Cost Containment and Vendor Selection

Hospitals suffered financially as people viewed hospitalization as a luxury and dramatically reduced utilization

During the Depression, people devoted their limited resources to absolute basics and viewed hospitalization as a luxury, causing dramatic reduction in utilization that hurt hospitals financially. This prompted the AHA to seek creation of prepaid service plans, which became Blue Cross.

Buyers are motivated by emotion rather than rationality, lack expertise to evaluate alternatives, and pay only a small percentage of care costs

Healthcare lacks normal price constraints because buyers are emotionally motivated, the highly technical nature of care gives participants less incentive and ability to choose alternatives, and patients typically pay only a small percentage of the cost, removing the financial disincentive to seek alternatives.

Prevent unnecessary duplication of services and control costs by requiring state approval before major capital investments or service expansions

The Certificate of Need program required healthcare providers to obtain state approval before building, making major capital investments, or expanding services, with the goal of preventing unnecessary duplication of services and controlling costs.

As agencies stressed cost containment, providers and consumers warned Congress that access to services and quality of care were suffering

The law's goals of improving access to health services, assuring quality healthcare, and bringing about cost containment were in conflict. When agencies prioritized cost containment, providers and consumers argued that access and quality suffered.

Cost shifting — the hospital compensates for below-cost government reimbursements by raising rates to private payers, directly increasing claims costs for self-funded plans that bear the full risk

Cost shifting occurs when providers raise charges to private payers to offset losses from government programs that reimburse below cost. Self-funded employers are particularly vulnerable because they bear claims costs directly, unlike fully insured plans where the carrier absorbs pricing fluctuations.

Costs were shifted from public to private patients, which could be financially devastating for hospitals with high Medicare patient proportions or minimal margins

When the government would not recognize costs like education, research, bad debts, and malpractice premiums, those costs were shifted to private patients. Hospitals with minimal margins or a high proportion of Medicare patients were particularly vulnerable to financial devastation from this cost shift.

It published dual choice regulations to give HMOs better market access and enacted the HMO Act of 1973 to promote their growth

The federal government considered itself the motivator of HMOs by publishing dual choice regulations for better market access and passing the Health Maintenance Organization Act of 1973 to promote HMO development and expansion.

Declining medical malpractice premiums reducing the incentive for cost-conscious practice

The course lists many reasons for rising costs including imprudent utilization, technological advances, cost shifting, defensive medicine, and public expectations. Declining malpractice premiums is not listed; in fact, defensive medicine (driven by malpractice concerns) is cited as a cost driver.

The federal government became a third-party financer of healthcare, and the resulting widespread coverage contributed to escalation of healthcare costs

With the 1965 passage of Medicare and Medicaid, the federal government became a third-party financer of healthcare. Combined with private sector coverage, a large portion of the population became covered, and this widespread availability of coverage also began to impact escalation of healthcare costs.

They do not rely on changes in participant health and are not medically intrusive or medically threatening

First-generation cost containment programs are characterized by not relying on changes in participant health and being based on encouraging prudent use of existing systems without being medically intrusive or threatening.

Coordination of benefits, subrogation, and strict adherence to eligibility and benefit terms in the plan document

Administrative controls include coordination of benefits, subrogation, benefit review, alternate funding, and strict adherence to eligibility and benefit terms. These have little or no effect on the existing system but can reduce employer costs. Second opinions and precertification fall under reduced utilization, and business coalitions fall under direct employer involvement.

Direct employer involvement, as they represent collective persuasion attempts by interested parties to influence the healthcare system

Business coalitions are a form of direct employer involvement where interested parties in the healthcare system attempt to influence it by collective persuasion. The parties may be employers only or may include other parties such as providers and insurers.

Accountable care organizations (ACOs) and medical homes

The course lists provider incentives within the ACA—such as ACOs and medical homes—as specific programs that affect utilization of healthcare services, distinct from traditional utilization review mechanisms like precertification and peer review that predated the ACA.

Utilization review to ensure proper care in the proper environment and fee-related programs such as pre-negotiated fees and volume discounts

Better control of healthcare services and charges includes utilization review (ensuring proper care in the proper medical environment within guidelines) and fee-related programs such as pre-negotiated fees and volume discounts. COB and subrogation are administrative controls; precertification is reduced utilization; coalitions are direct employer involvement.

Administrative controls have little or no effect on the existing delivery system but may affect utilization and reduce employer costs, whereas reduced utilization programs directly target how healthcare services are consumed

Administrative controls (e.g., COB, subrogation, benefit review) describe programs that have little or no effect on the existing system but may affect utilization and reduce costs. Programs aimed at reduced utilization (e.g., precertification, peer review, second opinion) directly target how participants use healthcare services.

A state or federal independent review organization (IRO) program mandated by the ACA

The course identifies appeal processes through a state or federal independent review organization (IRO) program mandated by the ACA as one of the specific programs that affect utilization of healthcare services.

