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of
Use of Effectiveness Research in
Managed Care Plans
Howard L. Bailit
My approach to effectiveness research is from the perspective of the
group health insurance industry, particularly that segment of the industry
that operates managed care plans. I address four issues in this chapter:
1. The importance of effectiveness research to the group health insurance-
managed care industry,
2. Current applications of effectiveness studies in managed care plans,
3. The contributions group health insurers can make to effectiveness
research, and
4. Limitations of the effectiveness "strategy" in controlling health care costs.
IMPORTANCE OF OUTCOMES RESEARCH
It is important to emphasize that the group health insurance industry is
under great pressure to control the rate of increase in health care costs. This
issue is now the primary concern of employers because they cannot cope
with 15- to 20-percent rate increases year after year.
This pressure to control costs is causing major changes in the health
insurance industry. First, a consolidation is taking place as insurers that are
unable to provide employers with effective medical management services
go out of business.
Second, insurers are concerned about the possibility of national health
insurance or other government interventions to control costs that will adversely
affect the industry. This is of special concern now because some of America's
largest companies are advocating national health insurance. Traditionally,
employers have been against greater government control of the delivery
system, but some are becoming skeptical that the private sector can success
218
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WlIERE DO WE GO FROM HERE?
219
fully address the cost problem. As a result, insurers and others in the
managed-care business have to demonstrate that they can control health
care costs. Further, they must find a solution within the next five to seven
years to prevent further government controls.
Within this general environment, insurers have two basic cost control
strategies available to them. One is to increase patient cost-sharing in
hopes of reducing utilization by fostering more prudent purchasing of health
services. Until recently, patients' out-of-pocket costs were staying constant
in real dollars. Employees were protected from the rapid increases in costs
by having employers allocate a larger share of their total compensation to
health benefits. Now, data from the Health Insurance Association of America
suggest that cost-sharing is starting to increase, and this trend is expected to
continue.
Greater cost-sharing alone is unlikely to solve the problem of rising
costs. For one thing, this nation is about to enter a period of severe labor
shortages, and companies may compete for skilled workers with richer benefit
plans. Also, many Americans feel very strongly about their health benefits
and will probably not tolerate major increases in out-of-pocket costs. This
can be seen in the recent strikes at Pittston Coal and AT&T, where workers
were not willing to accept reduced health benefits. In sum, then, some
modest increases in cost-sharing will occur, but this option will probably
not solve the problem of rising costs.
A second strategy open to the private sector is to establish a more competitive
delivery system through the development of health maintenance organizations
(HMOs) and other managed care plans. The basic idea is that by carefully
selecting cost-effective providers, giving them an appropriate level of risk
sharing, and carefully monitoring utilization, health care costs can be controlled.
Risk-sharing is an important element in this strategy because it helps focus
the attention of providers on the efficient use of resources. However, although
risk sharing is a necessary part of a managed-care system, it is not sufficient.
Uwe Rheinhart presented a model where physicians' concern with maxi-
mizing their incomes was the driving factor in increasing health expenditures.
He probably said this facetiously, because there is ample evidence that,
even when physicians are at financial risk or are paid a salary, there is still
a substantial amount of unnecessary and inefficient care delivered. A good
illustration of this point was the case history presented by Steve Schoenbaum
from the Harvard Community Health Plan (HCHP), a large staff-model
HMO in Boston (1~. He showed that HCHP obstetricians who used Hospi-
tal A had much higher rates of cesarean sections and forceps deliveries than
those using Hospital B. He noted that this difference was not accounted for
by variation in patient mix; more likely, it reflected differences in practice
styles in the two obstetrics units. Thus, physicians' economic incentives
are only one factor determining utilization patterns.
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220
EFFECTIVENESS AND OUTCOMES IN HEALTH CARE
In the view of many persons in the managed-care industry, the key to the
private sector's approach to controlling costs is utilization management,
that is, programs that attempt to improve the effectiveness and efficiency of
care delivered to individual patients. The utilization management strategy
is based on the well-documented fact that a substantial amount of care is
either unnecessary or only marginally beneficial. If inappropriate care is
reduced, the quality of care will be improved and at the same time costs
will come under greater control.
In part, responsible utilization management requires having explicit guidelines
or protocols that define when a given procedure or test is necessary. In
turn, the development of protocols depends on having data on the effectiveness
of selected procedures in terms of health outcomes. As pointed out many
times in this volume, there is a paucity of such data. Clearly then, effectiveness
research is an important component of the health insurance-managed care
industry's strategy to control health care costs.
CURRENT APPLICATIONS OF OUTCOMES RESEARCH
CLINICAL PROTOCOLS
AEtna has made a major investment in developing protocol-based utilization
management programs, and several other insurers are moving in the same
direction. AEtna now operates a Recertification system that focuses on
about 20 inpatient and 20 outpatient surgical procedures and diagnostic
tests. The protocols were actually prepared by academic medical researchers
and clinicians under contract to AEtna. We believe that the credibility and
acceptance of protocols by employers, employees, and providers is enhanced
by having academicians, who are focused on medical science rather than
costs, prepare the protocols.
Even though AEtna did not develop the protocols internally, an obvious
question is, Why are insurers rather than the medical profession taking the
initiative in developing protocols? AEtna believes that organized medicine
should, and eventually will, assume responsibility for developing national
protocols, but for the time being AEtna is filling a gap.
AEtna's protocol-based utilization management programs have been running
for about a year. They operate as a prior authorization system; that is,
patients or providers call AEtna nurses, who use computer-based protocols
to solicit specific information that is used to determine whether the proposed
procedure is appropriate. If the procedure fails certification, the case is sent
to an AEtna physician, who then discusses the details of the treatment with
the attending physician. In this sense the protocols serve as screening tools
to identify cases that do not meet current quality standards.
