Managed health care at the crossroads.

In the past 10 years, the health care industry has been transformed by the managed care movement. It and various utilization interventions, such as precertification of inpatient hospital stays, in the practice of medicine have been encouraged by the necessity of reducing health care costs to employers.

The Health Insurance Association of America, in its latest employer survey, concludes that in 1990 less than 5 percent of employer-based health insurance was left without some utilization management intervention mechanism. This is a drop from 18 percent in 1989. PPO and HMO penetration continues to grow because of the promise they offer to control health care costs. In one sense, managed care, formally or informally, is the main actor in the current health care system. But it is under tremendous pressure to deliver the promised savings.

With health care premiums continuing to rise 14 percent annually, there is still a large number of employers who cannot prove that the managed care programs helped save any money. At the same time, employers and the public have had increased concerns about the ability of the health insurance industry, managed care or otherwise, to maintain financial strength. Public opinion on the financial stability of the health insurance industry has slipped to a seven-year low.

Historically, insurance companies performed a dual role. They were able to share the risk among large numbers of patients, and they were considered better investors of the accumulated capital than were the individual buyers of insurance, thus holding down health care costs. Risky loan portfolios and the recent decline in the real estate market have left insurance companies with reduced reserves and profits. Increasing premiums often seem to have little association with true health care costs. ERISA has encouraged the use of self-insurance by all but the smallest employers. Utilization review costs have exploded. Administrative costs for employer-based insurance now average 30 percent. This is the fastest growing segment of the health care expenses, increasing by 28 percent in 1990 alone. Most large employers have been able to negotiate lower administration costs, thereby reducing operating margins for the large insurance companies. Cost shifting of managed health care administrative costs to smaller employers dilutes the advantages of managed care for them.

Sen. Jay Rockefeller (D-W.V.), in an address before the American Academy of Family Practice in Washington, called for a new cooperation among payers, providers, and patients. He sees the need for the adoption of positions by each group that address the needs of the uninsured and show a positive impact on the cost of health care. Without solid evidence of success, he predicts, Congress will enact a national single-payer health care system by 1996. He senses a sudden increase in public awareness of health care costs and a feeling of a need for change. The press and other media bring the problems home to patients on a daily basis.

In 1990, a wide range of legislative mandates were considered and passed to influence managed care organizations and restrict the scope of their activities. For instance, eligibility for PPO participation was opened to all providers and there was an increased demand for more accountability from utilization review firms on the criteria used to adjudicate requests for services. Antihassle factors, legislation requiring 24-hour availability, and mandated use of local reviewing personal have also been called for. Mandating the release of aggregate data on the actions of utilization review companies is being considered, along with state government approval of the criteria used for adjudication of service requests.

Benefits consultants, providers, regulators, and employers are demanding that the utilization review industry provide more information concerning the cost and benefits of their interventions. Beyond discounting fees, the PPO industry has been perceived as doing little to improve the efficiency of the health delivery process. Little is known about their impact, favorable or unfavorable, on quality of care. Only recently has the credentialing and recredentialing processes gone beyond confirmation of the education the certification of providers. In fact, the public perception of quality of care may have been reduced as capitation and discounted fees leave them feeling short-changed.

Too often, we implement systems on a national scale and at great cost before we analyze the impact of the intervention. Providers may already have responded with more appropriate utilization, leaving us reviewing procedures that no longer need change. Financial incentives, e.g., DRGs, have shortened hospital stays without expensive phone calls. The "sentinel effect" has positive impact and little cost.

What is needed now is a cooperative effort by providers and payers to meet these challenges. Open discussions of criteria and honest sharing of data and information are essential. Systems must focus on proven areas of need and concern and then be discarded when problems have been resolved. We must find ways to positively promote change, rewarding providers with proven track records. Electronic submission and adjudication for utilization review and claims is a must if we are going to reduce administrative costs.

Physician executives must be able to quickly analyze their systems, processes, and direction to meet all these changes. But we must also continue to help the few patients, illnesses, and providers that generate the bulk of costs. Money for research into the processes of care, such as in bone marrow transplants, is must better spent than that for avoiding payment through outcomes research.

The "easy days" of reducing inpatient hospital utilization have passed. Accountability in the review of outpatient procedures will be difficult, because even an 8 percent savings is considered excellent. Preventive health care is a must. Changing patients harmful life-styles, such as we have done in the control of hypertension and in the monitoring of dietary cholesterol, has shown to be effective in reducing morbidity and, perhaps, costs, but it is not easy. Our success in dealing with ongoing change will determine our ability to satisfy the demands for control of costs. Only those organizations with strong, qualified medical management will be survivors.

John J. Saalwaechter, MD, MBA, is Executive Director, American College of Medical Quality Foundation.