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AHM Medical Management: The Role of Medical Management in a Health Plan

Course Goals and Objectives

After completing lesson The Role of Medical Management in Health Plans, you should be able

Define the term medical management and explain the goals of this function.
Describe some common components of medical management programs.
Describe the role of the medical director in a health plan.
Explain the purpose of medical management committees and identify several common
types of medical management committees.
Define the terms delegation and subdelegation.
Explain why health plans sometimes delegate medical management activities.
When you read or hear about health plans, you may encounter the term medical management or
references to specific components of medical management, such as disease management, case
management, preventive care, or utilization review. You may have wondered what these terms
mean and how they are related, as well as why and how health plans conduct medical
management. These issues are the focus of this course.
Because health plans integrate the financing and delivery of healthcare, a health plan must
effectively manage both the cost and the quality of healthcare services. Without adequate costmanagement measures, a health plan's financial viability may be jeopardized. However, a health
plan cannot focus on cost alone. The delivery of high-quality care and service is one of a health
plan's core goals, and this quality goal is typically a component of a health plan's mission
In a managed care context, quality consists of two major components: healthcare quality and
service quality. STRONG Healthcare quality is "the degree to which health services for
individuals and populations increase the likelihood of desired health outcomes and are consistent
with current professional knowledge."1
High-quality care is appropriate care provided in an appropriate amount at the appropriate time
and for an appropriate duration. Service quality generally refers to the success of a health plan
and its providers in meeting the nonclinical needs of plan members. Quality service is reflected in
a high degree of satisfaction among a health plan's members.
Many states have specific laws regarding healthcare quality, and some health plans are subject to
federal laws and regulations on quality. In addition, health plan members and purchasers and
healthcare providers all expect a health plan to set and meet high standards for quality care. We
discuss expectations and regulations regarding quality further in lesson, Environmental Influences
on Medical Management.
Achieving the goals of quality care and cost-effectiveness simultaneously presents an ongoing
challenge for health plans. This course explores how health plans use medical management
programs to achieve and maintain both high quality and cost- effectiveness. First, we describe the
primary medical management processes and programs that are used by health plans. We then

consider how a health plan can apply these programs for different types of healthcare services and
different member populations.
What is Medical Management?
Before we introduce the specific types of medical management programs, we will first define
some basic terminology. Throughout this entire course, keep in mind that medical management
terminology and the definitions of these terms vary greatly among different health plans. Medical
management, also known as care management, encompasses all the activities that health plans
and their providers conduct to (1) maintain or improve the quality of service healthcare received
by members; (2) meet budget projections for medical services; (3) achieve member satisfaction;
and (4) respond to accreditation and regulatory requirements.2
Medical management attempts to integrate and improve healthcare services from various
providers to maximize the benefit to the plan member while avoiding both inadequate and
excessive utilization of healthcare resources. One important purpose of medical management is
the improvement of a member's overall health over time by coordinating care across the different
healthcare services that a member receives and the different providers who treat the member. 3
Two main categories of medical management activities are quality management and utilization
management. Quality management (QM) , also called quality assurance (QA), is an organizationwide process of measuring and improving the quality of the healthcare and services provided to
the members of a health plan. For example, a health plan periodically measures member
satisfaction with the healthcare services rendered by the health plan's providers and takes action
to address any areas of dissatisfaction. Utilization management (UM) refers to health plan
programs that manage the use of medical services so that a patient receives appropriate care in a
cost-effective manner in an appropriate setting. UM typically includes a variety of programs, such
as utilization review, case management, and disease management. Many medical management
programs, such as case management and disease management, serve to increase both quality of
care and the efficient use of healthcare resources.
Medical management frequently involves issues of medical necessity or medical appropriateness.
The contract between the health plan and a purchaser (sometimes called the benefit plan) usually
contains a definition of what constitutes medically necessary services, medically appropriate
services, or both. Some organizations in the healthcare industry distinguish between medically
necessary services and medically appropriate services, while other entities consider the two terms
synonymous and use them interchangeably. For the purpose of this course, however, medically
necessary services and medically appropriate services will be addressed as related, but distinct,
The following description of medically necessary services is used by many health plans in their
benefit plan documentation. Medically necessary services are services or supplies as provided by
a physician or other healthcare provider to identify and treat a member's illness or injury, which,
as determined by the payor, are:
Consistent with the symptoms of diagnosis and treatment of the member's condition.
In accordance with the standards of good medical practice.
Not solely for the convenience of the member, member's family, physician, or other

healthcare provider.

Furnished in the least intensive type of medical care setting required by the member's

condition 4.
As a general rule, medically necessary services should be effective and not experimental. A
diagnostic service is deemed effective when it yields the expected information, and a therapeutic
service is effective when it results in the intended health outcome. A medically necessary service
has been proven through clinical evidence to be effective when compared to the best alternative
service for a given medical condition or to no service, if no alternative method of diagnosis or
treatment exists.
Medically appropriate services are diagnostic or treatment measures for which the expected
health benefits exceed the expected risks by a margin wide enough to justify the measures.5
Generally, questions of medical necessity apply to the needs of particular plan members, while
questions of medical appropriateness concern a plan's population. In other words, medical
necessity drives case-by-case quality and utilization decisions, while medical appropriateness is
the basis for decisions that affect a segment of the member population.
For example, although liver transplantation is often an appropriate treatment for patients with
liver failure, liver transplantation may or may not be medically necessary for a particular patient
with this condition. The determination of medical necessity depends on medical information from
the patient's physician, such as a confirmed diagnosis of liver failure, how advanced the failure is,
and any patient characteristics indicating that the patient is or is not a good candidate for this
Health plans often specify which medical treatments are appropriate in an attempt to reduce the
variation in the medical services rendered by different providers. Consistent treatment from
different providers effectively reduces inequitable treatment among plan members and enables a
health plan to compile data in a uniform manner to track quality measures.
The following section of this lesson provides an overview of the scope of activities typically
included in medical management. We then describe how the medical management function of a
health plan is organized and staffed. We also discuss variations in the approach to medical
management based on health plan characteristics, the type of care, and the nature of the member
population. Finally, we explain how and why a health plan may contract with other entities to
perform medical management on behalf of the health plan.
The Scope of Medical Management
A health plan develops and implements medical management programs in an attempt to see that
each member receives medically appropriate, cost-effective care in the most appropriate setting.
Achieving both high-quality care and the most efficient use of medical resources is a complicated
task, given the vast array of health problems that members may experience and other
circumstances that may affect members' access to healthcare services. Because medical
management is multi-faceted and complex, this function typically includes many different
activities and often goes beyond the traditional boundaries of QM and UM.
The types of programs that a health plan includes under the umbrella of medical management
vary from plan to plan, largely depending on applicable laws, regulations, accrediting agency
standards, and the expectations of purchasers, members, and providers. Beyond these external

considerations, a health plan sets its own goals and priorities for medical management and tailors
its programs accordingly.
Another influence on the basic approach to medical management is a health plan's arrangement
for the delivery of healthcare services. The majority of health plans arrange for the delivery of
care by contracting with providers. Health plans rely on their contracted providers to perform
many of the basic activities that are necessary to achieve healthcare quality. However, some
health plans, such as staff model health maintenance organizations (HMOs), that deliver
healthcare services directly to their members are also providers. Health plans that are also
providers must have programs for improving the quality of care rendered by their own
professional staff. For example, a staff model HMO must develop and implement measures to
support the safe, effective delivery of medical care. We discuss how contracted providers may
assume more responsibility for medical management activities later in this lesson.
Medical management programs generally include QM, UM, the management of clinical
service delivery by providers, and the resolution of member appeals of authorization
decisions. Medical management is often closely linked to provider network management,
and in some health plans, network management is classified as a medical management
program. For the purposes of this course, however, our focus will be on quality and
utilization, with network management discussed as a related function. Figure 1A-1 lists
some of the most common medical management programs and activities. The next
sections provide a brief introduction to many of these activities,

Clinical practice management
Evaluation of medical technologies
Development of policies on the appropriate use of

medical services, including prescription

Development of guidelines for providers to use
when delivering clinical services
Quality standard development
Performance measurement
Measurement of healthcare service outcomes,


Preventive care and self-care initiatives

Health risk assessment

Immunizations and health screening activities
Health education
Services to assist members with healthcare decisions

Utilization Review

Second surgical opinion
Concurrent review
Discharge planning
Retrospective review, including appropriateness
Authorization of services and referrals

including clinical results, cost, and member

Case Management
External measures of plan performance, such as the
Disease Management
Health Plan Employer Data and Information Set
(HEDIS), ORYX, and report cards
Compliance with regulations
Performance improvement

Oversight of medical management activities performed by

other entities on behalf of the health plan

Quality improvement studies
Provider profiling
Member education

Clinical Practice Management

One key component of a medical management program is clinical practice management. Clinical
practice management is the development and implementation of parameters for the delivery of
healthcare services to a health plan's members. Clinical practice parameters provide a foundation
for a health plan's QM and UM programs. Among the parameters for clinical practice
management are medical policies and clinical practice guidelines. Clinical practice guidelines
(CPGs) are statements of recommended medical practices that help providers make decisions
about the most appropriate course of treatment for specific patients. 7 Definitions of the term
medical policy vary in the healthcare industry, but in the broadest sense, a medical policy
provides information to guide the health plan staff who recommend or decide which healthcare
services are medically necessary for a particular patient. For example, a medical policy usually
describes situations in which a particular healthcare service is an appropriate intervention for a
member. We discuss the role of medical policy further in lesson, Clinical Practice Management.
Increasingly, health plans rely on evidence-based medicine for decisions about medical necessity
and clinical practice management. Evidence-based medicine is the practice of medicine according
The findings of clinical trials and other scientifically valid research as reported in the

current body of medical literature.

Opinions from unbiased expert clinicians.

A foundation in evidence-based medicine holds the medical policy and CPG development
processes to a higher standard and typically improves the quality of care. The use of evidencebased medicine during medical policy development, evaluation of new medical technology, and
the development of CPGs also increases the credibility of these clinical practice management
tools to providers.
Quality Management
Quality management has traditionally been a cornerstone of medical management within health
plans. In fact, most health plans have a formal program for QM and undertake a wide variety of
activities to support the delivery of high-quality healthcare services by their providers. QM is a
continuous process to which a health plan typically dedicates substantial human, technological,
and financial resources. For selected healthcare services covered in the benefit plan, a health plan
develops quality goals, measures its performance against those goals, implements corrective
action as needed, and monitors the impact of its actions.
One way for a health plan to demonstrate its quality and accountability for healthcare services is
through accreditation by an external agency. Accreditation is an evaluative process in which a
healthcare organization voluntarily undergoes an on-site examination of its policies and operating
procedures to determine whether they meet the criteria as defined by the accrediting body.
Accreditation implies that the organization meets a specified level of quality. 8

Most health plans also have internal quality programs to measure the appropriateness of specific
types of care and identify areas with opportunities for quality improvement. For example, a health
plan may notice an increase in the utilization of resources and cost of care for diabetes patients.
That health plan may decide to conduct a study to determine the effectiveness of its efforts to
manage diabetes. Health plans must carefully evaluate which issues to study and how to study
them before deciding the focus of a quality initiative.
In many instances, health plans use outcomes as a measure of quality. Within a healthcare
context, outcomes are defined as the measurable results of health-related interventions. Health
plans often examine outcomes for both individual members and for groups of members. For
example, did a particular stroke patient show a positive change in medical condition or ability to
perform everyday activities following a course of physical and occupational therapy? In an
example of outcomes for a group, how many emergency department visits were made in the past
year by asthma patients who participate in an asthma disease management program? By studying
outcomes and linking those outcomes to specific medical interventions, a health plan can
determine which approaches to healthcare service delivery typically yield the best clinical and
economic results.
Other sources of information about health plan quality are periodic assessments of provider
performance, member satisfaction surveys, and evaluation of specific health plan performance
indicators by external entities.
Preventive Care, Self-Care, and Decision Support Programs
Many health plans also include in their medical management strategy programs to keep members
as healthy as possible (preventive care) and to help them manage their needs for care when they
do experience illness or injury (self-care and decision support). Such programs are sometimes
collectively known as demand management or demand-side management.
Preventive care programs that address the causes of disease and injury can improve members'
health and prevent illness and injury, thus reducing their needs for services. By assessing health
risks, a health plan may identify members' physical characteristics and lifestyle factors that
indicate an increased risk of experiencing certain types of illness or injury. For instance, an
evaluation of health risks would point out that overweight members who smoke and rarely
exercise are at greater risk of developing heart disease than plan members who do not have these
characteristics. Once such at-risk members are identified, their chances of developing heart
disease can be reduced through preventive care programs.
Some health plans have telephone information lines that are staffed by nurses who may determine
the urgency of a member's medical problem and recommend the most appropriate type of service
and care setting for a member's condition.
Health plans also design health education programs to help members make informed decisions
about their needs for healthcare and, in some cases, to perform certain aspects of their care. For
example, suppose that a health plan has identified its members who have non-insulin-dependent
diabetes. If the health plan provides these members access to instruction on nutrition, activity, and
blood glucose monitoring, they will be better able to manage their diabetes on a day-to-day basis.

Utilization Review
Utilization review is one of the most frequently used medical management approaches.
Utilization review (UR) is the process for evaluating the medical necessity, efficiency, and
appropriateness of healthcare services and treatment plans for a given patient.9 The goal of UR is
the most appropriate use of medical resources and treatment in the most appropriate setting. UR
may enhance both the quality and cost-effectiveness of care. Traditionally, health plans have used
UR primarily for cases involving hospital care, costly procedures, and referrals for specialty care;
however, its use for outpatient services and pharmaceutical treatments is expanding.
Because a health plan's determinations of whether or not a particular service is appropriate
sometimes conflict with provider recommendations and member preferences, an appeals process
is critical to protect the interests of all parties involved. The steps and timing of the appeals
process vary from plan to plan and may be mandated by regulatory requirements; however, health
plans typically strive to design appeals procedures that will provide a timely resolution to member
and provider appeals of authorization decisions. Consumers have indicated that understandability,
timeliness, and ease of use are important characteristics of any appeals process. Many health
plans have established processes for external review of appeals in addition to their internal
appeals systems.
Case Management
For individual members with conditions that require complex care and/or treatment from multiple
providers, health plans often employ case management as a means of achieving optimal outcomes
and resource usage. Case management, also known as large case management, catastrophic case
management, or complex case management, is the process of identifying plan members who
require extensive, complex healthcare; developing an appropriate treatment strategy; and
coordinating and monitoring the care. 10
Most members who are selected for case management have a chronic medical condition, see
multiple providers in different specialties, or have experienced a catastrophic illness or injury.
Examples of conditions appropriate for case management include AIDS, multiple trauma, head
injury, spinal cord injury, stroke, burns, premature birth, and mental illness. Candidates for organ
or bone marrow transplant may also benefit from case management. By incorporating self-care,
care by the member's family, and community services with the services of the health plan's
providers, case management can enhance the quality of care without exhausting the financial
resources of the benefit plan or the member.
Disease Management
A large proportion of healthcare service utilization is the result of long-term medical conditions
such as heart disease, diabetes, low-birth-weight babies, chronic back pain, depression, and
asthma. In addition, many patients who experience these medical problems are subject to serious
complications and further deterioration if their conditions do not receive proper treatment.
Concerns about the quality and the cost of care for these individuals have led many health plans
to establish disease management programs.
Disease management, also known as disease state management, is a coordinated system of
preventive, diagnostic, and therapeutic measures intended to provide cost-effective, quality

healthcare for a patient population who have or are at risk for a specific chronic illness or medical
Disease management focuses on comprehensive care across different providers and healthcare
delivery settings to improve members' long-term health status. Disease management seeks to
integrate various medical management approaches including CPGs, case management, evaluation
of health risks, and health education with the services of a carefully selected multi-disciplinary
team of providers who are most appropriate to treat a particular condition.
By creating a disease management program that focuses on a specific condition, a health plan
may lessen the risk of complications and progression of the condition, treat complications and
deterioration more effectively when they do occur, and generally improve the quality of life for
its members. The improved health status of members may result in cost savings for the health
Integration of Medical Management Programs
As the components of medical management programs vary from one health plan to another, so
does the level of interaction and collaboration among the different components. Many health
plans developed each of their medical management initiatives individually over time as needs
evolved and plan resources permitted. Consequently, such components evolved as separate
functions, even though the goals of these components overlapped. When quality and costeffectiveness goals overlap, duplication of activities and wasted health plan resources are the
likely result.
In contrast, many health plans have achieved some integration of their medical management
functions and information management systems for those functions. Although the initial costs of
integration are considerable, long-term costs for integrated medical management activities may be
reduced. Improvements in technology for information management have facilitated integration by
allowing the shared use of databases and more sophisticated analysis of medical management
Enhanced communication and coordination of medical management activities should optimize the
use of medical resources and may improve the overall quality of care. For instance, by evaluating
health risks, a health plan can identify members in the early stages of a chronic illness such as
diabetes. In a well-integrated medical management system, the health plan can place these
members into an appropriate disease management program. On a more basic level, collaboration
between UM and QM can facilitate the timely delivery of medically appropriate care and prevent
members from being subjected to the inconvenience, discomfort, and potential risks of treatments
that are not medically necessary.
Organization And Structure Of The Medical Management Function
Organizational structures for medical management vary among health plans primarily because,
over time, each organization has developed a structure that works well for its own circumstances.
Health plans usually have a separate division dedicated to medical management programs. This
division goes by different names, such as Healthcare Management, Medical Services, Patient
Management, Healthcare Services, or Healthcare Policy and Operations. The medical
management division typically has separate departments for various medical management
components. The number and types of components vary, but generally include both QM and UM.

Some plans place network management together with medical management while other health
plans consider network management a separate function. The medical management division may
also have a risk management component. We discuss the influence of network management and
risk management on medical management programs in lesson, The Relationship of Medical
Management to Other Health Plan Functions.
The UM section of medical management includes UR and case management, while typical
activities conducted under QM programs are quality improvement initiatives and performance
reporting activities, such as reports to state and federal agencies and accreditation agencies. Some
health plans classify clinical practice management, preventive care, self-care, and disease
management as subcategories of either UM or QM, but other organizations have separate
departments for these programs.
The size (based on the number of members), geographic scope, and the types of services
delivered by a health plan can affect the structure for medical management. A large health plan
often divides its service area into geographic sections that are sometimes known as medical
service areas (MSAs) and establish regional or local offices.12
A health plan with multiple offices may decentralize some or all medical management activities.
Consider quality improvement initiatives as an example. The health plan may establish the
standards and procedural guidelines for a quality improvement study at a central location and then
have local medical management staff implement the study and measure the results. After the local
staff reports its results to a centralized data input unit at the health plan's state, regional, or
national headquarters, the medical management personnel at the headquarters location can
prepare comprehensive reports that show aggregate results across the entire service area and
compare results among different MSAs. Decentralized data collection requires extensive efforts
directed at data definitions and staff training since much of what is measured has a subjective
component and may be interpreted differently by different observers.
The size and products of a health plan can affect medical management operations in other ways.
For instance, small health plans typically have more integration among activities and less
specialization of roles than larger health plans. Large health plans often have separate medical
management programs for different types of services (such as hospital care or pharmacy services)
and products (such as Medicare or Medicaid managed care plans).
The medical management division develops a written program for medical management that
includes an evaluation of previous monitoring activities and actions and goals for the coming
year. In most cases, health plans have separate programs for UM and QM. Medical management
personnel review this program annually and update it as needed. The program is then passed
upward to the board or to the appropriate executive committee for approval, and downward
through the entire organization for implementation.
Staffing for Medical Management
Because each health plan develops its own plan for medical management programs, it is not
surprising that there is no standard approach to staffing for medical management. However, most
health plans have the following four categories of medical management personnel: medical
directors, program directors, clinical staff, and administrative staff. In some companies, the
medical management division has a vice president or other administrative officer who oversees
the operational aspects of the division. In other health plans, the medical director performs this

function. Figure 1A-2 depicts a simplified example of an organizational structure for medical
management. Keep in mind that the different medical management components may be combined
and organized into any number of combinations.
Medical Directors
A senior medical director, also known as a chief medical officer, is the health plan physician
executive who oversees the medical care delivered by the health plan's providers and is
responsible for the quality and cost-effectiveness of that care. The senior medical director may
also have a vice president's title. The role of the senior medical director varies, depending on the
health plan. In some instances, the senior medical director participates in day-to-day operations
such as authorization decisions on non-routine cases and provider education. At other health
plans, the senior medical director develops policies and procedures for medical management, but
is not involved on an operational level. A senior medical director of a small plan is more likely to
have direct responsibility for the implementation of programs and provider performance than the
senior medical director of a medium-sized or large plan.