A PPO, which uses built-in financial incentives such as reduced deductibles and copayments to encourage — but not require — employees to use contracted providers

PPOs use financial incentives (reduced/eliminated deductibles and copayments, increased benefits) to guide employees toward contracted providers without locking them in. Employees retain freedom to use non-PPO providers, unlike HMOs and EPOs which restrict choice more significantly.

PPOs do not normally require preselection or mandatory use of contract providers, whereas ACOs typically do require such preselection

In contrast to an ACO, PPOs do not normally require preselection or mandatory use of contract providers by employees. PPOs also do not require the policyholder to split plan costs between separate plans.

PPOs reimburse on a discounted or negotiated fee-for-service basis and do not lock patients into the network, while HMOs typically use capitation and restrict members to in-network providers

PPOs use discounted/negotiated fee-for-service reimbursement and allow patients to see non-PPO providers (with reduced benefits), avoiding capitation risk. HMOs typically use capitation and restrict members to in-network providers, which shifts utilization risk to providers but limits member choice.

Protecting or increasing market share and improving financial position through onboarding more patients, reducing claim expense, and getting paid quickly

Provider incentives for PPO participation include protecting or maintaining market share, increasing market share, and improving financial position through onboarding more patients, reducing claim expense, and getting paid quickly.

Collection of claims data allowing monitoring of captive providers' performance and employee behavior

Among plan sponsor incentives for PPO participation is the collection of claims data that allows monitoring of captive providers' performance and employee behavior, combining cost containment with enhanced oversight of how the plan is being used.

The patient's first contact is usually through a primary PPO physician, intended to reduce self-referrals to specialists, though it does not preclude the patient from using non-PPO providers or PPO specialists

Many PPOs use a gatekeeper approach where the patient's first contact is usually through a primary PPO physician to reduce self-referrals to specialists. However, this arrangement does not preclude a PPO patient from using a non-PPO provider or from using a PPO specialist for more intensive medical care.

An indemnity plan

Managed care programs attempt to direct the way healthcare is organized, financed, and delivered, and such care is described as a direct alternative to an indemnity plan.

Diversity of employer sizes and geographic mix, nonexistent single in-place network, and absence of an existing base of quality providers

Managed care arrangements can be difficult to start because of the diversity of employer sizes and geographic mix, the nonexistence of a single in-place network, and the absence of an existing base of quality providers.

Have a choice of managed versus non-managed care every time a provider or service is selected, knowing managed care results in higher benefits

The current trend in plan design is for the participant to have a choice of managed versus non-managed care every time a provider or service is selected, knowing that using managed care will result in higher benefits.

State health planning agencies established under the Health Planning Act of 1974

Sponsors of managed care programs include third-party payers (insurers, BCBS), plan sponsors (employers, associations, jointly managed funds), entrepreneurs (TPA firms), and providers (ACOs, physician groups, hospitals). State health planning agencies are not listed among managed care sponsors.

Flexibility, because employees are not locked into PPO providers and can choose providers within or outside the network

Flexibility is described as one of the most positive features of a PPO, substantially enhancing its marketability. Employees are not locked into PPO providers but are guided by built-in financial incentives to use PPO providers when healthcare is required.

It creates an accounting shift where services are reclassified as outpatient rather than inpatient, without actual cost savings, and these tend to be the costliest options for services

Hospitals have been separating radiology and surgical units into freestanding billing units as part of vertical integration. As a result, use of these facilities is classed as outpatient, making some of the inpatient-to-outpatient shift merely an accounting change, and these tend to be the costliest options for services.

Hospital-at-home programs, hospice care, and intensive outpatient programs for mental health and substance use disorders

Alternative care environments include home healthcare, hospice care, birthing centers, preventive care, skilled nursing care, long-term acute care hospitals, hospital-at-home programs, and intensive outpatient/partial hospitalization programs for mental health and substance use disorders.

Offers a full continuum of care, provides case management, develops meaningful data, and pursues both cost containment and quality care as goals

An integrated delivery system offers a full continuum of care, provides case management, and develops meaningful data, all with both cost containment and quality care as goals. Such organizations are dissimilar due to state laws, unique marketing needs, and local or historical factors.

Capitation risk assumed entirely by the purchaser rather than shared with the provider organization

Managed care purchasers (Medicare, Medicaid, CHAMPUS, HMOs, PPOs, employers) want integrated delivery systems that offer willingness to participate in risk, broad geographic coverage, one-stop shopping, and seamless care. They want providers to share in the risk, not to bear it entirely themselves.

As risk assumers, they view population health management as long-term cost containment, with the goal of eliminating claims before they occur

Companies that self-fund have a particular interest in population health management as a structural program of risk management. The self-funder, as the risk assumer, views population health management as long-term cost containment, with the goal of wellness and prevention being to eliminate claims before they occur.

Wellness and prevention, behavioral modification, self-help and self-care, chronic disease and case management/large claims management, and benefit redesign

The population health management umbrella includes programs of wellness and prevention, behavioral modification, self-help and self-care, chronic disease and case management/large claims management, and benefit redesign.

