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The validity of this hypothesis is of interest to everyone involved with health care—patients and potential patients, practitioners and others who provide medical services, employers, unions, insurers, and makers of public policy.

Utilization management has become a growth industry, spurred by purchasers' search for control over rapidly escalating expenditures for health care. One recent survey reported average cost increases from 1987 to 1988 of 14 percent for employers with insured health benefit plans and 25 percent for employers with self-insured plans. In the private insurance sector, many commercial insurers, Blue Cross and Blue Shield plans, and HMOs have seen substantial losses, and some commercial insurers are withdrawing from the group health insurance market.

To the dismay over rising health care costs has been added a growing perception that a significant amount of medical care is unnecessary and sometimes harmful. The studies that have contributed to this perception have also produced some optimism that external review of physician practice decisions could detect unnecessary care, influence physician behavior, and reduce costs without jeopardizing access to needed services. Such review has also appeared to offer an alternative to retrospective denials of claims for benefits and across-the-board cutbacks in health plan coverage.

In this preliminary report, the Committee on Utilization Management by Third Parties examines several questions.

• How effective is utilization management in limiting utilization and containing costs?

• Are there unintended positive and negative consequences of bringing an outside party into the process of making decisions on patient care?

• Are utilization management organizations and purchasers sufficiently accountable for their actions or are new forms of oversight, perhaps government regulation, needed?

• What are the responsibilities of health care providers and patients for the appropriate use of health services?

The focus is on the private sector, in which two-thirds of the nonelderly population are covered directly or as dependents under employer-sponsored health plans. An estimated one-half to three-quarters of the individuals in these plans are subject to utilization management.

Current Status of Utilization Management

Early in its discussions the committee realized that the term utilization management has no single, well-accepted definition. As with the labels cost containment and managed care, different people may mean different things by the term. In this report, the committee considers utilization management as a set of techniques used by or on behalf of purchasers of health benefits

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