Medical Directors
A senior medical director who primarily focuses on policy issues often has additional medical
directors to assist with various aspects of medical management operations and oversight.
Although the actual titles vary from one health plan to another, for the purposes of this course,
these additional medical directors will be called associate directors.
Health plans that divide their service areas geographically usually have associate medical
directors who supervise the medical management activities for a particular region. A health plan
may also have associate medical directors who assist the senior medical director with certain
duties (such as appeals processes) or who oversee medical management for specific types of care
(such as cardiology, oncology, or geriatrics).
The associate medical directors follow the health plan's general medical management policies and
procedures, although specific activities may be modified according to the type of care or the local
member population's needs. Associate medical directors typically report directly to the senior
medical director.
The responsibilities of a senior medical director vary from plan to plan, but often include:
Developing medical management strategy that is in alignment with the health plan's goals

and mission

Guiding medical policy development and implementation, technology assessment, and

development of CPGs for providers

Prioritizing medical management program needs (e.g., selecting which disease

management or preventive medicine programs to offer)

Overseeing QM and UM programs
Participating in network management activities such as strategy development and

contract negotiation
Serving as the health plan's medical liaison to its provider networks, government
agencies, and large purchasers
Collaborating with the health plan's sales and marketing department
Figure 1A-3 lists more specific operational activities that either senior medical directors or
associate medical directors may perform, depending on the health plan's organizational structure.

To meet the demands of the position, a senior or associate medical director must possess the
following skills and qualifications:
Health plan philosophy and ability. The medical director should believe that a health plan

can achieve healthcare quality and cost-effectiveness simultaneously. Relevant

experience with UM, QM, and provider management is also essential, as is the ability to
integrate medical issues with business concerns.
Clinical credibility. A medical director must be a licensed physician with relevant clinical
experience, although a medical director does not typically maintain a clinical practice. In
many cases, medical directors have primary care backgrounds. To be effective, the
medical director must have the respect of the providers in the network. Medical directors
are virtually always certified by one of the examination boards of the American Board of
Medical Specialties.
Analytical skills. A medical director needs the ability to analyze and integrate data,
clinical information, and laws and regulations into meaningful, workable programs.
Communication skills. The medical director should be able to communicate effectively,
both verbally and in writing, with providers, members, purchasers, regulators, various
levels of health plan staff, and the general public. In many instances, medical directors
must also negotiate agreements and resolve conflicts.
Leadership skills. A medical director must have the ability to motivate and influence plan
personnel and providers and, on occasion, to challenge the opinion of the majority within
and outside the health plan.

Program Directors
Each of a health plan's medical management programs has a director or manager who is
responsible for the operations of the program. Working in conjunction with the medical director
and personnel from other related health plan functions, the program director develops programspecific policies, procedures, and processes to accomplish the plan's QM and UM goals. In
addition, the program director sees that the program's activities adhere to any applicable laws,
regulations, or accreditation standards.
Program directors are often clinicians (such as physicians, nurses, or pharmacists), especially in
larger health plans. In addition to relevant clinical knowledge, medical management program
directors also need health plan experience, communications skills, analytical abilities, and
leadership skills similar to those described for medical directors. A program director oversees a
variety of clinical and nonclinical staff members who conduct the day-to-day activities of the
Clinical Staff
A health plan's medical management programs employ a variety of clinicians whose
responsibilities involve managing the quality or cost-effectiveness of some clinical aspect of
patient care. For example, nurses often perform the initial clinical review of providers' requests
for precertification of a hospital admission or other clinical services such as ambulatory surgery.
Other medical management activities that require the services of clinical staff are telephone
information lines that help members manage their healthcare needs, concurrent UR, quality
improvement studies that focus on healthcare quality, and case management.
In addition to having appropriate clinical training and experience, clinical staff may need some or
all of the following qualifications:
Basic knowledge and understanding of health plan medical management programs.
Ability to communicate and coordinate activities with varying levels of health plan

personnel, providers and their staffs, and external entities such as regulatory agencies and
community services.
Analytical ability to identify problems, develop solutions, and implement the chosen
course of action in a timely and effective manner.
Computer and information management experience.
Ability to contribute to the generation of cost analysis and other documentation necessary
to report departmental activity.
Administrative Executives and Staff
A health plan's medical management division usually employs various administrative personnel
who supervise or conduct operations that do not directly involve clinical aspects of patient care.
The types of administrative personnel in medical management range from a vice president who
oversees all of the division's business practices to a UR intake coordinator who checks basic
information such as members' eligibility status. The higher levels of administrative staff may
report directly to a senior or an associate medical director or even to the company's chief
executive officer (CEO). The responsibilities and qualifications of administrative personnel vary
with the nature of each position.

Medical Management Committees14

Each health plan has one or more organizational committees whose purpose is to approve and
perform oversight of medical management programs. In addition to tracking overall trends in
quality and utilization, these committees also evaluate and make recommendations on specific
questions and problems related to the delivery of healthcare services. A medical management
committee typically conducts an annual review of past program activities, current initiatives, and
work plans for future activities. Based on the annual review, the committee makes
recommendations for change
A health plan's senior medical director participates on and often serves as the chairperson for
medical management committees. The medical director has the responsibility to see that oversight
activities are coordinated across committees and that recommendations for change are
communicated promptly between committees. However, the depth and breadth of the issues
addressed by these committees often require clinical expertise beyond the contributions of the
medical director and other clinicians who are employed by the health plan. Accordingly, health
plans frequently solicit their providers to participate on medical management committees.
Health plans have several other reasons for including providers on medical management
committees. In addition to contributing clinical knowledge, these providers can draw upon their
daily involvement with healthcare delivery to plan members and bring a significant real-world
perspective to QM and UM programs. Providers who participate on medical management
committees also serve as a communications conduit to and from other local providers. Further,
provider participation in the design and oversight of medical management programs lends
increased credibility to these activities in the eyes of the provider community and may enhance
provider cooperation with these programs. Finally, accrediting agencies often require active
participation of providers on medical management committees.
Committee membership has advantages for providers as well. One of the main benefits for a
provider who participates on a health plan committee is the opportunity to help shape the
programs and activities of the health plan. In addition, such a provider can become more familiar
with health plan operations. To encourage provider participation on committees, health plans may
reimburse providers for the time they serve on committees. To maintain continuity of provider
participation on committees, some health plans attempt to carry over at least 50 percent of a
committee's provider members from one year to another.
The number and types of medical management committees vary from one health plan to another.
Health plans generally have committees for UM, QM, and pharmacy issues, and may have other
committees specifically for clinical practice management, provider credentialing, and peer
review. Small health plans may have a single medical management committee that addresses all
of these issues. In the next sections, we briefly describe several common types of medical
management committees.
Quality Management Committee
The quality management committee: (*below is what you view when you click on the link than
the sentence is continued with generally)
Identifies appropriate issues for monitoring

Evaluates the results of quality studies to determine the need and opportunity for

performance improvement
Prioritizes improvement opportunities
Develops action plans for improvement
Provides oversight of action plan implementation
Monitors the effectiveness of the action
Performs an annual evaluation of program effectiveness

generally oversees the health plan's quality improvement activities in both clinical and nonclinical
The QM committee also reviews and updates the health plan's QM program for approval by the
health plan's board of directors and recommends policy decisions to the board.
Health plans may separate the QM committee into two components: a clinical QM committee
composed primarily of providers and a corporate QM committee that may or may not include
contracted providers. When the QM committee is divided in this way, the clinical component
often serves as an advisory board or subcommittee of the corporate committee. For example,
when the clinical QM committee develops action plans that involve increased costs or policy
changes, these action plans are submitted as recommendations to the corporate committee for its
approval or rejection of the plans.
Medical Advisory Committees
The medical advisory committee oversees the establishment of medical policies and CPGs,
although many health plans have a separate committee to direct clinical practice management.
Health plans have different names for the committee in charge of clinical practice management,
and the scope of oversight for this committee may also include network management activities
such as credentialing and recredentialing. One common name for this committee is the medical
advisory committee, which is the terminology that we will use in this course.
The medical advisory committee evaluates proposed policies and action plans regarding clinical
practice management parameters. For example, health plan staff who assess new medical
technology gather and analyze data and draft proposed medical policies for the medical advisory
committee's examination.
The extent of the medical advisory committee's influence varies across health plans. Often this
committee's role is advisory in nature and it does not have the authority to finalize the health
plan's medical policies or CPGs. In this situation, senior management and ultimately the board of
directors has the responsibility to adopt, approve, or reject the committee's recommendations.
The size and composition of the medical advisory committee is also variable. In addition to the
health plan's medical director, this committee may include the plan's directors of medical policy,
pharmacy services, utilization management, quality management, and other medical service areas
as well as physicians, pharmacists, nurses, and other healthcare personnel from the plan's
provider network. In some health plans, the committee also includes a consumer representative (a
plan member) and/or a purchaser representative (usually a human resources employee from a
major employer).

Utilization Management Committee

The UM committee reviews and updates the health plan's UM program description and
establishes utilization review protocols. In many health plans, the UM committee also
The UM Committee
Reviews and evaluates referral and utilization patterns for over- or under-utilization
Reviews medical appropriateness for utilization decisions that are under appeal
Provides oversight of all UM activities

Some health plans have a separate committee to handle member appeals.

Pharmacy and Therapeutics Committee
The pharmacy and therapeutics (P&T) committee is responsible for developing, updating and
administering a health plan's formulary. A formulary is a listing of drugs, classified by
therapeutic category or disease class, that are considered preferred therapy for a given health plan
population and that are to be used by a health plan's providers in prescribing medications. 16 The
formulary should include safe, effective drugs that are cost-effective. In order to manage the
formulary, the P&T committee reviews the following types of information:
The P&T committee reviews

Medical literature including reports on clinical trials

Drug utilization reports
Current therapeutic guidelines and reports on the need for revised or new guidelines
Economic data on drugs
Provider recommendations

Peer Review Committee

Peer review is the analysis of a clinician's care for patients by a group of that clinician's
professional colleagues.17 The peer review committee reviews cases of healthcare service delivery
in which the quality of care is questionable or problematic. Such cases are identified through
utilization review processes, complaints and grievances, or clinical monitoring activities. This
committee formulates, approves, and monitors corrective action plans for providers as needed.
Generally, the only members of this committee who have voting rights are the providers.
The health plan also draws from its other committees for peer advisors. Peer advisors are
providers who are consulted when the expertise of a certain specialty is needed to review a
question on utilization, quality of care, or provider performance. State laws on peer review
determine the structure and functions of the peer review committee. In some health plans, the QM
committee conducts peer review.
Variations in Approaches to Medical Management
No single approach to medical management can meet the needs of all health plans, so each health
plan must determine its own combination of programs and activities. When designing medical

management programs, a health plan's management team must consider a variety of factors
specific to the health plan, its services, and its member population. A health plan's contractual
arrangements with its providers and mechanisms for provider compensation may also influence
medical management programs, as we will discuss in lesson, The Relationship of Medical
Management to Other Health Plan Functions.
Characteristics of the Health Plans
The use and organization of medical management can vary significantly depending on the type of
product (e.g., HMO, preferred provider organization, or point of service option) offered by the
health plan. Each product has characteristics that affect the way the health plan implements
medical management.
HMOs typically have a variety of medical management programs in place. Many HMOs contract
with provider organizations or medical groups rather than with individual providers. In many
cases, HMOs work closely with their provider organizations or groups to develop and implement
medical management programs. HMOs may delegate medical management activities to providers
or adapt a provider organization's medical management programs for the plan's use for all its
In preferred provider organizations (PPOs), however, medical management across the entire
member population is more difficult because, unlike HMOs, these health plans usually contract
with individual practitioners, pay for out-of-network services, and do not have a designated
primary care provider (PCP) to coordinate care. As a result, a PPO may not have access to
complete information about member care. PPOs generally have fewer types of medical
management programs than HMOs and structure their programs more loosely than those of
In the past, PPOs have typically focused on UM activities for the types of care that result in the
greatest costs for the plan, such as precertification for hospital care and case management for
catastrophic cases. Most PPOs do not have programs that focus on long-term health status (such
as preventive care or disease management). However, the majority of PPOs have some quality
initiatives (such as credentialing) in place and many are working to strengthen the number and
scope of their QM activities.
Although point of service (POS) products generally utilize the same types of medical
management programs as HMOs, these plans may also encounter difficulty obtaining information
in a timely manner about services rendered by out-of-network providers.
Health plans with multiple products (such as an HMO and a PPO) may use different approaches
to medical management for the different products, or they may adopt the same programs for all
products. Using the same medical management programs for all products helps to simplify the
administration of the programs. Some purchasers request or even require that medical
management be consistent across the products that they purchase from a health plan. For
example, an employer that offers an HMO and a POS product to its employees may want all
employees to have access to the same telephone healthcare information lines and preventive care.
In addition, having different medical management programs for different products may create the
appearance of inequity or even discrimination.

Type of Care
A health plan's approach to medical management should address all of the different types of care
and services that are included in the benefit plan. Medical management personnel may need to
design their programs according to
The type of care (e.g., preventive measures, primary care, acute care, subacute care, or


The nature of the service (e.g., traditional medical and surgical services or specialty

services such as behavioral healthcare or dental care)

We will discuss variations in medical management according to the type of care in more detail in
later lessons.
Member Population
The needs of a health plan's members are a driving force behind a health plan's approach to
medical management. A member population may have additional distinguishing characteristics,
but the health plan should always consider the population's income level, age mix, and gender
The income level has a direct impact on the healthcare services needed and the manner in which
these services should be delivered. For example, low-income populations have a higher incidence
of chronic illnesses such as asthma, diabetes, and heart disease, and are more likely to need
disease management programs than the general population. Further, low-income populations tend
to have relatively low levels of education, so complicated authorization procedures may deter
them from obtaining the services they need.
The age and gender mix of the population also affects the delivery of services. In general,
members' healthcare needs increase with age, so a health plan with a significant number of senior
members may tailor medical management programs for this population segment. For example, a
Medicare plan is likely to have health risk assessments that focus on health issues associated with
aging and geriatric case management that addresses the healthcare needs of patients with multiple
medical problems.
Although a younger population requires a smaller volume of healthcare services than senior
members, a younger population also has specific needs. For example, women of child-bearing age
often need ready access to obstetrical services. A health plan that covers women in this age group
may establish an authorization system that allows members to obtain obstetrical services directly,
that is, without receiving a referral from another provider or authorization from the health plan.
Cultural characteristics such as race, ethnic origin, and religion may also affect medical
management. For example, language barriers may hinder members' understanding of the potential
benefits of a preventive care initiative or the requirements of a health plan's authorization system.
In addition, members' expectations about the nature and delivery of healthcare services may vary
according to racial, ethnic, or religious backgrounds. For instance, in some cultures, patients
believe that injectable medications are far superior to oral treatments and strongly prefer to
receive an injection. In other cases, patients may want to incorporate folk remedies or spiritual
healing into the treatment plan. Some groups resist certain types of medical services, such as
blood transfusions or birth control.

A health plan must also consider the possible effects of racial, ethnic, and religious diversity on
members' medical needs. For instance, regardless of economic status, African Americans have a
higher incidence of low-birth-weight babies than the general population. Consumers of Asian
descent have a relatively high incidence of osteoporosis. 18 health plans should recognize racial
and ethnic differences in the design of medical management programs. For example, a health plan
may target preventive care and disease management programs toward the medical problems
commonly experienced by members of a particular race or ethnic group.
Government-sponsored programs, such as Medicare, Medicaid, and workers' compensation, have
unique requirements for UM and QM. We explore medical management for these populations
further in Medicare, Medicaid, and Other Government Sponsored Programs.
At this point, you should have a basic understanding of the most common medical management
activities and some of the variables that can affect the design and implementation of these
activities. It is important to note that health plans do not always perform all aspects of medical
management functions within their plans. In many instances, health plans contract with their
providers or other external entities for the delegation of selected medical management activities,
as we will discuss in the following section.
Delegation and Medical Management19
In the context of health plans, delegation is a formal process through which a health plan transfers
to another entity the authority to conduct certain functions on behalf of the health plan. The entity
that contracts with the health plan to perform the specified function is the delegate, and the health
plan that transfers the authority is the delegator. The delegator remains accountable for the
functions being performed by the delegate.
In addition to delegating medical management activities, health plans often delegate various
aspects of other functions, such as network management, member services, medical records
review, and claims administration. The list of potential delegates includes hospitals and other
healthcare facilities, provider organizations, case management companies, claims administrators,
management service organizations (MSOs), credentials verification organizations (CVOs), and
independent utilization review organizations (UROs). With so many delegation options available,
health plans face ongoing challenges in determining the appropriate use of delegation, selecting
qualified delegates, and overseeing the delegated functions.
The use of delegation for an activity changes a health plan's requirements for staffing, systems,
and processes. Rather than maintaining the personnel and systems necessary to perform the
activity, the health plan must develop organizational structures and programs to provide oversight
of a delegate's performance of that activity.
Delegation by health plans is governed by various regulatory agencies and by state laws.
Accrediting agencies also have standards for the use of delegation. We discuss laws, regulations,
and accrediting standards that affect delegation in Environmental Influences on Medical
Why Delegate?
Decisions on whether to delegate a function and which aspects of a function to delegate depend
on several factors including a:

The health plan's available resources for the function.

A proposed delegate's willingness and ability to perform the function according to the

health plan's standards.

The costs of performing the function internally versus the costs of delegating the


The health plan's philosophy about delegation.

