Jeff Goldsmith, health-care adviser for the accounting firm of Ernst & Young, believes that increased demand for medical services has been the most important factor in increasing costs. Utilization has increased because technology has made it possible to treat many more ailments with less pain and inconvenience to patients, he says. "You have lowered the perceived threat and pain, so people are more willing to seek treatment. We are dramatically expanding the capability to treat a lot of problems," says Goldsmith.
Expanded coverage of substance abuse treatment and psychiatric services have also had a profound effect on health-care costs, he says. "Employers have steadily expanded the benefit package, then they wonder why costs keep going up," he adds.
Employers and insurance companies have tried "utilization review"--a process of determining the medical necessity of hospitalizations, surgery and outpatient treatments--in attempts to control costs. They have required second opinions before certain procedures could be performed, but many employers are dropping second opinions after realizing no savings. "There are a high rate of collaborating second opinions," Cronin says. "People probably aren't being that objective. There's no clinical criteria on which decisions are made."
There is a move to take a second look at second opinions, with the idea that they will be more useful if limited to a smaller number of high-risk, high-cost procedures, Goldsmith says.
Utilization reviews, second opinions, quality assurance programs, peer review and hospital bill audit services are all under the umbrella of "managed care"--the health-care buzzword of the 1980s. Insurance companies, health maintenance organizations and several health-care consultants promise to manage services rather than simply paying claims or arranging medical care--with the implied guarantee that they will save their clients money.
But as costs continue to soar, some involved in the health-care system are seeking further refinements of managed care. Much attention is being paid to how health-care providers are paid and how to encourage price competition. Congress, for example, is considering restricting payments under Medicare to physicians and limit use of physician-owned enterprises, such as clinical laboratories, on the theory that doctors who own these facilities order more tests than those who don't.
Since the cost of outpatient services has increased the most of any expense category in recent years, Blue Shield of California will spend the next month putting into place a system of contracting with providers of outpatient services, says spokesman Michael Odom. To gain control of costs, Blue Shield wants to set up contracts with a range of providers, from clinics that perform simple sterilizations and cataract surgery to suppliers of wheelchair ramps, he says.
"This is the next major wave in doing something about cost," Odom said.
Goldsmith says he thinks that there will be more "exclusive provider organizations" through which employers or insurance companies will choose certain providers for exclusive contracts in exchange for significant price discounts. "Where we have had the best gains (in controlling costs) has been in selective contracting for high-risk, high-cost procedures like open heart surgery," he said.
These organizations will work, he says, because "there is an increasing volume of evidence" that certain institutions provide a better quality of care. "And the best are actually less expensive," he says. "Within a year or so, we will have all the information we need to make those kinds of choices."
The Prudential Insurance Co. of America has adopted the concept, if not the term. The company offers employer groups--at reduced rates--an "Institutes of Quality Program" for procedures like organ transplants, bone marrow transplants and lithotripsy, a non-surgical treatment for kidney stones. "The Prudential IQ program can give employees access to superior service and quality care while reducing employer's benefit cost for specialized treatments and procedures," says Richard Roge, a Costa Mesa-based Prudential regional group manager.
Quality an Issue
The doctors and institutions under contract--including UCLA Medical Center and Stanford University--have agreed to negotiated rates because Prudential's nationwide network offers access to a larger pool of patients. Free travel for the patient is included.