providers, but give a greater reimbursement if selected providers are used.

The following data indicate the percent of full-time workers with health care benefits by type of health care plan:
 Total Fee for HMO PPO
 (1990) 100 74 14 13
 Medium and
 (1991) 100 67 17 16
State and local
 (1990) 100 61 22 17

Fee-for-service plans. Participants in fee-for-service plans are provided with the most variations in coverage of outpatient diagnostic x-ray and laboratory tests. Such procedures may be covered in full or subject to limitations. Limitations include those that apply just to diagnostic services, and those, such as deductibles, coinsurances, and dollar maximums, that apply to a variety of medical services.

In 1991, slightly less than 20 percent of full-time employees in medium and large establishments with health care benefits were subject to limitations that applied just to x-ray and lab work. The most prevalent limitations were dollar maximums. (See table 2.) With such coverage, insurers pay up to the specified dollar maximum amount prior to any out-of-pocket payment by the participant. Dollar limits can be specified as a maximum per year, a maximum per illness or injury, or a maximum per procedure. Typical annual or per iuness maximums range from $100 to $300. When a maximum is set per procedure, the plan will specify a list of common procedures and the dollar amount the plan will pay for such procedures. Once any maximums are reached, additional charges are generally subject to overall plan deductible and coinsurance provisions.
Table 2. Full-time participants
 in fee-for-service
 plans with internal
 limits for diagnostic
 x-ray and laboratory
 testing benefits,
 medium and large
 private establishments,

 Percent of
 Type of limitation(1) participants

 Total(2) 100

Deductible(3) 1

Maximum dollar amount 99
 Per year 86
 Per illness 6
 Scheduled 8
 Shared (4)

Coinsurance 1

(1) Includes PPO plans.
(2) The total is less than the sum of the
individual items because some participants
had more than one type of limitation on their
(3) The deductible may be applied on a per-year,
per-visit, or a per-confinement basis.
(4) Less than 0.5 percent.

An overall plan deductible is an amount the participant must pay prior to any payment (or any additional payment) by an insurer. Such deductibles generally average about $200 per plan participant per year. Coinsurance is the proportion of costs beyond the deductible that the plan participant must pay. Most often, coinsurance payments are 20 percent of charges. After the participant pays the deductible and his or her share of the coinsurance, the insurer pays the balance. These cost-sharing techniques may encourage participants to become more aware of the costs of health care and may discourage unnecessary use of benefits.

Another option available to many participants who must be hospitalized for surgical or medical reasons is pre-admission testing. This is a cost containment feature that is designed to eliminate a portion of the room and board costs by having diagnostic procedures performed prior to admission. As an example of an incentive for participants to take advantage of this option, a plan may drop the deductible that would have been applied to this benefit if the services were percformed hospital inpatient. In another example, the percent of charges paid by the insurer may increase from 80 percent to 100 percent when testing is received as an outpatient.

The following tabulation indicates the percent of full-time employees with health care benefits provided through a fee-for-service plan who were given incentives to obtain diagnostic testing prior to hospital admission:
 Percent of employees
1988 51
1989 49
1991 57

PPO's. Preferred provider organizations give incentives to participants using designated physicians and services. For diagnostic x-ray and laboratory testing, such incentives generally take the form of a decreased or eliminated deductible or an increase in the percent of charges paid by the plan. PPO'S also encourage outpatient testing prior to hospitalization through higher reimbursement of such outpatient services.

HMO's. The majority of HMO's provide diagnostic procedures at no cost to the participant. Other HMO's do charge a $5 or $10 copayment for office visits; typically this cost includes x-rays and tests performed as part of the visit. In general, HMO's contain implicit cost control mechanisms, designed to limit services to those deemed necessary. Thus, for example, x-rays and laboratory tests would only be performed if approved by an HMO physician. Similarly, HMO's may require certain services, such as testing prior to surgery, be performed on an outpatient basis.