The expected effect of the delegation on the satisfaction of providers, members, and

A health plan might choose to delegate because it does not wish to dedicate internal resources to
perform the activity or because its staff seeks additional expertise for the activity. Many delegates
focus on a limited number of activities, rather than on the entire spectrum of medical
management. As a result, a delegate often possesses greater knowledge and experience with a
specific activity than a health plan. Also, the health plan may realize that its current information
system cannot handle the demands of a particular function. If another organization already has the
necessary systems and personnel in place to perform an activity, the health plan may find it more
efficient in terms of time and money to delegate to that entity than to conduct the activity with its
own staff.
Some health plans find delegation to be a particularly useful option for services that are utilized
by a relatively small number of members or for specialty services that require a different
knowledge base, such as behavioral healthcare or chiropractic care. For instance, many health
plans that contract with a managed behavioral healthcare organization (MBHO) for behavioral
healthcare services also choose to delegate quality-related activities for behavioral healthcare to
the MBHO. These health plans believe that the MBHO's expertise in behavioral healthcare will
result in more clinically appropriate performance of UM, QM, credentialing, member services,
and medical records review activities than the health plan could achieve.
Delegation often occurs because the network's providers request the responsibility for certain
activities (such as utilization review and case management), especially when the provider shares
financial risk with the health plan. Financial risk is the possibility that the actual costs of a health
plan member's care will be greater than projected costs. Hospitals and provider organizations that
accept financial risk for the delivery of healthcare services may even require that the health plan
delegate functions such as credentialing or UM to them as a condition for contracting with the
health plan. However, the delegation of functions to providers can also occur without the transfer
of financial risk, and the transfer of financial risk does not in and of itself equal delegation. If the
provider already has satisfactory systems for an activity in place and the health plan does not, the
health plan may simply find it more practical for the provider organization to assume
responsibility for the function, at least on a temporary basis. Over time, the health plan may
choose to develop its own mechanisms to conduct functions that have been previously delegated.
A health plan typically compares the expected costs with the expected benefits of delegation
before entering into a proposed delegation arrangement. A cost/benefit analysis examines the
costs of payment to the delegate as well as the costs of oversight of the delegated function by the
health plan. The cost/benefit analysis also considers any expected improvements in utilization,
cost, or quality that may result from the delegation. The oversight of delegated functions is
typically a complex, time-consuming process for a health plan, especially if the health plan
delegates several different functions or delegates a function to more than one entity. In some
cases, health plans find it easier to perform the function within the health plan than to conduct the

oversight process. These organizations typically delegate few functions or delegate no functions
at all.23
In addition, when a health plan delegates a function, it relinquishes some control over the
delegated function. A health plan that is uncomfortable with diminished control is unlikely to
Types of Delegated Activities
Credentialing, pharmacy benefits management, utilization review, case management, and disease
management activities are among the most frequently delegated functions. Member services,
medical records review, and claims administration functions are also commonly delegated.
Depending on the particular health plan and the situation, the delegation agreement may or may
not include all activities for a particular function. For example, Health Plan A delegates to a
disease management company all of the activities necessary to implement a diabetes disease
management program, while Health Plan B contracts with a disease management company only
for services to identify plan members who have or are at risk of having diabetes. Health Plan B
conducts the rest of the diabetes disease management activities within the plan.
Virtually all medical management activities are subject to delegation; however, the number and
types of medical management functions that are actually delegated vary among health plans.
Figure 1A-4 shows some examples of specific activities that health plans delegate. Regardless of
which medical management activities are delegated, the health plan is responsible for ensuring
that access to care and the quality of care are comparable for all plan members.

In many instances, the delegation arrangements for utilization review, case management,
credentialing, member services, and medical records review activities are made between the
health plan and provider organizations such as physician groups, independent practice
associations (IPAs), hospitals, or MBHOs. When the delegate is a provider organization, the
delegation arrangement sometimes includes two or more major functions. For instance, a health

plan might delegate to a network hospital the credentialing of hospital practitioners, as well as the
utilization review and medical records review functions for services provided by the hospital.
Many health plans also contract with CVOs for one or more aspects of their credentialing
function or with UROs for utilization management activities. While the delegation agreement
between a health plan and a provider applies only to the healthcare services rendered by that
particular provider, CVOs and UROs can assume responsibility for a function across many or all
providers in the network. Delegation is less common for quality management and preventive
health services, possibly due to the more complex processes required for these activities. 24
Quality management activities and preventive health services should be performed across a health
plan's entire member population. If network providers are widely dispersed or not affiliated with a
provider organization, the health plan may be unable to coordinate QM activities or preventive
health services across providers.
The Delegation Oversight Programs
Delegation can be a complicated process for a health plan. Careful planning and continuous
monitoring are essential to the successful management of a health plan's delegation arrangements.
To comply with regulatory and legal requirements and accreditation standards, and to decrease
the health plan's legal risk associated with delegation, health plans usually establish a formal
program for the oversight of delegated functions. This program outlines the health plan's
processes for evaluating proposed delegation arrangements, reviewing the performance of
delegates, and providing delegates with corrective action plans as needed.
The ultimate goal of the delegation oversight program is to see that delegated functions are
performed at or above the standards of the health plan and the applicable accrediting and
regulatory agencies. Another objective for the delegation oversight program is to integrate any
delegated activities into the health plan's overall programs for medical management and other
functions. A health plan is accountable for equal and consistent treatment of plan members across
the health plan's entire network. Coverage of services, access to care, the quality of care, and
member service should be comparable for all members, regardless of which activities are
The Delegation Oversight Programs
The delegation oversight process generally includes the following steps:

Proposal for delegation.

Evaluation of the candidate(s) for delegation.
Selection of a delegate by the committee responsible for delegation oversight.
A written document describing the delegation arrangement.
Continuing oversight of the delegated activity, with corrective actions, follow-up
evaluations, and application of sanctions when indicated.

Figure 1A-5 illustrates the steps involved in a health plan's delegation oversight process

Ideally, all documents related to a delegation arrangement contain precise language describing the
activities to be delegated and the time period for which the delegation agreement will be
effective. The use of broad terms such as "key activities for utilization management" or the
omission of specific dates can create confusion about the scope and duration of the delegation.
For example, the health plan and its delegate (or potential delegate) may interpret differently
which activities are included in credentialing, member services, or quality management. In
addition, the activities viewed as most important by the health plan may seem only incidental to

the delegate. Terminology must be clearly explained so that both organizations understand the
exact nature of the delegation arrangement. Clarity is especially critical when delegating
functions to network providers who may be less aware of the health plan's expectations than a
CVO, a URO, or another organization specifically dedicated to performing delegated functions.
The Proposal for Delegation
The written proposal generally consists of a letter of intent, an application, and, perhaps, a draft of
the delegation agreement. The letter of intent is a preliminary agreement that indicates the health
plan's and the candidate's intentions to enter into a delegation arrangement. The letter of intent
typically outlines the delegation oversight process. It also establishes a mutual agreement about
the confidentiality of patient information and the policies and procedures of the health plan and
the potential delegate. However, a letter of intent is not a contract and does not create a legally
binding relationship. Figure 1A-6 lists the typical components of a letter of intent.
The plan's delegation oversight program and the nature of the proposed delegation determine the
amount and type of information that a health plan requires the delegate to submit prior to the site
visit. In addition to requiring the candidate to complete a standard application, health plans often
request some or all of the following documents:
Health plans often request some or all the following documents:

The candidate's policies, procedures, and program descriptions for the delegated activity.
Evidence of any certification or accreditation by external agencies.
The candidate's QM plan.
Historical information about the entity (such as the date of formation, the names and titles
of officers, and an organizational chart).
Evidence of experience with the delegated activity, such as references, sample activity
reports, previous audit results, and any corrective action plans.
Information on any activities that the candidate plans to delegate to another entity.
When the health plan receives the completed application and the requested supporting
documentation, the health plan can begin to evaluate the candidate.

Evaluation of the Candidate

The main purpose of the evaluation is to determine if the candidate can perform the delegated
function as well as or better than the health plan at an acceptable cost. Ideally, the system for
selecting delegates thoroughly explores a candidate's understanding of both the activity to be
delegated and the health plan's standards for that activity. The evaluation process must also
consider the adequacy, qualifications, and capabilities of the candidate's staff. In most cases, a
site visit to assess the candidate's operations is a necessary component of the evaluation.
In addition, the health plan determines if the candidate plans to delegate any of the delegated
activities to another entity and, if so, how the candidate plans to manage this delegation
arrangement. We discuss delegation by delegates (known as subdelegation) in more detail later in
this lesson.
Decision on the Proposed Delegation
Based on the results of the evaluation of the candidate, the health plan either approves, denies, or
pends the delegation. In cases where the candidate does not fully meet the health plan's standards
but does not have significant deficiencies, the health plan may pend the delegation and send the
candidate a letter outlining recommended changes, expected completion dates for the changes,
and a date for a repeat site visit. The candidate's request for delegation will be approved or denied
based on the second evaluation.
The Delegation Agreement
A delegation agreement is the contractual document that describes the delegated functions and
the responsibilities of the health plan and the delegate. The delegation agreement may be in the
form of a contract (the form generally preferred by health plans), a letter, or some other written
document. For a delegation arrangement with a provider organization, the delegation agreement
may be included in the contract for the delivery of healthcare services or it may be a separate
document. Many health plans prefer to keep the delegation agreement separate to allow for

termination or modification of the delegation arrangement without affecting the contract for
healthcare services.
An agreement that lists the individual services to be delegated and then defines the components of
these services reduces the chance for misinterpretation. When a health plan contracts with more
than one delegate for a particular function, a clear and detailed agreement can help ensure that all
delegates perform the function in the same consistent manner. The health plan can further lessen
the chance for confusion by describing in detail the responsibilities retained by the health plan
and the responsibilities transferred to the delegate.
Although the delegate is responsible for performing the function according to established
standards, the health plan is ultimately accountable for any deficiencies. The health plan,
therefore, must oversee the quality of the delegate's work and propose corrective action if the
need arises. To assist the delegate in meeting the health plan's requirements, the performance
objectives for conducting the activity and the methods of measuring performance should be
clearly stated in the delegation agreement. Other specific elements typically included in the
delegation agreement are the required format for reports from the delegate, the schedule for
submitting reports, and the dates on which the delegation begins and ends. 25
Delegation agreements usually specify contingencies for potential problems associated with the
delegated function. One type of contingency clause allows the health plan or the delegate to
terminate the agreement under certain circumstances, that is, with cause. For example, if a
delegate with poor performance fails to implement corrective action as directed by the health
plan, the health plan may end the arrangement with appropriate written notice. In other
agreements, either party may end the delegation arrangement without cause after giving adequate
written notice to the other party.
Continuing Oversight
Diligent oversight of a delegation arrangement is just as important to ensuring quality, costeffective care as the initial selection process. A health plan must regularly audit a delegate to see
that the delegate is following the health plan's guidelines for the function. During an audit, a
representative from the health plan revisits the delegate at least annually to observe operations,
check documentation, and attend committee meetings related to the delegated function.
After comparing the delegate's results and processes to the goals and standards established in the
delegation agreement, the health plan sends its comments back to the delegate. When there are
deficiencies in the delegate's performance, the health plan may send a corrective action plan to
the delegate, or the health plan may work with the delegate to develop a corrective action plan.
Continued poor performance may indicate the need for the health plan to select a different
delegate to conduct the activity or to conduct the activity using its own resources.
If the delegated function is QM or member services, one important report that the delegate
regularly submits to the health plan is an account of adverse events and consumer complaints
regarding the delegated function. This document identifies the number of complaints (often
reported as the number of problems per 1,000 members), the type of complaints, and an overall
assessment of quality.26

As part of the delegation process, the health plan also monitors any use of subdelegation.
Subdelegation is the process that occurs when the health plan's delegate contracts with a third
entity to perform activities that were originally delegated by the health plan. For example, a
health plan may delegate utilization management to an IPA that, in turn, transfers the authority
for case management to an organization that specializes in that activity. The case management
company becomes the subdelegate, and its performance is subject to the same standards as the
original delegate. Either the health plan or the delegate may conduct the oversight of the
subdelegate. Once again, however, the health plan is ultimately accountable for the performance
of the subdelegate. 27
The delegation agreement between the health plan and the delegate should clearly define any
limitations that the health plan places on subdelegation. For example, the agreement may forbid
the delegate to subdelegate activities without informing the health plan and obtaining the health
plan's express written approval prior to subdelegation, or it may specify certain activities that may
not be subdelegated.
Many health plans inquire about the delegate's plans for subdelegation on the original application.
Figure 1A-7 lists typical questions that health plans might ask a potential delegate about
Since subdelegation removes the delegated activity further from the health plan's control, health
plans are generally cautious about subdelegation. As a result, the health plan may prefer to
conduct its own initial and continuing oversight of the subdelegation rather than leaving this
responsibility solely to the delegate. 28

Ideally, a health plan's overall approach to medical management is proactive and includes
initiatives to preserve and improve members' health, such as preventive care and disease
management. The goal of all medical management programs should be to maintain members'
health and reduce the incidence and severity of health problems by delivering the right care.
Appropriate, high-quality care will improve members' level of function, quality of life, and
satisfaction with the plan, as well as reducing the level of medical resource usage. 29

Resources for medical management are limited, so a health plan must examine the available
options and decide how much of its resources to devote to each initiative. For each program under
consideration, the health plan should examine how the program will (1) affect costs and (2)
change clinical outcomes, functional status, and satisfaction for members.
A health plan must also consider how each medical management program will affect and be
affected by other health plan functions, as we discuss in the next lesson.
1. Institute of Medicine, Medicare: A Strategy for Quality Assurance, ed. Kathleen N. Lohr
(Washington, DC: National Academy Press, 1990), vol. 1.
2. Mary Sajdak and Zachary B. Gerbarg, M.D., "Medical Management Overview," Medical
Management Signature Series, Health Plan Resources, Inc., 1997,
http://www.mcres.com/mcrmm01.htm (11 November 1997).
3. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-13.
4. Bruce W. Clark, "Negotiating Successful Health Plan Contracts," Healthcare Financial
Management (August 1995): 28.
5. Mark A. Schuster, M.D., Elizabeth A. McGlynn, and Robert H. Brook, M.D., "Why the
Quality of U.S. Health Care Must Be Improved," National Coalition on Healthcare,
October 1997, http://www.nchc.org/emerge/quality.html, 1 March 2000.
6. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-3.
7. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd ed.
(Washington, DC: Academy for Healthcare Management, 1999), 7-7.
8. Guide to Accreditation (Washington, DC: American Association of Health Plans, June
1996), 83.
9. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd ed.
(Washington, DC: Academy for Healthcare Management, 1999), 7-3.
10. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd ed.
(Washington, DC: Academy for Healthcare Management, 1999), 7-4.
11. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd ed.
(Washington, DC: Academy for Healthcare Management, 1999), 7-5.
12. Raymond J. Fabius, M.D., A Physician Executive's Guide to Patient Management for the
'90s and Beyond (Tampa, FL: American College of Physician Executives, 1995), 31.
13. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-4.

14. Adapted from Academy for Healthcare Management, Network Management in Health
Plans (Washington, DC: Academy for Healthcare Management, 1999), 8-15-8-17. Used
with permission; all rights reserved.
15. Elisa Cascade, "Pharmacy Benefit Management Companies: An Update for 1995," Drug
Benefit Trends 7 (2): 6-10.
16. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd ed.
(Washington, DC: Academy for Healthcare Management, 1999), 8-7.
17. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 2-14.
18. Academy for Healthcare Management, Network Management in Health Plans,
(Washington, DC: Academy for Healthcare Management, 1999), 1-28.
19. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd ed.
(Washington, DC: Academy for Healthcare Management, 1999), 7-3.
20. Emily Rhinehart, "You Can Pass the Buck, but Not the Responsibility," Managed
Healthcare (January 1998): 14.
21. NCQA, 1998 Surveyor Guidelines for the Accreditation of Health Plans (Washington,
DC: National Committee for Quality Assurance, 1998), 374.
22. Angela Lenox, "Quality Assurance for Delegated Services," Healthplan
(September/October 1996): 28.
23. Angela Lenox, "Quality Assurance for Delegated Services," Healthplan
(September/October 1996): 30-31.
24. National Committee for Quality Assurance (NCQA), 1998 Surveyor Guidelines for the
Accreditation of Health Plans (Washington, DC: National Committee for Quality
Assurance, 1998), 373.
25. Angela Lenox, "Quality Assurance for Delegated Services," Healthplan
(September/October 1996): 36.
26. Raymond J. Fabius, M.D., A Physician Executive's Guide to Patient Management for the
'90s and Beyond (Tampa, FL: American College of Physician Executives, 1995), 57.

AHM Medical Management: The Relationship of Medical Management to Other

Health Plan Functions
After completing The Relationship of Medical Management to Other Health Plan Functions, you
should be able to:
Explain the relationship between medical management and each of the following health plan
Network management
Risk management
Legal affairs
Claims administration
Sales and marketing
Understand the role of information management in medical management operations and
Describe some of the technologies that health plans use to manage information
Medical management personnel have regular interactions with many other health plan
departments, including network management, risk management, legal affairs, claims
administration, member services, finance, and sales and marketing. Further, the health plan's
information management function plays a key role in the overall design and day-to-day
operations of medical management programs. All of these other functions exchange information
with medical management and they may provide services specifically for medical management.
In this lesson, we explore the relationship of medical management to each of these health plan
Effective management of the quality and cost of healthcare services is possible only if the
providers of those services understand and cooperate with a health plan's medical management
programs. Therefore, medical management is very closely linked to network management.
Network management includes all of the activities that a health plan conducts to design, assemble,
monitor, and maintain a provider network. 1
A provider network typically includes primary care providers (PCPs), specialists, hospitals and
other healthcare facilities, pharmacies, and ancillary service providers, as shown in Figure 1B-1.

