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Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Controlling Costs and Changing Patient Care?

The Role of Utilization Management

Committee on Utilization Management
by Third Parties
Division of Health Care Services
INSTITUTE OF MEDICINE

Bradford H. Gray and Marilyn J. Field, editors

NATIONAL ACADEMY PRESS
Washington, D.C.    1989

Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Page ii

National Academy Press • 2101 Constitution Avenue, N.W. • Washington, D.C. 20418

NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance.

This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine.

The Institute of Medicine was chartered in 1970 by the National Academy of Sciences to enlist distinguished members of the appropriate professions in the examination of policy matters pertaining to the health of the public. In this, the Institute acts under both the Academy's 1863 congressional charter responsibility to be an adviser to the federal government and its own initiative in identifying issues of medical care, research, and education.

This project was supported by the John A. Hartford Foundation of New York City, Grant No. 87343-H, and the Pension and Welfare Benefits Adminstration, U.S. Department of Labor, Contract No. J-9-P-8-0067. The Honeywell Corporation provided funds for a roundtable meeting with corporate benefits managers. The views presented are those of the Institute of Medicine Committee on Utilization Management by Third Parties and are not necessarily those of the funding organizations. The Andrew W. Mellon Foundation contribution to independent Institute of Medicine funds was also used to support the project.

Library of Congress Cataloging-in-Publication Data

Institute of Medicine (U.s.). Committee on Utilization Management by
Third Parties.
Controlling costs and changing patient care? : the role of
utilization management / Institute of Medicine, Division of Health
Care Services, Committee on Utilization Management by Third Parties
; Marilyn J. Field and Bradford H. Gray, editors.
p. cm.
Includes bibliographical references.
ISBN 0-309-04048-5.—ISBN 0-309-04045-0 (pbk.)
1. Medical care—United States—Cost control. I. Field, Marilyn
Jane. II. Gray, Bradford H., 1942-. III. Title.
RA410.53.158 1989
338.4t 3362/10973—dc20                    89-39638
                                   CIP

No part of this book may be reproduced by any mechanical, photographic, or electronic process, or in the form of a phonographic recording, nor may it be stored in a retrieval system, transmitted, or otherwise copied for public or private use, without written permission from the publisher, except for the purpose of official use by the U.S. government.

Printed in the United States of America

Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Page iii

COMMITTEE ON UTILIZATION MANAGEMENT BY THIRD PARTIES

JEROME H. GROSSMAN,* Chairman, President, New England Medical Center Hospitals, Boston, Massachusetts

HOWARD L. BAILIT,* Vice President for Health Research and Policy, Aetna Life and Casualty, Hartford, Connecticut

ROBERT A. BERENSON, Washington, D.C.

JOHN M. BURNS, Vice President, Health Management, Honeywell, Inc., Minneapolis, Minnesota

RICHARD H. EGDAHL,* Director, Boston University Medical Center, Boston, Massachusetts

JOHN M. EISENBERG,* Chief, General Internal Medicine, University of Pennsylvania, Philadelphia, Pennsylvania

DEBORAH ANNE FREUND, Professor and Chair of the Health Care Faculty, and Director, The Center for Health Services Research, School of Public and Environmental Affairs, Indiana University, Indianapolis, Indiana

PAUL M. GERTMAN, President, ClinMan, Inc., Waltham, Massachusetts

ALICE G. GOSFIELD, Attorney, Alice G. Gosfield & Associates, P.C., Philadelphia, Pennsylvania

MICHAEL E. HERBERT, President, Physicians Health Services, Trumbull, Connecticut

NATHAN HERSHEY,* Professor of Health Law, Graduate School of Public Health, University of Pittsburgh, Pittsburgh, Pennsylvania

NEIL HOLLANDER, Vice President, Corporate Health Strategies, Blue Cross of Western Pennsylvania, Pittsburgh, Pennsylvania

KAREN IGNANI, Associate Director, Department of Occupational Safety, Health, and Social Security, AFL-CIO, Washington, D.C.

CAROL ANN LOCKHART, Executive Director, Greater Phoenix Affordable Health Care, Phoenix, Arizona

ARNOLD MILSTEIN, President, National Medical Audit, San Francisco, California

ALAN R. NELSON,* Associate, Memorial Medical Center, Salt Lake City, Utah

ROBERT PATRICELLI, President & Chief Executive Officer, Value Health, Inc., Avon, Connecticut

CYNTHIA L. POLICH, President, InterStudy, Excelsior, Minnesota

* Institute of Medicine member

Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Page iv

DONALD M. STEINWACHS, Director, Health Services Research and Development Center, School of Hygiene and Public Health, The Johns Hopkins Medical Institutions, Baltimore, Maryland

BRUCE S. WOLFF, Partner, Proskauer Rose Goetz & Mendensohn, New York, New York

STUDY STAFF

KARL D. YORDY, Director, Division of Health Care Services

BRADFORD H. GRAY, Study Director (through December 1988)