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WHERE DO WE GO FROM HERE?
TECHNOLOGY ASSESSMENT
221
Another application of effectiveness research is technology assessment
programs. In the past, insurers paid for procedures if they were in common
use within the practicing community. Now, AEtna is taking a much tougher
stand and has a large staff involved in trying to determine whether selected
procedures are effective and should be covered benefits, regardless of local
practice. This is done by reviewing the medical literature, consulting with
nationally recognized clinical experts, and monitoring the positions of pro-
fessional organizations (such as the American Cordage of Physicians) that
have active technology assessment programs.
This is just the beginning, and AEtna and other organizations committed
to responsible cost management, including the government, are going to
have to spend millions of dollars for technology assessment. Hundreds of
procedures and tests now being used have never been carefully reviewed for
effectiveness. Likewise, new procedures are being introduced into the delivery
system with little, if any, scientific evaluation.
INSURERS' ROLE IN EFFECTIVENESS RESEARCH
Insurers can contribute to effectiveness research in several ways. First.
they can assist the research community in obtaining congressional support
for research funding.
Second, AEtna and other insurers can provide data on the population
under age 65. In some respects, insurers' data are more extensive and
detailed than data available from Medicare. In addition to the traditional
data from paid claims, many insurers are now collecting from utilization
management programs clinically detailed information that can be linked to
paid claims. A good example is the extensive clinical data obtained in
AEtna's protocol-based reviews of selected procedures.
Also, the quality of the data is getting much better. For example, AEtna
captures International Classification of Disease (ICD-9-CM) codes for am-
bulatory visits and is working on ways to collect more detailed information
on inpatient ancillary services. Further, some insurers' claims data systems
have the capacity to include additional data elements. Thus, for example, a
prospective study of several thousand patients could collect some information
from hospital bills that is not usually captured on claims. On-site nurses
could also collect concurrent data on selected patients. AEtna has nurses in
many locations who use laptop computers to collect and transmit data on
hospitalized patients.
Another enhancement of data that will be of interest to researchers is the
ability some insurers have of creating episodes of care and linking claims
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222
EFFECTIVENESS AND OUTCOMES IN HEALTH CARE
across settings (outpatient and inpatient) and services (drugs and outpatient
ancillary services). Thus, some insurers can provide a fairly comprehensive
clinical data set.
A third contribution insurers can make to effectiveness research is undertaking
joint projects with university investigators. AEtna now employs several
health services researchers and is actively seeking opportunities to join with
established university groups in obtaining research grants from federal and
private funding agencies.
The combination of AEtna's access to data, experience in insurance,
internal research staff, and other resources with the expertise of university
investigators offers a new model for applied health services research. This
model should be attractive to funding agencies interested in supporting effec-
tiveness research.
At some point, the information collected has to be used to effect positive
changes in the delivery system. This is the fourth area in which insurers
can contribute to the broader field of effectiveness research that is, What
are the best methods for changing the practice behaviors of providers? This
is a very difficult problem, even with the necessary data on effectiveness.
Steve Schoenbaum reported on the difficulty of trying to influence the behavior
of several obstetricians employed by HCHP. Just imagine the problems
faced by large insurers with HMOs and preferred provider organizations in
100 or more sites trying to modify the practice patterns of physicians.
The point is that effectiveness research needs to go beyond measurement
and into applications. Because insurers operate many managed care plans
in multiple locations, they offer an ideal natural laboratory for applications
research.
LIMITATIONS OF THE EFFECTIVENESS "STRATEGY"
An underlying assumption of the effectiveness "strategy" is that with
"hard" data on what medical treatments are cost-effective and with financial
incentives and utilization management systems to influence provider practice
behaviors, the rate of increase in health care costs can be substantially
reduced.
From AEtna's experience with protocol-based review programs, HMOs,
and other managed-care approaches, significant savings are possible. The
still unanswered question is, "Are these one-time savings, or is the long-
term rate of cost increases being reduced?" Only time will tell.
A related problem is the capacity to implement and operate effective
managed-care programs in hundreds of different locations. Even if it can be
demonstrated that one HMO can significantly reduce the long-term rate of
increase in costs, it does not mean that this HMO can be replicated in every
major medical market in the country.
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WHERE DO WE GO FROM HERE?
223
Another concern with the effectiveness strategy is the liability issue. Just
imagine the impact of two settlements of $40 million resulting from patients'
being denied services, based on protocols, and later having adverse medical
outcomes. It would have a profound effect on the whole managed-care
industry and the use of protocols. So far, there have been few liability
cases associated with managed-care programs, but the field is still relatively
new, and we live in a very litigious society.
The final problem with the effectiveness strategy is having the time to
make it work. Employers and legislators appear to want quick and easy
solutions to complex problems. Certainly, all of us can sympathize with the
desire to solve the cost problem within the next two years. Realistically, I
believe that there are no easy answers, certainly no painless answers, and no
answers that are likely to solve the problem within two years. These are my
concerns. I am convinced that managed care can work and that effeci~ve-
ness research will undoubtedly have a very positive long-term impact on
improving health and making the delivery system more efficient. The health
insurance industry is a strong supporter of this effort and is prepared to
work with the research community to collect, analyze, and apply the results
of effectiveness studies.
REFERENCE
1. Schoenbaum, S.C. An Attempt to Manage Variation in Obstetrical Practice.
Pp. 190-200 in Electiveness and Outcomes in [lealth Care. Heithoff, K.A. and Lohr,
K.N., eds. Washington, D.C.: National Academy Press, 1990.
Representative terms from entire chapter:
utilization management