Network Management
To support the consistent delivery of high-quality, cost-effective care to plan members, health
plans conduct credentialing and recredentialing, and monitor the performance of providers. A
health plan's processes for provider selection often rely on quality, utilization, and cost
information from the various medical management programs. In fact, a health plan's contracts
with its providers typically require cooperation with the health plan's utilization management
(UM) and quality management (QM) programs. For example, a provider contract may describe
the steps a provider is expected to follow for authorizing referrals for specialty care. Health plans
that contract with provider organizations may delegate the responsibility for conducting selected
medical management activities to the provider organizations.
Some providers who meet a health plan's standard clinical requirements for network participation
have little experience with health plan medical management. These providers may need more
tightly structured UM and QM programs to aid them in following a health plan's medical
management procedures, at least until the providers have demonstrated that their practice patterns
are consistent with the Medical management programs must not only result in quality care and
cost-effectiveness, but must also be acceptable to providers. Provider satisfaction is important to
overall plan performance and long-term success, and provider satisfaction with a health plan
depends in great part on satisfaction with the medical management programs. Collaboration with
providers on medical management can improve these programs as well as enhancing provider
A medical director's involvement with network management varies, depending on the structure of
the medical management function in a particular health plan. Senior and associate medical
directors often participate in provider contract negotiation, the development of network
management strategies, and the oversight of credentialing and other network management
activities. Associate medical directors and senior medical directors of smaller plans may have
more involvement in day-to-day network operations, such as accompanying provider relations

representatives on visits to providers. In return, provider relations representatives support medical

management functions by helping to implement new medical management programs and
conveying information from providers to medical management staff.
Because medical management is closely related to network management, these two functions
must coordinate efforts in order to avoid conflicts and achieve the most efficient use of health
plan resources. In addition, the contributions of network providers who have daily personal
contact with plan members can prove invaluable to the creation and maintenance of efficient,
effective medical management programs.
Provider Compensation and Medical Management
The compensation method specified in the provider contract has a strong influence on the nature
of medical management programs. The main issue for a health plan to consider about
compensation and medical management programs is what the compensation method rewards. Is
the compensation method based on more pay for more services? Does it include rewards for the
efficient use of resources? Does the compensation system take into account the quality of
healthcare services rendered, the maintenance of overall health status, or member satisfaction?
Fee-for-service (FFS), discounted fee-for-service, and straight salary compensation approaches
generally do not reward providers for efficient use of resources or for maintaining health through
preventive care or disease management. In a fee-for-service (FFS) payment system, the health
plan reimburses the health plan member or the provider an amount based on the actual amount of
medical services delivered.5 A discounted fee-for-service (DFFS) payment system is a payment
system in which the health plan negotiates with the provider a percentage discount from the usual
FFS charges.6 In fact, DFFS compensation may actually increase utilization if providers try to
make up for the percentage discount with a greater volume of services.
A case rate is a single fee that the health plan pays a provider for all services associated with an
entire course of treatment for a condition, such as cardiac surgery or the delivery of a baby. Under
a case rate system, providers have an incentive to manage cost and utilization because they stand
to gain or lose financially on each case based on their use of resources such as tests, treatments,
specialty care, and hospital care.7
Capitation is a method of paying in advance for healthcare services on the basis of the number of
patients who are covered for specific services over a specified period of time rather than the cost
or number of services that are actually provided. The per member per month (PMPM) capitation
rate may be adjusted to account for age or gender.8 A capitated provider receives a set payment
per patient regardless of the actual services delivered, so capitation generally encourages UM by
providers and may give incentives for preventive care and maintenance of health status. As a
result, a health plan may have less need for utilization review (UR). However, because capitation
may influence a provider to under-treat a patient, a health plan that uses capitation must have a
QM program designed to detect underutilization.
In addition, unless the PMPM capitation payment is adequate, providers may be tempted to
accept too many patients in order to increase their total monthly capitation payment. A provider
with an overload of patients may have insufficient time to deliver appropriate care and, as a
result, may omit or delay indicated services. To develop capitation rates, a health plan must
gather utilization data and then use it to make assumptions about future utilization. Accurate
utilization assumptions enable the health plan to set realistic capitation rates.

A health plan may use financial incentives-such as withholds or bonuses-to influence provider
behavior and thereby achieve desired clinical and financial outcomes. For example, if incentives
reward appropriate utilization, providers will likely exercise restraint in ordering tests and
procedures. A quality basis for incentives encourages providers to strive for good clinical
outcomes, improvement in overall health status, and high levels of patient satisfaction. Many
health plans have determined that a mix of UM and QM requirements is the best basis for setting
financial incentives.
Risk Management
Risk management includes all the activities that a health plan undertakes to protect the plan
against financial loss associated with the delivery of healthcare services and to protect its
members against harm from medical care. The purpose of risk management is to (1) identify and
evaluate actual or potential exposures to risk and (2) prevent or at least minimize any financial
loss to the plan or physical harm to a member that may result from such an exposure. 9
A health plan, its medical directors, and any other physician executives may be liable for any
cost-management programs that have the potential to compromise the quality of care or provide
incentives that could cause providers to act in a manner that is not in the best interest of the
For example, suppose that a health plan establishes inappropriate standards for the quality of care
or clinical practice guidelines (CPGs) that fail to make allowances for variations in individual
members' conditions. If a patient suffers harm as a result, the health plan may be subject to
charges of failure to fulfill its duty to act in good faith. The term duty to act in good faith refers to
a health plan's legal responsibility to consider members' best interests and not act maliciously,
recklessly, or purely in its own economic self-interest.11
In some situations, the courts may hold a health plan liable for negligence by the health plan's
employed or contracted providers. Negligence is failure to exercise the amount of care that a
reasonable person or entity would exercise under similar circumstances. Medical malpractice is a
type of negligence that occurs when a patient is harmed because a provider failed to exercise
reasonable care in providing medical treatment.12
Health plans can reduce the risk of negligent care through UM and QM activities designed to
support the appropriate level and amount of care. For instance, to reduce the likelihood that
providers may fail to diagnose breast cancer in a timely manner, a health plan may develop and
implement a CPG for the screening and diagnosis of breast abnormalities. QM programs can
reduce a health plan's exposure to liability by identifying and addressing the cause(s) of poorquality care. The lesson Quality Management provides further information on health plan
Health plans must also manage the risk of diminished financial performance that may result if the
actual total cost of healthcare services exceeds the budgeted cost. The medical management
measures shown in Figure 1B-2 may help health plans avoid incurring unnecessary costs and
simultaneously improve the quality of healthcare services.

Legal Affairs
A health plan's legal advisors see that the health plan's policies, procedures, and programs for
medical management are in compliance with applicable federal and state laws and regulations.
They also advise the health plan on the legal aspects of implementing these policies, procedures,
and programs. For example, health plan lawyers develop the language, including the sections
pertaining to clinical practice management, UM, and QM, for the contracts that a health plan
makes with its providers and purchasers.
The legal affairs staff must stay abreast of new laws and regulations that affect medical
management and see that any applicable changes are incorporated into the health plan's medical
policies and UM and QM initiatives. A health plan's lawyers may represent the organization in
any legal actions concerning the delivery of care, such as lawsuits alleging negligent care or
failure to act in good faith. The legal staff also act as consultants to the UR department in the
event of an appeal of a UR decision.
Claims Administration
In most health plans, medical management programs send information to and receive information
from the claims administration department or the vendor providing claims administration
services. Claims administration is the process of receiving, reviewing, adjudicating, and
processing claims for full payment, partial payment, or denial of payment.15
Providers compensated through a capitation arrangement do not submit claims. Instead, capitated
providers often send encounter reports to supply the health plan with information about members'

healthcare visits, diagnoses, and services performed. Alternatively, some capitated providers
submit "no-pay" claims, that is, claims that are for information tracking only and do not involve
payment. Encounter forms and "no-pay" claims provide crucial data for the health plan's
measurement of preventive care and provider performance and for external entities' assessment of
the plan's quality.
The relationships between claims administration and medical policy and between claims
administration and UR are especially important. A health plan is contractually obligated to pay
only for covered services that are determined to be medically appropriate. Therefore, for each
claim received, claims administration personnel must ascertain if the listed services (1) were
covered benefits for the member at the time the services were delivered and (2) if subject to UR,
were authorized by the UR department as medically necessary for the member. The UR
department sends regular reports on authorizations of payment (such as an authorization of a
referral for specialty care or a precertification for a hospital admission) to claims administration.
The UR department should also keep the claims administration department up to date on the type
of authorization (if any) required for specific services. In addition, the claims administration
department and the UR program sometimes coordinate efforts on questionable claims where the
services listed differ from or exceed the original authorization for payment. These cases require
additional clinical review to determine if payment should be authorized for the services as
For example, does a referral for a member with congestive heart failure cover only a single visit
to a cardiologist or does the referral provide for follow-up visits to adjust the patient's medication
for the heart condition if the PCP feels that such visits are indicated?
By examining claims and encounter report information, medical management managers can
determine the number and types of healthcare services actually delivered to plan members. This
information allows the health plan to understand levels of utilization for each provider. as well as
for the entire network. The evaluation of claims also helps medical management staff identify
members who are candidates for services such as case management or home healthcare.
Member Services
Member services is the department responsible for:

Giving members information about the health plan, benefits, and network providers.
Helping members with any problems.
Handling member grievances and complaints.
Tracking and reporting patterns of problems encountered.
Enhancing the relationship between the members of the plan and the plan itself.17

Member services also monitors overall member satisfaction with care. Through its processes for
assessing member satisfaction and addressing member complaints and grievances, member
services can identify trends that may indicate problems with medical management programs.18
Figure 1B-3 lists complaints and problems tracked by member services that are of particular
interest to medical management personnel.

In addition to providing information about medical management programs to members, member

services may directly affect utilization and member satisfaction through member education on
such topics as:
Member Education Topics

The meaning and scope of covered benefits and applicable cost-sharing requirements.
Provider listings and PCP selection.
Prescription programs, including the use of formularies.
The health plan's system for authorizing referrals, procedures, and hospital care.
The health plan's procedures for appeals of nonauthorizations of payment.
Telephone information lines to assist members with healthcare decisions.
Health promotion or preventive care programs offered by the health plan.
Access to emergency care.

Payment to providers for healthcare services rendered to members represents a large proportion
of a health plan's total expenses. Without adequate processes to manage the costs of medical

services, actual costs for care may exceed budgeted costs, leading to diminished financial
performance for the health plan and possible failure of the health plan. Medical management
personnel who manage costs communicate regularly with the finance department to exchange
information on the expected and actual costs of care.
The finance department's staff also uses utilization information to project the costs of providing
healthcare services to a specific member population. These cost projections are factored into the
calculation of the premium rates that purchasers pay for healthcare coverage.
Sales and Marketing
Medical management programs that address quality or cost-effectiveness are important to a health
plan from a marketing perspective. Unless medical management can adequately contain
healthcare utilization and costs, the health plan will be unable to offer premium rates that will be
attractive to purchasers. In addition, members and purchasers alike are concerned about the
quality of healthcare services, so marketing personnel often use quality measures or other medical
management programs as a means of differentiating a health plan from its competition. For
example, documentation of improved clinical outcomes or member satisfaction can be a useful
marketing tool. Purchasers and members may favor plans that include health promotion initiatives
such as programs for weight loss or smoking cessation.
QM and UM programs are important to members and purchasers, so a health plan's medical
management personnel must promptly communicate any medical management program changes
to sales personnel. In many instances, sales and marketing personnel can relay purchaser and
member input on quality and utilization problems to aid medical management personnel with
program improvements. For example, sales staff may suggest the modification of the
authorization system to allow members access network specialists without a PCP referral as long
as they are willing to pay a higher copayment. The sales staff is also likely to learn of new
benefits that members would like to add to the benefit plan.
The Role of Information Management in Medical Management
Because medical management programs typically require the collection, analysis, and reporting
of many different types of data, a health plan needs an accurate, efficient method for information
and data management. Information management is the combination of systems, processes, and
technology that a health plan uses to provide the company's information users with the
information they need to carry out their job responsibilities. Having current, accurate information
at the right time in the right format is critical to the effectiveness of medical management
programs. Another purpose of information management is to see that only authorized parties have
access to the data.
Ideally, the information management approach for medical management should take into account
the needs of each medical management program, the need for links between the programs, and
the need to exchange information with other health plan functions and external entities. For
example, network management personnel need information about provider performance to
calculate performance-based incentives and to coach providers on performance deficiencies.
Utilization reviewers need access to information about covered benefits, patient diagnoses,
previous care, and proposed care to make authorization decisions. Disease management personnel
need information about medication usage and specialty referrals to help determine which
members may be appropriate for a particular disease management program. Pharmacists need

access to information about members' use of medications to assess drug utilization and prevent
dangerous drug interactions. QM program directors need information on healthcare and service
quality to include in reports to external parties such as purchasers, providers, members, state and
federal governments, regulatory agencies, and accrediting bodies.
To accommodate all of these needs and many others related to medical management, health plans
have two types of information management systems: (1) systems to assist medical management
personnel with day-to-day operations and transactions (e.g., processing requests for authorization
of services) and (2) systems to support the analysis of accumulated data and information and to
report the results of that analysis (e.g., measuring provider performance or evaluating different
medical management initiatives). The next section provides more information on some basic
considerations for establishing and maintaining both types of information management systems.
Challenges in Managing Data and Information
Effectively managing data for medical management programs involves several challenges. First,
the health plan must be able to manage large volumes of data from internal and external sources.
A health plan generates tremendous amounts of internal data including documentation of its
business operations and detailed records of the services it delivers to purchasers, providers, and
plan members. Providers generate additional data in the course of treating plan members. The
health plan also receives external data from purchasers who maintain records on plan members
and from a wide variety of state and federal agencies.
Second, the health plan must be able to manage different types of data. Providers generate clinical
data related to healthcare services and outcomes. Regulators and accrediting agencies provide
operational information about legal requirements and quality standards. The health plan generates
customer satisfaction data and financial data related to revenues and expenses. The health plan
must be able to understand all of these types of data and the relationships between them.
Third, health plans often experience difficulties acquiring accurate, complete data in a timely
manner, and data is often inconsistent from one source to another. Medical management activities
frequently rely on coded information in the claims administration database. However, for medical
management purposes such as the evaluation of provider performance or specific programs, the
codes do not always provide adequate information about services rendered. Also, inconsistencies
may arise because different providers sometimes use different diagnostic codes for similar types
of patients or different procedural codes for the same procedure. Further, providers' staffs may
make errors when inputting the diagnostic and procedural codes.
Coding is also subject to abuses such as upcoding and unbundling, usually as an attempt to
increase the total compensation under an FFS or DFFS payment system. Upcoding is a type of
false billing in which a provider submits a code for a service with a higher level of reimbursement
than the service actually performed. For example, a provider might submit the code for a
comprehensive office visit, when the office visit was actually an intermediate level of service.
Unbundling is submitting separate charges for the different components of a service rather than
one charge for the service as a whole. For instance, a surgeon might unbundle care for a patient
who underwent gall bladder removal by submitting three separate codes for the preoperative
physical examination, the surgical procedure, and the postoperative care, which should all be
included in the code for the surgical procedure itself. 20

Finally, the health plan must be able to manage different data formats. For example, data from
providers and plan members is frequently recorded in the form of paper documents. Much of the
data generated by a health plan is in electronic form, but this data is often distributed in separate
databases (such as a provider database, a member database, and a claims database) that may have
different organizational structures and use different software. In many cases, the approach to
information management varies among the individual medical management programs of a health
plan. The lack of coordination and compatibility among information management processes
typically results in higher costs and less efficiency for this function.
Information management for medical management can be a complex process; however, not all
aspects of information management are completely or even partially automated. In many
instances, health plan personnel manually perform some or all of the steps necessary to obtain and
use information.
The automation of information management for health plans require technical expertise and is
generally expensive and time-consuming. In addition, the security and privacy of sensitive
medical information is of special concern for health plans, members, providers, and purchasers
alike. The Department of Health and Human Services (HHS) has established federal regulations
for the confidentiality and security of electronic medical information. Entities that maintain or
transmit patient care information electronically must be in compliance with these HHS standards.
We discuss these standards further in Environmental Influences on Medical Management.
Despite the costs and complexity of establishing and maintaining automated systems, the use of
computerized systems for information management in health plans is growing overall. Next, we
discuss some specific approaches to the automation of information management.
Information technology
The use of information technology varies greatly among health plans. Information technology
refers to the wide range of electronic devices and tools used to acquire, record, store, transfer, or
transform data or information. The devices and tools used by health plans and their providers for
medical management purposes include:

Electronic commerce (eCommerce)

Electronic data interchange (EDI)
Decision support systems (DSSs)
Data warehouses
Electronic medical records (EMRs)
Health information networks (HINs)

Electronic Commerce
In a health plan context, electronic commerce (eCommerce) refers to a health plan's use of
computer networks as a means to perform business transactions and to facilitate the delivery of
healthcare services to the health plan's members. Many health plans use eCommerce to
communicate both within the health plan and with plan members, purchasers, providers,
regulators, accrediting bodies, and potential members and purchasers.
Although the automation of information exchange processes generally requires a significant upfront financial investment, in the long term, eCommerce often results in cost savings. eCommerce

also offers other advantages over manual systems. The transmission of data and information
through eCommerce typically speeds the information exchange process. Faster access to
information allows health plans and providers to avoid delays in determining the appropriate care
and in delivering that care to members.
The majority of health plan eCommerce occurs via the Internet, although a small number of
health plans have implemented proprietary computer networks for this purpose. The Internet is a
public, international collection of interconnected computer networks. The most common means
of accessing information on the Internet is the World Wide Web, also known as WWW or the
Web, which is an Internet service that links independently owned databases containing text,
pictures, and multimedia elements.
The development of the Internet has provided health plans with a cost-effective means of
transmitting and obtaining information. Many health plans have their own Internet Web sites. A
Web site is a specific location on the Web that provides users access to a group of related text,
graphic, and, perhaps, multimedia files. Health plans use Web sites for a variety of purposes, such
as those listed in Figure 1B-4.

Because the Internet is already established and is so far-reaching, many health plans find it to be a
cost-effective tool for information management. Another advantage is that many people are
familiar with the Internet and find it easy to use. However, the Internet does have some potential
drawbacks. No single entity has responsibility for managing the Internet or correcting
malfunctions, so concerns about network reliability persist.
In addition, the Internet is publicly available, so the potential exists for unauthorized access to the
proprietary systems of a health plan. To provide a higher level of security than presently exists
with the Internet, some health plans have established intranets and secured extranets. An intranet
is an internal (private) computer network built on Web-based technologies and standards. Access
to the intranet is available only to members of the computer network. An extranet is similar to an
intranet in that it incorporates Web-based technologies; however, the extranet links selected
resources of a health plan to external entities or individuals. The external parties (e.g., providers,
members, regulatory and accrediting agencies) need a password in order to gain access to the
health plan's information.

Electronic Data Interchange

Electronic data interchange (EDI) is the computer-to-computer transfer of data between
organizations using a data format agreed upon by the sending and receiving parties. EDI may be
useful for the following medical management activities:
Medical management activities:
Transmission of claims and encounter reports from providers to the health plan.
Transmission of data from the claims database to various medical management

Transmission of data among different health plan departments or geographic locations.
Exchange of data between a health plan and regulatory or accrediting bodies.
Transmission of member eligibility data from a health plan to its providers.
Exchange of information between a health plan and its providers regarding requests for
authorizations of services and referrals.

Two advantages of EDI over manual data management systems are speed of data transfer and
improved data integrity. Each manual step in a process introduces the possibility of human error.
For example, if a health plan receives paper-based claims or encounter reports, then the claims or
encounter report processing personnel must enter the data into the health plan's system and may
make mistakes. On the other hand, if the health plan receives the data electronically and can
transfer it automatically into its system, these potential data errors can be minimized.
EDI requires a data communication link between the participating departments or organizations.
In many instances, the Internet serves as the communication link. EDI differs from eCommerce in
that EDI is the transfer of data (typically in batches), while eCommerce involves back-and-forth
exchanges of information concerning individual transactions, and, often, the performance of some
type of service.
Decision Support Systems
In addition to improving access to data and information, information technology may also support
problem-specific decision-making. A decision support system (DSS) uses databases and decision
models to enhance the decision-making process for health plan executives, managers, clinical
staff, and providers. 22
A DSS can help providers and health plan personnel make decisions by analyzing data from a
database and reporting the results of the analysis. For example, health plans may use a DSS to
analyze the effect of healthcare services on members' health. This information can then be used to
identify the most effective medical interventions. Another common use for decision support
systems is to evaluate the performance of network providers in order to identify the providers
whose performance does not meet the health plan's expectations for quality or cost-effectiveness.
Based on this type of analysis, the health plan can target providers for coaching on performance
improvement. A health plan may also use a DSS to identify providers who consistently deliver
high-quality, cost-effective care in order to recognize their superior performance and, perhaps,
reward them with financial incentives or nonmonetary benefits, such as relaxed requirements for
service authorization.