MARILYN J. FIELD, Study Director (through January 1989)

SUSAN E. SHERMAN, Research Associate

MARGARET WALKOVER, Research Associate

DON TILLER, Administrative Assistant

WALLACE K. WATERFALL, Editor, Institute of Medicine

EILEEN CONNOR, Consultant

SHARON ROSEN, Consultant

Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Page v

Contents

Preface

vii

Executive Summary

1

1
Utilization Management: Introduction and Definitions

13

2
Origins of Utilization Management

28

3
The Utilization Management Industry: Structure and Process

58

4
Impact of Prior Review Programs

91

5
High-Cost Case Management

119

6
Conclusions and Recommendations

143

Acknowledgments

163

Appendixes

 

A
Legal Implications of Utilization Review

William A. Helvestine

169

B
Utilization Management and Quality Assurance in Health Maintenance Organizations: An Operational Assessment

Joan B. Trauner and Sibyl Tilson

205

C
Utilization Management in Peer Review Organizations

246

Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Page vi

D
Summary of Public Hearings

250

E
Summaries of Committee Site Visits to Utilization Management Organizations

253

F
Analysis of Agreements Between Utilization Management Organizations and Their Clients

282

G
Glossary and Acronyms

288

H
Biographies of Committee Members

293

Index

301

Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Page vii

Preface

The past decade has seen great growth in efforts by purchasers of health care to understand and influence the treatment of patients. In large measure, these efforts reflect purchasers' concerns that their increasing expenditures are not matched by increasing value and even that a significant amount of care is inappropriate and wasteful. Clinicians and researchers, too, are acutely concerned about unexplained variations in practice patterns and lack of evidence of treatment effectiveness. To respond to these concerns, we must focus on how the health care system works as well as how individual patients are served.

Utilization management brings patient-level and system-level concerns together and represents a new nexus of relations among payers, practitioners, hospitals, and patients. Because it is new, at least as broadly applied, and because it is changing rapidly, utilization management needs to be watched.

This report is a preliminary effort in that direction, and the committee hopes that it will inform private and public policymakers alike. Whether the current organizational forms of utilization management remain or subside, the function of managing utilization will remain a central challenge. Therefore, this committee's conclusions and recommendations bear both on generic issues of knowledge and values and on issues specific to current organizations and procedures for influencing patient care decisions.

The first step in this study of utilization management by third parties was a workshop held in the summer of 1987 to identify policy issues and research questions, consider roles for the Institute of Medicine, and

Page viii Cite
Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Page viii

discuss the organization and methods of utilization management. This workshop provided initial direction and encouragement for the committee and staff, who held seven meetings between December 1987 and February 1989. In addition to soliciting presentations from knowledgeable persons at committee meetings, the project sought views, data, and ideas through

• 12 site visits to organizations that provide utilization management services (including freestanding firms, insurer subsidiaries, health maintenance organizations, and peer review organizations);

• a June 1988 hearing in which written and oral testimony was presented by over 30 consumer, provider, industry, employer, and other organizations;

• four papers commissioned by the committee from experts in different aspects of utilization management (two of these papers appear in Appendixes A and B of this report); and

• review of published and, in some cases, unpublished literature on the goals, processes, effects, and operating contexts of utilization management.

Additional information was obtained from ongoing discussions with people involved in utilization management as purchasers of utilization management services, suppliers of these services, and subjects of utilization management review, that is, physicians, hospitals, and patients. Reflecting the competitive nature of the utilization management industry, all of the site visits and some other discussions required commitments that the committee would keep confidential any information that would identify the source.

The committee on utilization management plans further work to evaluate the continued course of utilization management and related means of improving the appropriateness and cost-effectiveness of medical services. Other committees and councils of the Institute of Medicine are studying strategies for quality review and assurance, methods for monitoring and improving access for the uninsured, priorities and processes for technology assessment, and problems facing employer-sponsored health benefit plans. This and related work grows out of a continuing commitment by the Institute of Medicine to an agenda of evaluation that encompasses the cost, quality, and availability of health services.

JEROME H. GROSSMAN
CHAIRMAN, COMMITTE ON
UTILIZATION MANAGEMENT
BY THIRD PARTIES

Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Suggested Citation:"Front Matter." Institute of Medicine. 1989. Controlling Costs and Changing Patient Care?: The Role of Utilization Management. Washington, DC: The National Academies Press. doi: 10.17226/1359.
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Controlling Costs and Changing Patient Care?: The Role of Utilization Management Get This Book
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Utilization management (UM) has become a strong trend in health care cost containment. Under UM, some decisions are not strictly made by the doctor and patient alone. Instead, they are now checked by a reviewer reporting to an employer or other paying party who asks whether or not the proposed type or location of care is medically necessary or appropriate.

This book presents current findings about how UM is faring in practice and how it compares with other cost containment approaches, with recommendations for improving UM program administration and clinical protocols and for conducting further research.

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