Up to 70%

A high percentage of healthcare dollars—up to 70%—are directly attributable to human behaviors such as smoking, poor diet, lack of exercise, and alcohol use, which is a key reason population health management has an important role in the healthcare system.

Integrate demand reduction with disability management, using duration guidelines and clinical practice protocols to promote effective treatment and timely return to work

One of the goals of population health management is to integrate demand reduction with disability management, using duration guidelines and clinical practice protocols to promote effective treatment and timely return to work.

All covered persons are free to act as they choose without diminution of plan benefits, and they may opt out of the program entirely since it is voluntary

The disease management program must provide that all covered persons are free to act as they choose without diminution of plan benefits and may opt out entirely, since these programs are voluntary and free from inducements or exclusionary actions.

Only the plan supervisor or a vendor firm (such as an EAP or UR firm), while the plan sponsor should have no access to program-related information on any covered person

Only the plan supervisor or a vendor firm (EAP, UR, etc.) should have access to medical or behavioral details. The plan sponsor specifically should have no access to any program-related information on any covered person. Summary program statistics should be made available to the plan sponsor because of their impact on plan funding.

Participants and covered dependent spouses only, with the cost being 100% plan paid

An annual health screening should be offered each year with the cost being 100% plan paid, and the benefit should be available only to participants and covered dependent spouses.

Offering different program content based on a participant's specific diagnosed chronic condition

Disease management programs must not discriminate against protected groups, in favor of prohibited groups (owners, highly compensated), or against those with ADA-defined disabilities. However, offering different clinical content based on diagnosed conditions is the very purpose of disease management, not discrimination.

Programs of early detection obtained by screening or programs intended to foster a more healthful lifestyle, while identifying potential high-cost conditions early

Wellness and prevention includes programs of early detection (e.g., high blood pressure or cholesterol levels) obtained by screening or programs intended to foster a more healthful lifestyle, while identifying potential high-cost conditions early and facilitating member self-management. Smoking cessation is behavior modification; triage is self-help/self-care.

Behavior modification specifically targets a negative health practice in a targeted member to change the action, while self-help and self-care provide education, support, and guidance to help members manage their own health

Behavior modification specifically targets a negative health practice in a targeted member to modify the action (e.g., smoking cessation). Self-help and self-care are support-type programs that provide education, support, guidance, triage techniques, disease-specific information, and referral to associations.

Maintain immunization schedule, exercise regularly, and use alcohol sparingly

The eight preventive care actions are: eat properly, maintain immunization schedule, exercise regularly, have periodic exams as recommended by age (Pap, mammograms, PSA, colon), maintain a healthy weight, use seatbelts, stop smoking, and use alcohol sparingly.

Senior management buy-in, a program employees find valuable to encourage engagement, a multidisciplinary task force, a comprehensive health risk assessment, marketing the program, and including dependents/all enrolled plan members

Ingredients of a successful wellness program include getting senior management buy-in, creating a program employees find valuable, creating a multidisciplinary task force, using a comprehensive health risk assessment, marketing/promoting the program, and including dependents and all enrolled plan members.

Individual health screenings or health risk assessments

Awareness programs focus on topics such as weight management, stress management, nutrition, exercise, smoking cessation, and self-care through seminars, educational displays, and written materials. They are most effective when accompanied by individual health screenings or health risk assessments.

Smoking, weight, exercise, mental health assessment, and social determinants of health assessment to identify barriers to care

Physicians and health coaches/nurse case managers typically focus on five factors: smoking, weight, exercise, mental health assessment, and social determinants of health assessment to assess barriers to care.

The disease management company classifies obesity into medically related (subject to management) or not medically related

Food abuse is determined by obesity that is not medically related, and the disease management company makes the determination by classifying obesity into (a) medically related subject to management or (b) not medically related.

Approximately one-third of participants have at least one chronic condition, and their costs are at least twice those of a population without chronic health conditions

Approximately one-third of plan participants are typically diagnosed with at least one chronic condition. Costs for this population are at least twice those of a population without chronic health conditions, with a diagnosis leading to expected cost increases ranging between 80% and 300%.

It partners with members to facilitate better health and outcomes without directly influencing provision of care by medical professionals

Population health management puts the employer plan in the position of partnering with members to facilitate better health and better outcomes—leading to fewer claims and more emphasis on preventive care—without directly influencing provision of care by medical professionals.

Recognizing certain physician-extenders as providers

Recognizing certain physician-extenders as providers is a benefit redesign change that expands who qualifies as a healthcare provider, thereby potentially reducing demand for more expensive physician-only services. Acupuncture and telemedicine expand covered services rather than redefining who qualifies as a provider.

Civil rights, age discrimination, COBRA, ADA, HIPAA, MHPAEA, ACA, and other federal mandates, though a wide range of benefit design options still remains

ERISA provides self-funders the right to design plan benefits, but federal mandates including civil rights, age discrimination, COBRA, ADA, HIPAA, MHPAEA, and ACA have constrained this right. Despite these limitations, a wide range of benefit design options remains open to self-funders.