Used prospectively, a DSS may help a health plan determine how it can best use its medical
management resources. For example, a DSS may show that a certain type of preventive care
initiative is needed. A clinical DSS assists providers with diagnosis and/or treatment selection for
Health plans sometimes use a type of DSS called an expert system to assist with medical
management decisions, although such systems are still primarily used for claims administration.
An expert system is a knowledge-based computer system whose purpose is to provide expert
consultation to end-users for solving specialized and complex problems 23. Expert systems apply
general rules to data to determine the answer to specific questions. For example, an expert system
can apply the general rules for authorizing a specific procedure (such as a mammogram) to the
characteristics of a particular plan member to determine if that member is eligible for that
procedure24. Advantages of this type of expert system are the ability to store and recall extensive
sets of rules and consistency in applying those rules.
A health plan may also use an expert system that incorporates artificial intelligence. Artificial
intelligence (AI) refers to computers that can simulate the function of a human brain, that is, the
computers can think and learn from previous knowledge. 25 An AI system may be used to detect
relationships among different data elements and then apply the knowledge of those relationships
to new data.26 An AI system could be running within an electronic patient record system, for
example, and alert a clinician when it detects a contraindication to a planned treatment. It could
also alert the clinician when it detected patterns in clinical data that suggested significant changes
in a patients condition. AI systems have the capacity to learn, leading to the discovery of new
phenomena and the creation of clinical knowledge. For example, a computer system can be used
to analyse large amounts of data, looking for complex patterns within it that suggest previously
unexpected associations. AI systems are now being used in the development of predictive
modeling programs.
Decision support systems require timely access to accurate data in order to be effective. In the
next section, we discuss the role of data warehouses in providing the needed data.
Data Warehouses
All health plans have various legacy systems that have evolved over time. A legacy system is a
combination of computer hardware and software that a health plan has used for a long time to
perform specific tasks. Typically, legacy systems are no longer state-of-the-art, but they have not
been replaced because they perform a necessary function and because costs of replacement may
be high. Often, unique combinations of hardware and software are used for different health plan
functions because the best system for one function is not the best approach for another function.
In addition, virtually no health plan has the financial resources to replace all of their legacy
systems at once, even if such large-scale replacement were desirable.
As a result of legacy systems, information is often divided among distinct, unlinked databases. A
health plan manager seeking organization-wide information may have to search more than one
database within each functional area as well as across several different functions. Multiple
database searches not only increase the time it takes to acquire information, they also increase
labor costs. In addition, the data from the various databases may be in different, incompatible
formats. In some instances, the manager may not have ready access to all of a health plan's
different databases.

To address the problems associated with multiple data management systems, many health plans
have begun to use data warehouses. A data warehouse is a specific database (or set of databases)
containing data from many sources that are linked by a common subject (e.g., a plan member) 27.
The data from the various sources is integrated through a process that transforms data captured
from otherwise incompatible databases and operational systems so that the data is nonrepetitive
and in a standard format.
With a data warehouse, health plan personnel are better able to prepare complete, accurate reports
because they can merge data from various separate sources (e.g., claims administration and
utilization review). A consistent format for data also enables the comparison of data (1) across
different types of health plan products (e.g., HMO versus PPO) and (2) against data from other
health plans.
Data warehouses typically store large amounts of historical data, as well as current data, which
facilitates the analysis of information over time. A data warehouse also addresses the problem of
having multiple databases that are not linked.
A data warehouse may contain data from both internal and external sources. Information users
can analyze the data in the warehouse through the use of query applications.
Advantages and Disadvantages of Data Warehouses. Data warehouses simplify the process of
extracting useful information from data that is gathered independently by different health plan
functions or external sources. A warehouse approach also relieves individual databases from
having to store large amounts of data that is not needed for daily operations. Decreasing the
amount of data in an individual database typically speeds the response time of the database to a
Data warehousing also facilitates data mining, which is an automated process that analyzes
variables to help detect patterns and relationships in the data. For example, data mining can reveal
not only which providers have higher than average costs associated with childbirth, but may also
suggest why those providers' costs are higher. The data mining process does this by providing
answers to questions that depend on a number of different types of data. Does the provider
perform a higher than average percentage of cesarean sections? Is the provider practicing in a
geographical area in which medical costs are higher than average? Is the provider serving a
population with an unusually high number of health problems that cause difficulties before and
after pregnancy? Is the provider focusing on very difficult cases, but managing those cases well?
Several different functional areas might gather the data necessary to answer these questions.
Marketing, for instance, might supply provider demographic information. Claims administration
might supply the provider's claims costs as well as information concerning the types of medical
problems present among the provider's patients. The data warehouse can provide a means of
storing and accessing these types of information over time. The answers to these questions may
suggest ways to both lower costs and improve care. If the population of women that the provider
serves has a high incidence of health problems that can complicate childbirth, perhaps a health
education program that targets the characteristics of that population would lower costs for the
plan and improve members' health.
Data warehouses can help medical management personnel answer questions that rely on trends
that are not immediately obvious. For instance, suppose that a medical management program
director wants to know if the average age of the population covered by the health plan in a

geographic region is increasing. Some databases may be able to supply the current average age of
plan members, but may not be able to show how that average age has changed over the past five
years. A data warehouse that has historical data would be able to do so. Further, the data
warehouse could supply information on whether the change in average age correlates with
changes in the frequency and cost of care for cardiac disease, for example.
The principal disadvantages of data warehouses are the complexity and cost of implementing
them. Typically, the construction of a data warehouse is very time-consuming and requires
significant technological expertise and financial resources. Even though a data warehouse may
make health plan operations more efficient and improve the quality of healthcare, the return on
the financial investment in a data warehouse may not be realized for several years.
One important source of information to support quality and cost-effectiveness of care for a health
plan's members is the data contained in medical records. Traditionally, these records have been in
the form of paper documents and were kept at the site where the care was provided. Some
providers, however, are beginning to document their patients' care in an electronic form. An
electronic medical record (EMR), also sometimes called a computer-based patient record (CPR),
is a computerized record of a patient's clinical, demographic, and administrative data.
Depending on the design of the EMR system, an EMR can be composed of a number of different
types and formats of data. For example, clinical data would include, but would not be limited to,
the plan member's medical history, current and past medications, diagnoses of illnesses, test
results, and current treatment status. Similarly, demographic data would include the member's
name, address, age, gender, and perhaps, information about race, ethnic origin, or religion, if this
type of information is relevant. Administrative data may include plan type (HMO, PPO, etc.),
plan sponsor (the purchaser), membership number, and the names of providers who have
rendered treatment to the member.
While the exact types of data in an EMR vary, they all include medical information and are
organized around an individual plan member, rather than by the type of treatment or by provider.
They are designed to supply information at the site of care. In contrast, many other databases and
data warehouses that health plans and providers use are designed to supply UM or QM
information. EMRs also include some level of clinical decision support for providers. For
example, EMR software can be designed to alert a provider to possible drug interactions in the
case of a patient receiving multiple medications.
Health Information Networks
Although an EMR system in a clinic, physician's office, or hospital has the potential to improve
the quality of healthcare at the site of care, even more advantages can be achieved if medical
records can be transferred across an entire network of providers. One method of transferring this
data is for a health plan to develop a health information network (HIN), which is a computer
network that provides access to a database of medical information. In one type of network
arrangement, a health plan's HIN, also known as a health data network (HDN), is linked to a data
warehouse that stores the very large amounts of data that reside in the medical records of an
entire provider network. The HIN makes the data in the warehouse available online to a defined
set of users, such as health plan physicians and pharmacists, and medical management personnel.
A health plan may also use a secured extranet design or a distributed database approach for the
HIN. With a distributed database approach, a database system (including either the whole

database or only the relevant portion) is located at more than one site. For example, the EMR
database might be available at several different hospitals and at large provider groups' locations.
Most HINs are Internet-based rather than built on proprietary computer networks. Whatever the
network infrastructure, the health plan typically houses a central database or data warehouse that
accepts, organizes, and stores EMR information as it is entered, and then makes EMRs available
to authorized users.
HINs have the potential to increase the quality of medical care because all the information in a
patient's medical history is readily available to that patient's provider at the point of treatment. For
example, suppose that a plan member is seriously injured in an accident and is brought to a
hospital that is linked to the health plan's HIN. The HIN would allow medical personnel at the
hospital access to the member's complete medical history, even if the member were unconscious
or otherwise unable to respond to questions. Thus, the hospital physicians would know whether
the patient had been taking prescription medication, was allergic to specific drugs, or had any
other medical conditions, such as diabetes or heart disease, that might influence emergency
treatment decisions. The hospital physicians would also know the names of the member's PCP
and any specialists who had treated the member, as well as the names of family members to
HIN-supported EMRs have a distinct advantage over non-networked forms of medical record
keeping, particularly the common practice of using paper documents. With paper records, if a
plan member receives care from providers at different physical locations, either the paper records
must be copied and faxed or carried between locations, or the providers themselves must discuss
the details of the chart. Further, with paper records, the possibility exists that records may be lost
or at least temporarily misplaced.
The capacity of HINs to capture a large amount of data about healthcare services and outcomes in
a uniform format also affords health plans the following benefits:
Health Plan Benefits
Improved outcomes measurement. Health plans can extract outcomes trends from the

HIN data warehouse using computer software designed for this purpose. This outcomes
information can be used for developing clinical practice management parameters such as
medical policies or clinical practice guidelines.
Better measurement of provider performance. Using data partly gathered through its
HIN, a health plan can identify providers who have superior outcomes and who comply
with UM and QM programs.
Increased efficiency and accuracy of information about healthcare services
rendered to members. Most HIN systems present providers and their staffs with
computer screens that list standard options for entering data about patient care. Rather
than type in this data or record it on paper, the provider or staff member can simply click
on the appropriate option, which saves time and reduces the possibility for clerical error.
Reduced exposure to liability for poor care. Just as EMRs and HINs give providers a
means of documenting their work to show compliance with quality programs, HINs assist
health plans in demonstrating that quality care is being uniformly rendered to plan

Improved ability to meet reporting requirements. HINs give a health plan a vehicle

for capturing information that may be required by regulatory agencies or accrediting

Although HINs offer a number of advantages, HIN development involves significant costs and
risks for a health plan. Figure 1B-5 summarizes challenges faced by a health plan that wishes to
develop such a network. Currently, only a minority of health plans operate HINs that are capable
of transferring medical records among the providers in a health plan's provider network.

Reporting Medical Management Information

In most cases, health plans need many different types of reports on medical management
activities. Report needs vary according to the focus of the activity, the level of detail desired, and
the type of analysis that has been performed on the data. For example, case management staff
may need to examine the complete set of data about the cases they are managing, while the case
management program director needs a concise summary of the current case data along with
notations of trends or problems.
Medical management program directors must often examine a series of reports, each showing a
different level of detail, in order to analyze a particular issue. The process of examining multiple
layers of increasingly detailed information and data to improve understanding of a particular issue
is sometimes called drilling down.
For example, suppose that a health plan's total costs for ambulatory care are higher than expected
for a given period. The utilization review staff may be able to determine the source or sources of
the excess costs by drilling down through data on ambulatory care utilization by the type of care,
the diagnoses or other characteristics of patients receiving that care, and the providers ordering or
delivering the care. If the source is a particular provider or a particular type of patient, the health
plan can investigate the reasons for the excessive utilization of resources and, if indicated,
formulate a plan to correct the problem. Figure 1B-6 illustrates the concept of drilling down to
determine the cause of excess costs resulting from greater than expected utilization.

Even when the total results of a report are within acceptable limits, medical management
personnel may drill down to identify any specific areas for which actual results are noticeably
different from the projected results. Drill down reports are also valuable for tracking changes
from one time period to another.

Outsourcing Information Management

The technical demands of designing, setting up, and maintaining systems and processes for
information management can be considerable. In most regions of the country, external vendors
offer a wide variety of information management services and products. Health plans often
purchase computer equipment and software programs from these vendors, especially for medical
management activities that benefit from sophisticated analysis. They may hire vendors to help
them design and establish new systems such as data warehouses or HINs.

Health plans may also choose to outsource some or all of their information management activities
to an external vendor rather than conduct the information processes within the health plan.
Outsourcing involves hiring external vendors to perform specified functions, such as data and
information management activities. In an information management outsourcing arrangement, the
health plan specifies its information management requirements and provides data to a vendor that
designs an appropriate system and conducts the information management activity on a day-to-day
basis. The vendor also creates the reports that the health plan requires.
The purchase of information management products and outsourcing arrangements are typically
long-term commitments for a health plan. Information management outsourcing often requires a
significant financial investment, as well as complex legal and administrative arrangements.
Because the information management function is so critical to a health plan's operations, any
disruption in the relationship between the health plan and the vendor may be very costly for the
health plan. Therefore, a health plan should select a vendor that is financially stable and that has a
reputation in the healthcare industry for high-quality products and technical support.
At this point, you should have a basic understanding of the purpose of medical management, the
typical components of medical management, medical management staffing, and the relationship
of medical management to other health plan operations. In the next lesson, you will learn about
the impact that external forces have on a health plan's approach to medical management. Other
Government-Sponsored Programs explores how laws, regulations, accreditation standards, and
the expectations of purchasers, consumers, and providers affect medical management.
1. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-3.
2. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-3, 3-3.
3. Marianne F. Fazen, St. Anthony's Health Plan Desk Reference, 1996-1997 ed. (Reston,
VA: St. Anthony Publishing, Inc., 1996), 272.
4. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 3-5.
5. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-8.
6. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 5-29.
7. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 5-31.
8. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 5-34.

9. Academy for Healthcare Management, Network Management in Health Plans

(Washington, DC: Academy for Healthcare Management, 1999), 5-4.
10. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 5-40.
11. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-13.
12. Barbara J. Youngberg, "Risk Management in Health Plan," in The Managed Health Care
Handbook, ed. Peter R. Kongstvedt, M.D., 3rd ed. (Gaithersburg, MD: Aspen Publishers,
Inc., 1996), 612.
13. Academy for Healthcare Management, Health Plans: Governance and Regulation
(Washington, DC: Academy for Healthcare Management, 1999), 12-5.
14. Academy for Healthcare Management, Health Plans: Governance and Regulation
(Washington, DC: Academy for Healthcare Management, 1999), 12-3.
15. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-14.
16. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-15.
17. Robert S. Eichler and Robin M. McElfatrick, "Claims and Benefit Administration," in
The Managed Health Care Handbook, ed. Peter R. Kongstvedt, M.D., 3rd ed.
(Gaithersburg, MD: Aspen Publishers, Inc., 1996), 493.
18. Peter R. Kongstvedt, M.D., "Member Services and Consumer Affairs," in Essentials of
Managed Health Care, ed. Peter R. Kongstvedt, M.D., 2nd ed. (Gaithersburg, MD: Aspen
Publishers, Inc., 1997), 378.
19. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-14.
20. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 5-30. Used with
permission; all rights reserved.
21. Robert C. Nickerson, Business and Information Systems (Reading, MA: Addison-Wesley
Educational Publishers, Inc., 1998), 21.
22. J. K. H. Tan, Health Management Information Systems (Vancouver, B.C.: Aspen
Publishers, Inc., 1995), 142.
23. J. K. H. Tan, Health Management Information Systems (Vancouver, B.C.: Aspen
Publishers, Inc., 1995), 50.
24. Edmund X. DeJesus, "Achieving Expert Ease," Healthcare Informatics (January 2000):

25. Ralph M. Stair and George W. Reynolds, Information Systems: A Managerial Approach
(Cambridge, MA: Course Technology, 2000), 480.
26. "Expert Systems: Staunching the Risk Flow," Healthcare Informatics (July 1999): 22.
27. John Meyers, "Beyond Intervention: Data Warehousing and the New Disease
Management," Managed Healthcare (January 1998): 30.

AHM Medical Management: Environmental Influences on Medical Management

After completing Environmental Influences on Medical Management, you should be able to:
Describe the types of environmental factors that affect medical management of health
Discuss the expectations of purchasers, providers, and plan members for medical
Describe the major federal and state regulatory requirements that affect medical
Describe how environmental factors influence a health plan's delegation of medical
management functions
Identify the main accrediting agencies and explain the impact of accreditation on medical
Health plans operate within an increasingly complex environment that consists of both internal
and external factors. A health plan's internal environment includes all those elements within the
company that affect the company's business functions and over which the company has control. A
health plan's external environment includes all those elements that are outside the company's
control. Figure 1C-1 shows some of the elements that constitute a health plan's external and
internal business environments.
Environment factors have a direct impact on a health plan's medical management policies,
strategies, and decision making processes. For example, consider the situation facing a health
plan that is trying to decide whether to add a disease management program to its medical
management function. In order to make a decision, the health plan must not only satisfy its
medical management goals, it must also accommodate a variety of external demands. Purchasers,
providers, and health plan members all have expectations related to healthcare services and to the
health plans that deliver those services. Competitive pressures influence how plans develop and
market their products. Federal and state laws and regulations specify how plans must operate, the
kinds of benefits they may or must offer, and even the quality standards with which they must
comply. Accreditation organizations direct how plans measure and improve the quality of their
services. Media coverage often determines the health plan's public image. As Figure 1C-2
illustrates, the issues that affect the health plan's decision can be complex.

In this lesson, we will describe how a health plan's external environment influences its medical
management decisions. We will focus our discussion on the following factors: (1) purchaser,
provider, and plan member expectations; (2) legal and regulatory requirements; and (3)
accreditation standards.
Medical Management and Expectations of Purchasers, Providers, and Plan Members
Purchasers, providers, and plan members all have expectations related to the healthcare services
they want and need and to the health plans that arrange the delivery of those services. Some
expectations are shared by all of these customer groups; others are not. All have an impact on a
health plan's medical management decisions.
Purchaser Expectations
The major purchasers of health plan services are private employers and federal and state
government programs. As a group, these purchasers want to see that all health plans under
Provide quality healthcare benefits that are accessible, yet affordable.
Operate efficiently so that administrative costs are minimized.
Maintain satisfactory member service patterns.
Comply with applicable laws, regulations, and industry standards.