The method of providing coverage for outpatient diagnostic x-ray and laboratory testing in employer-provided health care plans has changed considerably over the past decade. The decline of first-dollar coverage is indicative of the trend toward more cost sharing by employees. In addition, efforts to control overall health care costs, and particularly in-hospital costs, have resulted in incentive programs designed to encourage outpatient testing prior to hospitalization.

Glossary of diagnostic x-ray and imaging terms

General radiology. Production of an x-ray film by passing small amounts of radiation through the body. Most commonly used in examination of the lungs and extremities.

Computed tomography. Also known as CT scan or CAT scan. Development if cross-sectional images or slices of anatomy. Detailed organ studies can be produced by stacking individual images. CT scans work by passing x-rays through the body, which are detected by sensors and processed by computers. Images contain more detail than is available through general radiology.

Ultrasound. Creation of image through reflected sound echoes. provides a non-invasive means of examination, fetus prior to birth. Ultrasound is also used for heart examinations and for imaging tumors, cysts, the musculo-skeletal system, and the prostate gland.

Magnetic resonance imaging. Production of images through the use of an electro-magnetic scanner that surrounds the body, emits radio signals and displays the returning computer processed signals on a video screen. An effective means of imaging the brain, neck, and spinal cord.

Nuclear medicine. Development of images of the function of organs by following the path of radioactive material introduced into the body. Among its uses, nuclear medicine can detect damage to the heart, liver, kidney, and thyroid function.

Interventional radiology. Detection and treatment of internal conditions from outside the body. For example, a small tube called a catheter may be inserted into a body cavity or blood vessel with the ability to take pictures, remove a blockage, or take a tissue sample. Such procedures often eliminate the need for surgery.


(1) Health care Financing Review, vol. 13, no. 1 (U.S. Department of Health and Human Services, fall 1991). (2) The Employee Benefits Survey is an annual study of the incidence and characteristics of employee benefits. The survey provides data on health care, life and disability insurance, retirement and capital accumulation plans, paid and unpaid leave plans, and a variety of other benefits. Prior to 1988, the survey provided representative data for about 22 million full-time employees in larger private establishments. The survey was expanded to include all full-time and part-time employees in all private establishments and State and local governments; it now covers about 90 million workers. (3) For information on the development of ambulatory care facilities, see "The radiology market: What's hot, what's not," Hospitals, October 1986, pp. 88-111. (4) For additional information on outpatient surgery, see Robert B. Grant, "Outpatient surgery: helping to contain health care costs," Monthly Labor Review, November 1992, pp. 33-36. (5) For more information on cost containment features in health care plans, see Employee Benefits in Medium and Large Private Establishments, 1991, Bulletin 2422 (Bureau of Labor Statistics, May 1993). (6) For a detailed discussion of the Medicare Prospective Payment System, see "Medicare Prospective Payment System Rules Update Rates For DRGs," Spencer's Research Reports, October 2, 1992, pp. 324.41.-1-22. (7) U.S. Department of Health and Human Services, Public Health Service, Health United States 1991, May 1992. (8) Health Care Financing Review, vol. 13, no. 1, fall 1991. (9) These data are from a study of health claims of approximately 200,000 employees conducted by Corporate Health Strategies of Westport, Connecticut. For more information, see "Utilization and Cost Patterns of the Eighties: Some Strategic Implications for the Nineties," Information Management Bulletin, Fall 1989. (10) For information on the expanded use of outpatient diagnostic services, see "Ambulatory care's furious growth seriously outpaces internal management controls. An Unexplored Vista," Federation of American Health System Review, vol. 23, no.6, November/December 1990; and "Outpatient care falls from grace with employers," Hospitals. December 1988. p. 42.

Arthur C. Williams is an economist in the Division of Occupational Pay and Employee Benefit Levels, Bureau of Labor Statistics.
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Title Annotation:study on changes since 1980s
Author:Williams, Arthur C.
Publication:Monthly Labor Review
Date:Aug 1, 1993
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