Employers, federal governments, and state governments also have their own individual

Employers-especially large employers-are key purchasers of healthcare benefits, and their ability
to recruit and retain competent employees often depends on the type and level of healthcare
benefits they offer. Although cost is an important part of their purchase decision, employers are
also concerned with the quality of care and services the plan delivers. For example, one large
employer is requesting that health plans comply with specified clinical goals for preventive care,
such as prenatal care, mammography screenings, and child immunization rates1. Employers
consider employee satisfaction as well. No employer wants to be inundated with employee
complaints about inadequate treatment, long wait times for appointments, lack of access to
appropriate specialists or preferred providers, poor quality of provider/patient interactions, and
the share of costs they must pay.
Employers can address these concerns, in part, by evaluating and comparing quality data from all
health plans under consideration. For HMO plans, accreditation by one of the major accrediting
organizations provides evidence that the plan meets certain quality and customer satisfaction
standards. Performance measurement programs provide additional information. These sources
may be less helpful in evaluating the quality of non-HMO plans because fewer non-HMO plans
currently seek accreditation or report specific performance results.
If employers are not satisfied with the quality or cost of services available through health plans,
they can minimize or even eliminate the role of health plans by contracting directly with
providers or by establishing self-funded plans. Direct contracting allows employers to reduce
administrative costs and see that employees have a sufficient level of provider choice. However,
it also requires employers to manage complex provider relationships. So far, the challenges of this
role have prevented direct contracting from becoming a dominant model. Under self-funded
arrangements, employers assume the financial risk associated with providing healthcare benefits.
In some cases, employers also assume responsibility for administering the program; in other
cases, employers contract with health plans to provide administrative support through
administrative services only (ASO) agreements.
In all self-funded programs, directly in the delivery and financing of healthcare benefits and have
a voice in determining the type, quality, and cost of healthcare services.
Federal Government
The federal government serves as both a regulator and a purchaser of healthcare benefits. As a
regulator of health plans, the federal government exerts regulatory and legislative influence over
health plans and expects health plans to fully comply with all applicable laws and regulatory
requirements. In addition, the federal government seeks input from health plans when drafting
legislation or developing regulations to implement laws enacted by Congress. For example, as we
will discuss later in this lesson, many health plans have participated in the federal government's
efforts to develop regulations implementing electronic data security and privacy standards as
required by the Health Insurance Portability and Accountability Act of 1996.
As the largest purchaser of healthcare benefits in the United States, the federal government has an
impact on the medical management functions of individual health plans. Through programs such
as Medicare, the Federal Employee Health Benefits Program (FEHBP), and TRICARE, the
federal government sets standards for the quality and types of benefits it expects health plans to

offer to qualified beneficiaries. Many of these standards and expectations are eventually adopted
by purchasers and consumers in the private sector as well.
In the following sections we discuss some of the federal government's expectations related to
Medicare, FEHBP, and TRICARE programs. We will discuss the programs in more detail in later
Medicare. As you recall from Healthcare Management: An Introduction, Medicare+Choice
expanded the types of entities that are allowed to offer managed healthcare plans to Medicare
beneficiaries. During the last few years, the federal government's major quality and cost
initiatives have been to encourage Medicare beneficiaries to enroll in managed healthcare plans
as part of Medicare+Choice.
The federal government expects Medicare+Choice plans to:
Medicare+Choice Plans Should
Offer a variety of specialty care providers
Accommodate the special access and healthcare needs of the Medicare population (e.g.,

transportation, disability coverage)

Accommodate the unique utilization patterns of the Medicare population (e.g., use of

emergency departments)

Provide services and plan information in a linguistically and culturally sensitive manner

In order to see that health plans satisfy these expectations, the federal government has
implemented a variety of quality assessment and improvement initiatives. The government has
also revised reimbursement methods for managed healthcare plans in an effort to reduce costs.
However, as a result of these cost-cutting efforts, some health plans have withdrawn from the
Medicare program.
On December 8, 2003, President George W. Bush signed into law the Medicare Modernization
Act of 2003 (MMA), creating short-term reforms to designed to both improve benefits and reduce
out-of-pocket costs for millions of Medicare beneficiaries who are covered by health plans in the
Medicare Advantage program, previously known as the Medicare+Choice programs, and to effect
payment reform to encourage more health plans to offer medicare Advantage programs.
See Editor's Note.
Editor's Note
The Medicare Modernization Act of 2003
On December 8, 2003, President George W. Bush signed into law the Medicare Modernization
Act of 2003 (MMA), taking steps to expand private sector health care choices for current and
future generations of Medicare beneficiaries. The MMA proposes short-term and long-term
reforms that build upon more than 30 years of private sector participation in Medicare.
The centerpiece of the legislation is the new voluntary prescription drug benefit that will be made
available to all Medicare beneficiaries in 2006. Additional changes to the M+C program include:
M+C programs name is changed to Medicare Advantage (MA);
Increased funding is provided for MA plans in 2004 and 2005;

MA regional plans are established effective 2006.

On January 16, 2004 CMS announced new county base payment rates for the MA program.
Beginning March 1, 2004, all county MA base rates received an increase which plans are required
to use for enhanced benefits. Plans may use the extra money in one of four ways:

Reduce enrollee cost sharing;

Enhance benefits for enrollees;
Increase access to providers;
Utilize the stabilization fund.

The short-term reforms have already improved benefits and reduced out-of-pocket costs for
millions of Medicare beneficiaries who are covered by health plans in the Medicare Advantage
program, previously known as the Medicare+Choice program. These coverage improvements
became effective on March 1, 2004.
On June 1, 2004, beneficiaries saw additional improvements in Medicare under another important
MMA initiative, the Medicare-Endorsed Prescription Drug Discount Card Program, which will
remain in effect through the end of 2005. This program gives beneficiaries the option of
purchasing prescription drug discount cardssponsored by private sector entities and endorsed
by Medicarewhich offer discounted prices on prescription drugs. Furthermore, the discount
card program is providing low-income Medicare beneficiaries with up to $600 annually in
assistance, in both 2004 and 2005, to help cover their prescription drug costs.
Beginning in 2006, the MMA will provide beneficiaries with a broader range of private health
plan choices similar to those that are available to working-age Americans and federal employees.
In addition to the locally-based health plans that currently cover more than 4.6 million Medicare
beneficiaries, regional PPO-style plans will be available as a permanent option under the
Medicare Advantage program.
Beginning in 2006, all beneficiaries will have the option of choosing prescription drug coverage
delivered through private sector entities. This coverage will be available as a stand-alone drug
benefit or, in other cases, as part of a comprehensive benefits package offered by Medicare
Advantage health plans.
Other important provisions of the MMA address Medigap choices and specialized Medicare
Advantage plans for beneficiaries with special needs.
Public comments on the regulations are currently in review, and changes to the draft regulations
are anticipated. Final regulations are expected in the spring of 2005, and content updates will be
made after the release of the final regulations.
The Federal Employee Health Benefits Program. The Federal Employee Health Benefits
Program (FEHBP) is a voluntary health coverage program for federal employees, retirees, and
their dependents and survivors.3 The Office of Personnel Management (OPM) oversees the
FEHBP, which offers plan members a choice among fee-for-service (FFS) plans and HMOs.
Because of its size and membership, plan design requirements for the FEHBP often influence
plan design in the private sector. The OPM has generated several requirements for mandated
benefits, including no limits on annual coverage for behavioral health benefits. Some healthcare

analysts have proposed the FEHBP as a model for a national healthcare plan. It has already been
used as a model for various quality assessment and improvement initiatives.
TRICARE is the healthcare benefit program offered by the federal government to active and
inactive military personnel and their families. It is the result of the federal government's
conscious decision to incorporate health plans into its traditional FFS program. TRICARE offers
eligible members three plan options:
1. TRICARE Prime-a capitated HMO;
2. TRICARE Extra-a PPO; and
3. TRICARE Standard-a fee-for-service plan. 4
Coordination of services between civilian and military providers is an important focus of
TRICARE because civilian providers now deliver many healthcare services to the military
State Governments
Like the federal government, state governments serve as both healthcare regulators and
purchasers. For example, states act as purchasers of healthcare coverage for state and local
government employees. Expectations for these populations parallel expectations established for
federal programs. The influence of state governments as purchasers, however, is focused on two
major programs: Medicaid and workers' compensation. This section provides a brief description
of Medicaid and workers' compensation. More detailed discussions are presented later in the text.
Medicaid is a joint federal/state program designed to provide healthcare benefits to low-income
families, children, and certain other groups of disabled and medically needy individuals. The
federal government determines minimum eligibility standards, benefits, and provider
reimbursement rates. It also provides funding for state programs. State governments provide
additional funding and oversee the administration of Medicaid at the state level. Currently, all but
one of the states offers a health plan option to Medicaid recipients. A growing number of states
are making enrollment in health plans mandatory.
Health plans participating in state Medicaid programs are expected to accommodate the unique
access needs of the Medicaid population, including locating appropriate providers at sites
convenient to program recipients. In addition, states expect participating plans to address the
special language, culture, education, and health/disability needs of the Medicaid population.
Workers' Compensation
Workers' compensation, often referred to as workers' comp, is a state-mandated insurance
program that provides benefits for medical expenses that are incurred and wages that are lost by
workers who suffer work-related injury or illness.5 Purchasers expect health plans participating in
workers' comp programs to address both of these issues.
An effort is underway in several states to combine healthcare coverage with disability income
coverage and on-the-job accident coverage into one program, called 24-hour coverage. Whenever
health plan principles are applied to this combined coverage, the resulting plan is called 24-hour

health plan. The main effect of 24-hour health plan programs on a health plan's medical
management function is that coverage for work-related injuries or illnesses and income
replacement for the time period out of work are mandatory.
Provider Expectations
Providers working with health plans have three major concerns. First, providers want the
healthcare services that they deliver to meet proper medical and quality standards. In a traditional
FFS system, providers determine which services are provided and under what conditions. In a
health plan environment, health plans may influence some of these decisions. For example, a
health plan may establish standards for the types of tests authorized under certain circumstances
or for certain conditions.
Providers sometimes perceive that health plans make such decisions on the basis of cost rather
than appropriateness of care and fear that this practice will have a detrimental effect on quality.
Providers sometimes also perceive that nonmedical personnel are involved in making medical
decisions and that health plans are practicing medicine without a license-a practice referred to as
the corporate practice of medicine. Health plans can alleviate these concerns, in part, by
encouraging provider participation in defining what constitutes best medical practices and in
developing clinical practice guidelines for medical services.
Second, providers want to retain a certain level of authority and autonomy in providing medical
care. Providers feel that they, and not the health plan, should be the final authorities for medical
decision making. Providers also want to have access to due process procedures in the event of a
conflict between a provider and the health plan. Timely, well-documented, and objective
procedures in an appeals process are critical to allaying providers' concerns about their
participation in health plans.
Finally, providers want to know that health plans can provide necessary financial and
administrative support for their practices. For example, providers want health plans to establish
easy claims submission and reimbursement procedures, to provide timely payment of their fees,
and to require providers to follow as few administrative procedures as possible. Ideally, providers
would welcome an integrated information system that would enable them to expedite
correspondence and administrative record keeping. Providers want ready access to plan member
records, medical journals and research studies, and laboratory results. Providers also want their
health plan contracts to result in a steady stream of plan members and dependable income results.
Because of their growing negotiating power and their ability to articulate concerns and
expectations, providers can exert substantial influence over a health plan's medical management
function. For example, physicians and other providers may choose not to contract with a health
plan that does not meet their needs. A significant reduction in the number of providers in the
network can force a health plan to reduce the number of services it offers, which can, in turn,
cause plan members and purchasers to look elsewhere for healthcare, perhaps following the
providers who have left the plan.
Plan Member Expectations
Plan members' expectations for health plans have evolved as members have become better
informed about healthcare issues and have refined their ideas about what constitutes quality,

affordable, and accessible healthcare benefits. Today, health plan members expect health plans to
offer the following benefits and services:
Benefits and Services
Provider choice. Plan members want freedom of choice with respect to the primary care

provider (PCP) network, hospitals, specialists, and ancillary service providers, such as
pharmacies, laboratory services, and behavioral health services. In some cases, plan
members desire direct access to specialty care providers without obtaining a PCP referral.
High quality care. Plan members expect providers to be competent and to deliver
appropriate, quality healthcare.
High quality service. Plan members expect health plans to provide courteous and prompt
responses to requests for information, quick resolution of coverage issues, and customerservice-oriented providers at all levels.
Low cost. Plan members expect plans to minimize the amount of out-of-pocket expenses
members are required to pay for care and services.
Information on plans. Plan members expect their health plans to provide information
about covered healthcare services, treatment options, and network providers and
Medical information. Members are becoming interested in obtaining information via the
Internet, including information on illnesses, medical procedures, and chronic conditions,
online health assessments, e-mail addresses of network providers, and prescription refills.
Healthcare benefit options. Members often want healthcare options that include
complementary and alternative medicine choices (for example, chiropractic services,
acupuncture, biofeedback, and therapeutic massage).
Confidentiality of medical records. Confidentiality is becoming increasingly important
as healthcare information is transmitted and stored electronically and as plan members
demand instant access to their medical records and to information concerning various
illnesses and conditions.
Grievance and appeals processes. Members want health plans to provide explicit
processes for resolving disputes over nonauthorization of payment for specified medical
services or providers, and appropriate medical treatment. Health plans that fail to provide
plan members with appropriate avenues of due process leave themselves potentially
liable for breach of fiduciary duty under ERISA at the federal court level, civil lawsuits
for negligence or medical malpractice at the state court level, and increased pressure by
consumer groups for Congress to pass a patients' bill of rights concerning healthcare

Health plans are responding to increased awareness and expectations of plan members by
adjusting their medical management functions to meet members' needs. In the past, health plans
looked to employers and government programs as their primary market for purchasers. Recently,
health plans have begun to see individual plan members as purchasers. As plan members seek
more customization in their healthcare benefits and as their employers become more willing to
allow it, individual healthcare plans within a group environment become a possibility.
For example, an employer can allot a specified dollar amount for healthcare benefits for each
employee and then allow employees to contract for their own coverage. If the cost of an
employee's selected healthcare coverage exceeds the dollar amount of the employer allotment,
then the employee makes up the difference. In this way, the employee's coverage shifts from a
"defined benefit" (i.e., employer contribution depends on the number and type of benefits

included in the plan) to a "defined contribution" (i.e., employer contributes a specified dollar
amount and employee contributes any additional dollar amounts to pay for healthcare coverage).
Other trends in meeting plan member expectations include: (1) a shift in marketing efforts toward
women, who utilize healthcare services more frequently than men and who often make the
healthcare decisions in a family; (2) more emphasis on long-term, chronically disabling illnesses
in a population that is growing older; and (3) an increased awareness of the language, cultural,
and economic barriers that affect healthcare in a culturally diverse population.
Legal and Regulatory Requirements That Affect Medical Management
Purchasers, providers, and plan members influence the perceived need for laws and regulations to
support the quality of medical care available through health plans. Over the years, public interest
in healthcare has increased dramatically. Consumers, many of whom have been enrolled in health
plan programs without choice and are unfamiliar with the system, have expressed concern over
the quality of healthcare services available to them. Because of the human interest appeal of
healthcare issues, media coverage of health plans have also grown. As a result, a number of laws
and regulations designed to support quality medical care have been enacted at both the federal
and state levels. Many of these laws and regulations have a direct impact on medical
To see that their interests are properly represented and that legislators are adequately educated
about health plan principles and practices, health plans must be aware of and participate in the
legislative process. Health plans must also comply with all applicable federal and state regulatory
In the following sections, we will look first at laws and regulations that apply at the federal level
and then at state requirements and case law requirements. Keep in mind that federal and state
governments often share jurisdiction over health plans and that regulatory requirements may
overlap, or even conflict.
Federal Laws and Regulations that Affect Medical Management
A variety of federal laws and regulations affect medical management. Those laws related to
employee benefits, health insurance, budget reconciliation, and patient protection, are especially
Employee Retirement Income Security Act of 1974
Employee health benefit plans, except those maintained by government employers, are currently
subject to regulation under a federal law called the Employee Retirement Income Security Act
(ERISA) of 1974, which is designed to maintain the proper funding and administrative
management of pension and employee welfare benefit plans.6 The Act includes a preemption
provision which states that ERISA takes precedence over any state laws that regulate employee
welfare benefit plans.
ERISA has important implications for medical management, especially in cases in which an
employee raises questions of noncoverage of benefits related to medical appropriateness. Plan
members and their families who obtain healthcare benefits through employee benefit plans must

file legal challenges involving coverage issues or administration of the plan at the federal level,
and ERISA is generally the governing law for such cases.
Unlike most state laws, ERISA limits damage awards in lawsuits to the cost of denied treatment;
it does not allow plan members to obtain compensatory or punitive damages. For example, a plan
member who brings a lawsuit for nonauthorization of payment based on the health plan's decision
that the service was not medically necessary can recover benefits that a court of law determines
were inappropriately denied. However, the plan member cannot recover monetary amounts for
pain and suffering or awards designed to deter employers or health plans from making
inappropriate decisions in the future. As a result of these ERISA provisions, it is in a health plan's
best interest to have a case tried at the federal level.
Fast Definition
Compensatory damages are monetary amounts that the law awards as compensation for a
legal wrong. In most tort cases, damages are the amount of money that will compensate
the injured party for his or her injuries.
Punitive damages are monetary amounts that are awarded to punish or make an example
of the wrongdoer in order to dissuade others from similar behavior.
Currently, plaintiffs are challenging ERISA's preemption provision in many cases in the federal
courts. Such cases question the intent of the U. S. Congress to preempt state laws via federal laws
such as ERISA. The judicial system has not yet defined a clear direction regarding whether
litigation against ERISA plans is to be pursued through federal or state court. The system has also
not defined the remedies that are available to members of managed healthcare plans covered by
employee benefit plans subject to ERISA regulation. Some recent court decisions on ERISA
preemption, however, indicate that ERISA may not provide health plans with automatic
protection from damages, especially in cases dealing with the quality of care arranged by the
Also, federal legislators are considering changing ERISA, particularly its preemption clause. If
legislation is passed to eliminate the ERISA preemption, then plan members may sue health plans
and group purchasers in state court for remedies that include compensatory and punitive damages.
Health Insurance Portability and Accountability Act
The Health Insurance Portability and Accountability Act (HIPAA) of 1996, which increases the
continuity and portability of healthcare coverage in the group and individual health care markets,
specifies that a group health plan may not deny coverage or discriminate against individuals on
the basis of their health status. 7
HIPAA provides additional patient protections through the following standards:
HIPAA's patient protections through amendments and standards. 8
Provisions for long-term care coverage, which define insurance contracts that contain

long-term care coverage as accident and health plans and specify that premiums paid and
benefits received are medical care expenses that are excluded from the insured's gross
income for tax purposes.

Standards for privacy of individually identifiable health information, which prohibit

healthcare organizations from releasing identifiable patient health information for

purposes other than medical treatment, payment, quality assurance, or utilization review,
without the patient's consent. Standards apply only to electronically transmitted
information, and regulation is, in some cases, superseded by pre-existing state and federal
Standards for electronic data security, which define the security measures health care
organizations must take to protect the confidentiality of electronically stored and
transmitted patient information. Measures endorsed by HIPAA regulations include access
controls, callback procedures to verify the identify of users, passwords, authentication
procedures to verify the identity of entities using the system, automatic logoffs after
periods of inactivity, and recording audit trails.
HIPAA provisions and standards affect both the benefits health plans provide to their members
and the ways in which those benefits are administered. For example, health plans are required to
inform plan members about HIPAA provisions and to issue certificates of creditable coverage to
all plan members. Plans may not delegate this responsibility to a third party administrator. Health
plans must also establish special open enrollment periods for individuals who lose other health
coverage or who become eligible for coverage as dependents. In addition, health plans must
develop information systems that support electronic claims processing and comply with
confidentiality and information security standards.
Complying with HIPAA mandates requires not only planning, but additional allocation of
resources, especially in the area of information management. Some health plans worry that
HIPAA requirements will create administrative nightmares and make the collection of quality
data expensive or even impossible. Noncompliance, however, is likely to result in serious
sanctions. Violators face the possibility of civil penalties of up to $25,000 and criminal penalties
of up to $250,000 and up to 10 years in prison per violation.
Balanced Budget Act of 1997
The Balanced Budget Act (BBA) of 1997 facilitated the enrollment of beneficiaries of
government-sponsored health programs in health plans and allocated funding for health insurance
for uninsured children.
The BBA established the Medicare+Choice program, the social health maintenance organization
(SHMO) program, and the Programs of All-Inclusive Care for the Elderly (PACE). Each program
has specified coverage, solvency, and organizational requirements that directly affect a health
plan's medical management function. The BBA also requires health plans to develop quality
improvement programs in areas such as healthcare outcomes, utilization review, and coordination
of care. The Balanced Budget Refinement Act (BBRA) of 1999 modifies some of the
requirements and implementation schedules established in the BBA for these programs. The
impact of the BBA on Medicare and Medicaid programs is discussed in more detail in the lessons
Medicare and Medicaid.
Federal Agency Requirements
Health plans are also subject to a variety of requirements established by regulatory agencies. The
following sections highlight the impact that several key federal agencies have on medical
management. A more complete discussion of these programs is included in later assignments.

Department of Health and Human Services

The Department of Health and Human Services (HHS) oversees many government healthcare
programs. In addition to Medicare and Medicaid, HHS has authority over Programs of AllInclusive Care for the Elderly (PACE), a joint federal-state program designed to provide persons
aged 55 or older who require a nursing-facility level of care with an alternative to institutional
care, and the State Children's Health Insurance Program (SCHIP), a federal-state program
designed to enable states to initiate and expand child health assistance to uninsured, low-income
children by providing initial and matching funding over time. The Centers for Medicare and
Medicaid Services (CMS), a division of HHS, is responsible for administering these programs.
One important goal of CMS' administration of the Medicare and Medicaid programs is to support
the delivery of quality healthcare services to eligible beneficiaries. Toward this goal, CMS
requires Medicare health plans to document improvements in clinical procedures and to collect
and report on quality measures for comparison purposes. CMS has developed a quality initiative
called the Quality Assessment Performance Improvement that is designed to strengthen health
plans' efforts to protect and improve the health and satisfaction of Medicare and Medicaid
enrollees. Compliance with QAPI is mandatory for Medicare+Choice plans. For Medicaid, QAPI
standards serve as a model that states can use at their discretion to develop quality requirements
for Medicaid health plans. QAPI standards cover the following broad domains:
Quality assessment and performance improvement
Enrollee rights
Health services management

In addition, CMS establishes delegation guidelines with which health plans that serve a Medicare
population must comply. The CMS requirements for delegation oversight are similar to those of
two prominent accrediting agencies, NCQA and URAC, which we discuss later in this lesson. In
general, delegated functions are held to the same CMS standards as the functions actually
performed by the health plan, and CMS will hold the health plan accountable for any deficiencies
in the delegate's performance. CMS is also directly involved in the development of standards for
electronic medical record (EMR) transactions as they relate to the Medicare and Medicaid
The healthcare needs of medically underserved populations are also addressed through such
programs as the National Health Service Corps, Federally Qualified Health Centers, and the
Indian Health Service. These programs are administered by the Health Resources and Services
Administration (HRSA) division of HHS. Decisions of agencies such as the CMS and HRSA
directly affect health plans that serve these populations.
Department of Defense
The Department of Defense (DOD) oversees all military healthcare programs, which are among
the largest in the United States. In addition, the DOD frequently establishes minimum benefit and
administrative requirements that health plans must meet if they want to serve the military market.
The DOD's decisions regarding quality, access, and program choice directly influence how a
health plan designs and implements its medical management activities. The evolution of
healthcare benefit programs for active and retired military personnel and their dependents from
the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), which was an
indemnity-based plan, to TRICARE, which offers an indemnity plan but also a PPO plan and an

HMO plan, has also affected medical management. We discuss healthcare benefits programs for
the military in Other Government Programs.
Office of Personnel Management
The Office of Personnel Management (OPM) conducts human resources functions on behalf of
federal government employees. One of its major functions is to oversee the Federal Employees
Healthcare Benefits Program (FEHBP), which is the largest group healthcare plan in the nation.
Healthcare benefits under the FEHBP are generally broader than those of most employersponsored group health plans.
Coverage decisions established for the FEHBP often set a precedent for coverage in the private
sector as well. For example, as a result of an executive order issued by the president, health plans
that serve federal employees must be in compliance with the Consumer Bill of Rights and
Responsibilities recommended by the Advisory Commission on Consumer Protection and Quality
in the Health Care Industry. This directive is likely to have a significant effect on medical
management in both FEHBP plans and private sector plans.
Federal Trade Commission
The Federal Trade Commission (FTC), along with the Department of Justice, enforces federal
antitrust statutes. These statutes have a direct effect on health plans' provider contracting
activities. For example, in contracting with providers, a health plan must avoid creating tying
arrangements, which require a provider to purchase the health plan's healthcare benefits in order
for the provider to participate in the health plan's network. Health plans must also guard against
engaging in horizontal group boycotts, in which two or more competing health plans decide to
exclude a particular provider because the provider also contracts with another health plan.
Department of Justice
In addition to its involvement in antitrust matters in conjunction with the FTC, the Department of
Justice (DOJ) also oversees fraud and abuse matters as they relate to medical management.
Because the costs associated with fraud and abuse can be extremely high, health plans actively
focus on reducing the occurrence of fraud and abuse of healthcare benefits.
Health plans have noted two medical management conditions in particular that may signal
potential fraud and abuse: (1) purposeful underutilization of medically necessary healthcare
services in health plans that capitate their providers, and (2) purposeful overutilization of, and
inappropriate billings for, services in plans that pay their providers on an FFS basis. Although
utilization management of healthcare services helps reduce a health plan's medical service costs,
underutilization of medically necessary services is detrimental to members' health and will likely
lead to higher costs over the long term.
A number of other federal agencies also influence medical management. For example, the Office
of the Inspector General (OIG) is often involved along with the Department of Justice in dealing
with fraud and abuse issues. The Federal Drug Administration (FDA) and National Institute of
Health (NIH) are important contributors to the development of medical policy. The Office of
Minority Health, a division of HHS, has proposed standards addressing the development of
culturally and linguistically appropriate services.

State Laws and Regulations

State governments typically regulate health plans through the state department of insurance
and/or department of health. Like federal laws and regulations, state laws and regulations and the
requirements of specific organizations have a significant impact on a health plan's medical
management programs. For example, many states have laws that require health plans to:
Laws Require Health Plans to:
Arrange for adequate access to healthcare providers and facilities
Have specific quality management programs and take appropriate action to improve

quality deficiencies
Follow specified guidelines, procedures, and registration requirements for utilization
Report specified utilization and grievance information
Provide plan members with adequate information about covered benefits, how to obtain
those benefits, and how to pursue grievances
Have formal grievance processes in place for members and providers

In the following sections, we describe some of the areas in which state laws and regulations have
the greatest impact on medical management.
Benefit/Provider Mandates
One way in which state governments impact medical management is through mandated benefit
laws. Mandated benefit laws are state laws or federal laws that require health plans to arrange for
the financing and delivery of particular benefits, such as coverage for a stay in a hospital for a
specified length of time.10 The Newborns' and Mothers' Health Protection Act (NMHPA) is an
example of a federal law that mandates benefits. State laws have been enacted that require health
plans to provide for benefits including
Direct member access to certain specialists, such as OB/GYNs, dermatologists, or doctors

of chiropractic, without first going through a primary care provider

Coverage for emergency department visits, even if a subsequent diagnosis determines

that the condition was not an emergency, if the presenting symptoms that caused a plan
member to go to the emergency department appeared to be an emergency, such as chest
Hospice and home health benefits
Mental health and chemical dependency services (behavioral healthcare)
Benefits for specialized services such as post-mastectomy reconstructive surgery,
transplants, temporomandibular joint treatment, and infertility treatment
These mandates not only require that the benefits be covered, they also imply that particular types
of providers such as behavioral healthcare professionals must be included in the network.
In some cases, federal and state mandated benefit laws conflict with a health plan's goals for
managing the costs of delivering healthcare services. For example, mandated length-of-stay laws
for maternity and mastectomy patients increase the costs of providing those healthcare benefits
and may not actually be medically beneficial in all cases.

Access to Quality Care and Service

Many of the state laws related to the quality of healthcare services are based on model laws
developed by the National Association of Insurance Commissioners (NAIC), an organization of
state insurance commissioners established to encourage uniformity in insurance regulation. In
1996, the NAIC introduced a series of Health Plan Accountability Models. The following NAIC
Models specifically address the issue of quality in health plans:
Health Care Professional Credentialing Verification Model Act: specifies the

requirements health plans must satisfy to see that network providers meet minimum
standards of professional qualification
Quality Assessment and Improvement Model Act: requires health plans to establish
and report on systems for assessing the quality of care and services
Network Adequacy and Accessibility Model Act: specifies standards health plans must
meet in developing and managing provider networks
Health Carrier Grievance Procedure Model Act: requires health plans to establish
written procedures for handling member grievances
The NAIC has also developed model laws on health information privacy and state licensure. State
laws and regulations based on these model acts apply to all health plans operating in those states.
State governments and regulatory agencies have developed a variety of laws and regulations that
apply to the use of delegation by health plans. These regulations and laws help determine which
activities, if any, a health plan may delegate and the nature of the delegation arrangement. For
example, more than half the states have laws-based in whole or in part on the NAIC's HMO
Model Act-requiring HMOs to include a description of their contractual arrangements for
delegation in their written quality improvement program. As we discuss later in this lesson, health
plans that seek accreditation must also meet the delegation-related standards of the relevant
accrediting agency. Because health plans are accountable for all delegated activities, regardless of
the terms of the agreement for delegation, a high level of review and monitoring by the health
plan is required for all delegated activities.
Some states have more specific requirements for the delegation of medical management functions
by health plans. For instance, in Alabama, credentialing activities may be delegated only to
entities that have been approved by the state for this purpose. Fourteen states require health plans
to maintain oversight of delegated utilization review activities.11 Because state laws on delegation
vary, a health plan must monitor the requirements of each state in which the health plan operates
and adjust its delegation programs accordingly.
Patient Protection
Patient protection has become an important issue at the state as well as the federal level. Figure
1C-6 summarizes some of the major issues addressed by recent state legislative and regulatory
Proposed patient protection bills also include provisions for the use of an external review board to
serve as a second medical opinion or, in cases of claims denials or nonauthorization of payment
for treatment, as an arbitration review panel. Most health plans currently require plan members to

exhaust internal review processes offered by the health plan before seeking an independent
Federal law already grants Medicare patients automatic access-at no cost to the patient-to an
external review board for appeals of decisions by a health plan. Many states are now requiring
external review board appeals for health plan denials as well. Self-funded ERISA plans are
typically exempt from state requirements; however, if patient protection legislation passes at the
federal level, self-funded plans will also be required to provide recourse to an external review

Coverage for Underserved and Unserved Populations

Underserved or unserved populations pose a significant challenge for both federal and state
governments. These underserved and unserved populations (for example, rural residents who
have limited access to healthcare services, the unemployed, the uninsurable, minor children,
recent immigrants) are least likely to obtain routine, affordable, accessible, consistent healthcare
coverage. As a result, these populations are the most likely to overutilize hospital emergency
departments for urgent care or other non-emergencies. Such care is expensive and not necessarily
the best quality in terms of continuity of care.
Historically, federal or state legislation, such as Medicare, Medicaid, or SCHIP, has driven the
requirement for at least minimum healthcare coverage to underserved populations. Because of the
legislative thrust, mandated benefits and a minimum level of benefits are usually required if a
health plan expects to serve these populations. Also, because of language or economic barriers,
members of these populations tend to have unique access needs. Many health plans that serve
these populations have translators available or bilingual providers and staff for specified ethnic
groups. They also make transportation arrangements and incur other expenses to see that these
plan members understand their benefits and observe the appropriate procedures for obtaining care
and appealing denials related to these benefits. All these additional customer-service items
increase a health plan's administrative expenses but are necessary to support compliance and
affordable, accessible healthcare for plan members.

Case Law
The laws outlined in the previous sections were developed and passed as federal and state
statutory laws. Case law also influences medical management. Case law, also called common
law, is a body of law that consists of federal and state court decisions.13 Monitoring case law is
critical because the outcome of a court case may clarify ambiguous sections of a particular
statute. Court decisions may also establish precedents that must be followed if a health plan is to
comply with the law. For example, the outcome of specific court cases under consideration in
various state courts may determine whether plan members can directly sue their health plans in
those states. Insight 1C-1 describes some of these cases.
Health Plan Liability and Medical Management Activities
As a result of federal and state regulation of health plans and other laws and regulations that
affect the daily operations of service businesses, health plans have legal obligations to plan
members and providers. These legal obligations often impact medical management activities.
Plans that violate these obligations can be held directly liable for any harm that results from their
actions. This would be the case if a court ruled that a health plan had made an inappropriate
utilization management or provider credentialing decision and that decision had resulted in harm.
Plans may also be held accountable for the actions of other parties through vicarious liability.
Vicarious liability is a kind of liability that arises when one party is held responsible for the
actions of another party because of the existence of a special relationship between those two
parties.14 A claim for vicarious liability may arise in connection with a health plan's delegation of
certain medical management activities.
For example, suppose that a health plan contracts with a utilization review organization (URO)
for utilization review services and that URO improperly recommends denial of payment for
services to a plan member. The health plan can be directly liable if the health plan failed to
adequately investigate the quality of the URO's services and the qualifications of its personnel
prior to establishing the delegation arrangement or to provide proper oversight of the delegated
activities. 15 The health plan may also be liable for the URO's actions under state law if the URO
is determined to be an agent-that is, the authorized representative-of the health plan or if the URO
is determined to be an apparent, or ostensible, agent of the health plan.
Under the legal doctrine of apparent agency, also called ostensible agency, a health plan may be
liable for the actions of a delegate if the following three conditions are true:
Health plan may be liable for actions of a delegate if
1. The health plan fails in some way to establish that the delegate is not the health plan's
2. A plan member perceives the delegate as an agent.
3. In relying on this perception, the member suffers physical or financial harm.
To avoid the appearance that the delegate is an agent of the health plan, any documents that refer
to the delegation arrangement, including marketing materials and written agreements between the
health plan and the delegate, should specify that the delegate is an independent contractor and not
an agent. 16

Vicarious liability may also arise in connection with medical malpractice committed by a plan
physician or other healthcare provider against a plan member if the health plan is deemed liable
because of the contractual relationship between the health plan or plan and the provider.
One way that health plans can protect themselves from the prospect of litigation based on the
liabilities discussed above is to structure utilization review, case management, and disease
management programs so that the cost of treatment has no bearing on what is considered
medically appropriate. In subsequent lessons, we discuss Utilization Review, Case Management
and Disease Management.
Impact of Accreditation on Medical Management
Accreditation organizations independently evaluate the quality of a health plan's services. The
information provided by the accreditation process is intended to help purchasers and possibly
consumers make well-informed decisions when choosing and contracting with a health plan.
However, the process itself presents challenges for health plans.
Participation in the accreditation process is voluntary, and health plans are responsible for
gathering and submitting the data needed for accreditation purposes. For most plans, the process
of gathering accreditation information is both time consuming and expensive. For example, the
decentralized structure of some managed healthcare plans makes it necessary to collect data from
separate physical locations including administrative offices, physician offices, labs, and hospitals.
In many cases, the costs of obtaining the information technology needed to amass extensive
performance data can be prohibitive.
In addition, despite the value of accreditation ratings for the comparison of quality among health
plans, few purchasers and fewer consumers review the results of accreditation in making
decisions to purchase or enroll in a specified health plan. Instead, purchasers tend to make health
plan choices on the basis of cost, which is easier to measure than quality. Plan members often rate
plan quality on the basis of whether a particular provider is in the plan's network and whether a
specified healthcare benefit is covered.
As a result, many health plans elect not to participate in the accreditation process. However, as
quality standards and accreditation results increasingly focus on evidence-based medicine-for
example, positive outcomes realized from disease management programs-as an indicator of
quality, purchasers and plan members may rely more on the reported results of the accreditation
process. As purchaser demand for comparative quality data increases, more health plansparticularly plans that serve the large employer market-may find it necessary, despite the costs, to
participate in the accreditation process.
Accreditation Organizations
Accreditation is typically conducted by independent, not-for-profit organizations, which are not
affiliated with federal or state governments. The following sections introduce several key
accreditation organizations in the health plan industry. These organizations and their standards
and guidelines are discussed in more detail in lesson Quality Management.
National Committee for Quality Assurance

The National Committee for Quality Assurance (NCQA), an independent, not-for-profit

organization, serves as the primary accrediting agency for most HMOs and similar health plans,
managed behavioral healthcare organizations (MBHOs), credentials verification organizations
(CVOs), and physician organizations. NCQA's accreditation is a rigorous and comprehensive
evaluation process through which the quality of all key systems and processes that make up the
health plan are assessed. Accreditation and certification results are available through NCQA's
Web site. NCQA also has developed the Health Plan Employer Data and Information Set
(HEDIS), which is used as a factor in the accreditation process as we discuss later in this lesson.
National Committee for Quality Assurance
NCQA reports health plans' accreditation results publicly using the following five categories, all
of which have a direct impact on a health plan's medical management functions:

Access and service

Qualified providers
Staying healthy
Getting better
Living with illness 17

The NCQA also surveys the systems and processes of health plans against the following six

Quality improvement
Utilization management
Member rights
Preventive health
Medical records

Results in these categories are not publicly reported.

CVOs are evaluated on the basis of such categories as malpractice insurance, liability claims
history, and sanctions concerning Medicare, Medicaid, and the appropriate medical board.
American Accreditation HealthCare Commission/URAC
The American Accreditation HealthCare Commission/URAC (URAC) is an accrediting agency
that promotes consistent standards in the application of utilization procedures and provider
network standards. URAC's standards focus on five key areas:

Network management
Utilization management
Quality management
Member participation and protection 18

URAC has also developed accreditation programs for case management programs, CVOs, health
plan telephone call centers, and workers' compensation services.

Accreditation Standards for Delegation

NCQA and URAC all consider a health plan's management of delegated activities when
evaluating a health plan for accreditation. These three agencies have established specific
standards for the oversight of delegated activities. Although all three accrediting agencies'
standards have the same intent-to see that the delegated activities are performed in accordance
with the delegating health plan's standards-the specific requirements of their standards are
somewhat different. For example, URAC place no restrictions on the types of functions that can
be delegated. NCQA allows health plans to delegate authority for almost all functions, but
requires that the health plan itself conduct all delegation oversight activities rather than delegating
the responsibility for oversight to another entity.21
Although health plans that seek accreditation typically design their delegation oversight program
according to the standards of the relevant accrediting agency, most programs include provisions
related to accountability and documentation.
Accountability is the process by which one party is required to justify its actions and policies to
another party. When a health plan delegates authority for a function, it transfers the power to
conduct the function on a day-to-day basis, but not the ultimate accountability for the function.
Although the delegate assumes the authority to plan and carry out the function within specified
parameters, the health plan retains the responsibility for making sure that the delegate acts in
accordance with the health plan's standards and those of NCQA or URAC. If the delegate's
performance fails to meet these standards, the health plan is responsible for developing corrective
action requirements to guide the delegate in making a plan to remedy the deficiencies. The health
plan is also accountable for maintaining coordination and continuity between the delegated
functions and the functions that are conducted by the health plan.
All three accrediting agencies require documentation showing that the health plan is conducting
appropriate oversight of the delegated function. Such oversight typically includes regular reports
from the delegate to the health plan and formal site visits and audits by the health plan on an
annual basis or more frequently. In addition, both URAC and NCQA require written
documentation of the agreement between the health plan and the delegated entity.
In some cases, accreditation standards for delegation oversight are reduced if the delegate has
already been certified or accredited by the health plan's accrediting agency. For example, if the
delegating health plan adheres to NCQA standards and the delegate is an NCQA-accredited
health plan or MBHO or an NCQA-certified CVO or physician organization, the delegating
health plan's oversight obligations are reduced. Although NCQA still requires an appropriate
written agreement between the health plan and the delegate, the health plan is not obliged to
conduct a formal, annual oversight review of the accredited entity on any elements for which the
delegate has been certified. 23 Similarly, if a health plan accredited by URAC delegates activities
to a URAC-certified CVO or utilization management organization, URAC does not require the
health plan to perform annual oversight reviews of elements already certified for that delegate.

Additional Quality Initiatives

Besides the quality measures from accreditation organizations discussed in the previous sections,
various other attempts to measure quality have been developed. The following sections discuss
several of these additional quality initiatives.
Health Plan Employer Data and Information Set
NCQA developed the Health Plan Employer Data and Information Set (HEDIS), which is a
performance measurement tool designed to help healthcare purchasers and consumers compare
the quality offered by different health plans.23 Since 1999, NCQA has integrated HEDIS
measures into its accreditation standards, and CMS now requires Medicare plans to report
NCQA-audited data on HEDIS performance measures.
Health Plan Employer Data and Information Set
HEDIS measures comprise eight domains as listed below. Note that not all of these domains are
considered in the accreditation process.
Effectiveness of care (e.g., cancer screening, childhood immunizations)
Access/availability of care (e.g., prenatal care, adults' and children's access to preventive

and primary care services)

Satisfaction with the experience of care (e.g., plan member satisfaction)
Health plan stability (e.g., financial strength, provider and plan member turnover)
Use of services (e.g., hospital utilization, mental health utilization)
Cost of care (e.g., premium rate trends)
Informed healthcare choices (e.g., language translation services, information provided
during enrollment, plan member education services)
Health plan descriptive information (e.g., board-certification of physicians, case
management, quality improvement)

The National Forum for Health Care Quality Measurement and Reporting
The National Forum for Health Care Quality Measurement and Reporting, also called the
Quality Forum, is a not-for-profit organization that was established to develop and implement a
national strategy for quality measurement and reporting. The Quality Forum develops standards
for measuring healthcare service quality. Although initially established as a result of a
presidential advisory commission recommendation, the Quality Forum's funding is obtained from
the private sector. A secondary objective of developing quality standards is for the benefit of
providers, who can use standard measures of quality to improve their performance. The
presidential advisory commission originally proposed the following categories for the Quality
Objectives for the Quality Forum25
Identify core sets of quality measures for standardized reporting by all sectors of the

healthcare industry
Establish a framework and capacity for quality measurement and reporting
Support the focused development of quality measures that enhance and improve the
ability to evaluate and improve care

Make recommendations regarding an agenda for research and development needed to

advance quality measurement and reporting

See that comparative information on healthcare quality is valid, reliable, comprehensible,

and widely available in the public domain

Agency for Healthcare Research and Quality (AHRQ)
The Agency for Healthcare Research and Quality (AHRQ), formerly the Agency for Health Care
Policy and Research (AHCPR), is an organization that performs research functions for HHS. In
1999, Congress changed the focus of the agency from medical treatment research and the
collection of health statistics to research on healthcare delivery and quality measurement and
improvement. This new focus, along with an increased budget, expands the agency's impact on
improving healthcare quality.
One of AHRQ's major contributions to healthcare quality is the Consumer Assessment of Health
Plans Survey (CAHPS), which gathers comparative data on healthcare service quality across
populations. CAHPS measures consumer satisfaction with specified aspects of health plan
services, including access to care and the relationship between consumers and their physicians.
Specific questions address consumer experiences with treatments for chronic conditions or with
Medicare or Medicaid managed plans 26. NCQA and AHRQ recently merged CAHPS with the
HEDIS Member Satisfaction Survey.
As you can see, medical management goes far beyond a health plan's internal considerations
regarding the quality and cost of healthcare services. It is a complex process that requires health
plans to understand the needs and expectations of its purchasers, providers, and plan members as
well as the requirements of various legislative, regulatory, and accrediting bodies. In order to
develop successful medical management programs, health plans must understand the dynamics of
the environment in which they operate and consider how the environment affects the delivery of
healthcare services.
1. Margaret Ann Cross, "Employers Starting to Hold HMOs Accountable for Quality,"
Health Plan (May 1999): 42A.
2. Nicholas L. Desoutter and Kenneth Huggins, eds., LOMA's Glossary of Insurance Terms,
3rd edition (Atlanta, GA: LOMA, 1997)
3. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd
edition (Washington, DC: Academy for Healthcare Management, 1999), 11-29.
4. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd
edition (Washington, DC: Academy for Healthcare Management, 1999), 11-30.
5. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 7-48.

6. Academy for Healthcare Management, Network Management in Health Plans

(Washington, DC: Academy for Healthcare Management, 1999), 1-19-1-21.
7. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-20.
8. W. Reece Hirsch, "Call the Lawyers: Making Web Sites HIPAA-Compliant,"
healthcarebusiness (January/February 2000): 58.
9. Muriel L. Crawford, Life and Health Insurance Law (Boston, MA: Irwin/McGraw-Hill,
1998), 61.
10. Academy for Healthcare Management, Health Plans: Governance and Regulation
(Washington, DC: Academy for Healthcare Management, 1999), 9-2-9-3.
11. Academy for Healthcare Management, Health Plan Finance and Risk Management
(Washington, DC: Academy for Healthcare Management, 1999), 3-8.
12. American Accreditation HealthCare Commission/Utilization Review Accreditation
Commission (URAC), Survey of State Utilization Laws and Regulations, 1999 ed.
(Washington, DC: American Accreditation HealthCare Commission/Utilization Review
Accreditation Commission, 1998), 7.
13. Academy for Healthcare Management, Health Plans: Governance and Regulation
(Washington, DC: Academy for Healthcare Management, 1999), 4-4.
14. Academy for Healthcare Management, Health Plans: Governance and Regulation
(Washington, DC: Academy for Healthcare Management, 1999), 12-8.
15. Cynthia Conner, et al., "Basis for Liability," in Health Plan Law Manual (Gaithersburg,
MD: Aspen Publishers, 1999), 2: 4.
16. Cynthia Conner, et al., "Utilization Management," in Health Plan Law Manual
(Gaithersburg, MD: Aspen Publishers, 1999), 1: 6-7.
17. Academy for Healthcare Management, Network Management in Health Plan
(Washington, DC: Academy for Healthcare Management, 1999), 1-28-1-29.
18. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 6-52.
19. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-30.
20. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-29.
21. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 1-30.

22. National Committee for Quality Assurance (NCQA), 1998 Surveyor Guidelines for the
Accreditation of Health Plans (Washington, DC: National Committee for Quality
Assurance, 1998), 369.
23. National Committee for Quality Assurance (NCQA), 1998 Surveyor Guidelines for the
Accreditation of Health Plans (Washington, DC: National Committee for Quality
Assurance, 1998), 369.
24. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd
edition (Washington, DC: Academy for Healthcare Management, 1999), 8-15.
25. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd
edition (Washington, DC: Academy for Healthcare Management, 1999), 8-14. Used with
permission; all rights reserved.
26. "Quality Forum Planning Committee Schedules Meeting," 4 May 1999,
http://www.uhfync.org/intro/qfpc.htm (11 May 1999).
27. Agency for Healthcare Research and Quality, "Consumer Assessment of Health Plans
(CAHPS): Fact Sheet," http:www.ahcpr.gov/qual/cahpfact.htm (15 June 1999).

AHM Medical Management: Clinical Practice

After completing lesson Clinical Practice Management, you should be able to:

Describe the components of a health plan's coverage policy

List several types of services that health plans typically limit or exclude
Describe the types of coverage issues typically addressed by medical policy
Explain the importance of technology assessment as it relates to medical policy
Explain the role of clinical practice guidelines

In The Role of Medical Management in a Health Plan, we began our discussion of medical
management by presenting quality and cost-effectiveness as the two main objectives of the
medical management process. You also learned about the primary methods for achieving these
important objectives and the influence of various environmental factors on a health plan's medical
management decisions.
Now, in Clinical Practice Management, we will turn our medical management focus to the
delivery of healthcare and, within that context, more specifically to the development and
implementation of parameters for the delivery of healthcare services to a health plan's members-a
process known as clinical practice management. Clinical practice parameters include:
Clinical Practice Parameters include:
1. A health plan's medical policies concerning the appropriate use of medical services
2. Clinical practice guidelines (CPGs) used by healthcare practitioners when delivering clinical
services and also used by health plans to develop medical policy
Figure 2A-1 provides additional information on the roles of these two types of parameters.
In this lesson, we examine medical policy, its relationship to a health plan's overall coverage
policy, and the role of technology assessment in medical policy development. We also explore the
use of clinical practice guidelines and how such guidelines are developed and implemented. In
addition, we discuss risk management as it relates to clinical practice management.
Please note that medical policy content sometimes overlaps with the content of CPGs. For
example, a health plan's medical policy on hysterectomies might indicate specific clinical criteria,
such as the size of the uterus, symptoms, and/or failure of conservative therapy, that must be
present to support the appropriateness of the hysterectomy. Similar clinical criteria might be
specified in clinical practice guidelines.

It is also important to note that the use of terminology varies in the health plan industry. In this
course, we use the term coverage policy to refer to all the rules and processes that a health plan
develops and implements in conjunction with its purchaser contracts to determine covered
healthcare services and supplies. This definition broadly includes both clinical and nonclinical
issues. Some health plans use the term medical policy in this broader sense; others use medical
policy, as we do in this lesson, to more narrowly refer to a subset of coverage policy. Medical
policy, in this narrower sense, refers to the rules and processes health plans apply when making
coverage determinations that require an interpretation of the contract's medical necessity and
appropriateness provision and experimental/investigational provision. Regardless of terminology,
however, virtually all health plans use the types of policies and guidelines described in this
Medical Policy and Other Components of Coverage Policy
A health plan finances and arranges the delivery of healthcare according to the terms of a contract
issued to the purchaser. In this section, we examine how health plans develop and use policies to
help support the consistency of activities related to the financing and delivery of healthcare with
(1) the terms of the purchaser's contract and (2) available evidence-based medical information.
As Figure 2A-2 illustrates, there are three general categories of coverage policy: (1) medical
policy, (2) benefits administration policy, and (3) administrative policies governing processes and
procedures used in conjunction with coverage decisions.

Medical Policy
As we noted earlier, medical policy is a type of coverage policy used to determine the medical
necessity and appropriateness of services. Medical policies rely as much as possible on the use of
evidence-based medicine, which typically comes from peer-reviewed medical literature reporting
the results of clinical trials of medications, tests, procedures, treatments, and devices. For a new
treatment or test to be included as an appropriate intervention in the health plan's medical policy,
the studies must show an improved outcome resulting from the treatment or test under
consideration. However, because many currently accepted healthcare services do not have the
evidence necessary to meet this standard, many health plans also rely on current community
standards and expert provider opinion when determining medical policy.
Medical policies typically address a specific test (such as bone densitometry tests for
osteoporosis) or treatment (such as chiropractic) and the situations in which that test or treatment
is considered medically necessary and appropriate. In some cases, a medical policy focuses on a
specific medical condition (such as urinary incontinence) and identifies applicable tests or
treatments considered medically necessary and appropriate for that condition. Medical policies
also describe situations in which the test or treatment is typically not considered medically
necessary and appropriate and, therefore, will not be covered. Other elements often included in a
medical policy are billing and coding information for providers, definitions of key medical terms,
references, and dates for policy implementation and updates
In addition to using medical policies for coverage decisions, health plans distribute their medical
policies to providers to help them determine whether a treatment approach is appropriate for a
particular patient's situation. Some health plans have begun making their medical policies
available to the public. For instance, BlueCross BlueShield of North Carolina was one of the first
health plans to provide access to its medical policies on its Web site. Figure 2A-3 shows one such
medical policy.

Corporate Medical Policy

Growth Hormone
File Name: Growth Hormone
Policy Number: DRU4080
Origination: 8/1996
Last Review: 12/1999
Next Review: 12/2001
Description of Procedure or Service
Growth hormone (GH), also called somatotropin, is a hormone produced during sleep by the
pituitary gland. When the gland fails to produce enough of the hormone, a child is short in stature
and has bone growth problems. Occasionally, the gland is damaged by radiation, trauma, or
disease, in which case the result is the same: the child fails to achieve a normal height. Growth
hormone treatment is indicated for children who fail to grow because they have a growth
hormone deficiency. The growth hormone covered by this policy is an artificially produced
version of the natural hormone, which must be injected under the skin either daily or several
times a week. GH has been marketed under the following names: Humatrope, Nutropin,
somatrem, Protropin, Serostim, and Saizen.
BCBSNC will provide coverage for growth hormone (GH) when it is determined to be medically
necessary because the medical criteria and guidelines shown below are met.
Benefits Application
Please refer to certificate for eligibility of benefit. See Professional Services. This drug is prior
approved for PCP only.
When Growth Hormone (GH) Is Covered
The following conditions are FDA-approved labeled indications for growth hormone

(GH) therapy. (See Policy Guideline section for specific requirements.) For each of these
clinical situations, GH is considered medically necessary:
o Children who have growth failure, defined as having fallen 2 standard deviations
off his/her predicted growth curve (as defined under Policy Guidelines) due to
inad- equate secretion of normal endogenous growth hormone
o Children with chronic renal insufficiency before renal transplant

Children with Turner's syndrome, i.e., a 45, XO genotype

Adults with congenital or acquired GH deficiency (e.g., pituitary dwarfism)
Patients with AIDS wasting
Turner's Syndrome
In addition, recombinant human GH therapy is medically necessary for the following
FDA off-label use:
o Promotion of wound healing in burn patients

When Growth Hormone Is Not Covered

The use of GH is contraindicated in children with active malignancies FDA off-label applications for human growth hormone therapy considered

investigational are not covered. They include the following:

o Non-GH deficient short stature, except for Turner's Syndrome
o Constitutional delay (lower than expected height percentiles compared with their
target height percentiles) and delayed skeletal maturation when growth velocities
and rate of bone age advancement are normal. (Height is measured in percentiles
of average height; for example, people in the 25th percentile are shorter than 75%
of the general population.)
o Therapy for geriatric patients
o Anabolic therapy, except for AIDS, provided to counteract acute or chronic
catabolic illness (e.g., surgery outcom~s, trauma, cancer, chronic hemodialysis)
producing cata- bolic (protein wasting) changes in both adult and pediatric
o Anabolic therapy to enhance body mass or strength for professional, recreational,
or social reasons
o Glucocorticoid-induced growth failure
o Intrauterine growth retardation
o Short status after renal transplantation
o Short stature due to Down, Noonan's, or Prader-Willi syndromes
Diagnostic tests that are considered investigational are not covered. These include:
o 24-hour continuous monitoring of growth hormone levels
o Serum levels of insulin-like growth factors (IGF) or insulin-like growth factor
binding protein (IGFBP)

Policy Guidelines
All claims for growth hormone (GH) will be subject to medical review.
The following guidelines should be followed in use of the growth hormone:
o In use for children and adults with proven growth hormone deficiency, proof is

defined as an abnormal response of less than 10ng/ml to two provocative



stimulation tests (e.g., L-dopa, clonidine, glucagon, propranolol, arginine, or

insulin challenge test). Both responses must be abnormal.
Chronic renal insufficiency is defined as a serum creatinine of less than 30 mg/dl
or a creatinine clearance between 5 and 75 ml/min per 1.73 m2.
AIDS wasting, defined as greater than 10% of baseline weight loss that cannot be
explained by a concurrent illness other than HIV infection. Patients treated with
GH must simultaneously be treated with antiviral agents. Therapy is continued
until this definition is no longer met.
GH therapy for burn patients should be limited to those patients with third-degree
In children, GH therapy is typically discontinued when the growth velocity is less
than 2 cm per year, when epiphyseal fusion has occurred, or when the height
reaches the 5th percentile of adult height. In patients with chronic renal failure
undergoing renal trans- plantation, GH is discontinued at the time of transplant.

Billing/Coding/Physician Documentation Information

BCBSNC may request medical records for determination of medical necessity. When medical
records are requested, letters of support and/or explanation are often useful, but are not sufficient
documenta- tion unless all specific information needed to make a medical necessity determination
is included.
Policy Key Words
Human growth hormone, growth hormone, GH, GHD, Humatrope, Nutropin, Somatrem,
Somatotropin, Protropin
Medical Term Definitions
the end of a long bone, usually wider than the shaft and comprised primarily of cartilage
Pituitary gland
gland in the head responsible for producing the growth hormone (somatotropin)
Scientific Background and Reference Sources
AMA Dry Information
TEC Bulletin
Lawson Wilkins Ped. End. Soc., Guidelines for the use of growth hormone in children with short
stature, The journal of Pediatrics, 1995; 127:857-67.
BCBSA Medical Policy Reference Manual


AHFS Dry Information
BCBSNC Corporate Pharmacist
Independent Consultant Review
Medical policy Advisory croup

Policy Implementation Update Information

8/96 Original policy issued
Revised, Included approved adult indications. Changed policy guidelines for adults to
include one provocative stimulation test instead of two.
5/99 Reformatted; description of service changed and medical term definiti.ons added.
12/99 Medical Policy Advisory Group

Medical policy is not an authorization, certification, explanation of benefits or a contract, Benefits

and eligibility are determined before medical guidelines and payment guidelines are applied..
Benefits are d~termined by the group contract and subscriber certificate that is in effect at the
time services are rendered. This document is solely provided for informational purposes only and
is based on research of current medical literature and review of common medical practices in the
treatment and diagnosis of disease. Medical practices and knowledge are constantly changing and
BCBSNC reserves the right to review and revise its medical policies periodically.

Benefits Administration Policy

Often, coverage decisions do not require clinical interpretation of medical necessity or
appropriateness or a determination as to whether a particular service is experimental or
investigational. Decisions such as these are guided by a health plan's benefits administration
policy. A health plan's benefits administration policy evaluates clinical services against specific
benefits language rather than against scientific evidence.
In some cases, benefits administration policy does provide clinical input to see that services are
appropriate, but the purpose of this information is to facilitate coverage decisions by interpreting
the contract language and not to evaluate medical evidence. For example, when health plan
personnel consider coverage of durable medical equipment, they might consult the applicable
benefits administration policy to determine if a particular type of medical equipment is covered
by the contract. The benefits administration policy might provide a list of equipment to indicate
that certain "basic" models are covered, but specific "deluxe" models are not. Benefits
administration policy may also include
Benefits Administration Policy may include:
Information used to determine dependent eligibility, continuation of coverage, or

coordination of benefits with other benefit plans

A database of current procedural terminology (CPT) codes and the usual, customary, and

reasonable (UCR) fees for each code

A list of services for which the member must obtain preauthorization from a primary care

provider (PCP), such as services from specialists

Fast Definition
Durable medical equipment refers to healthcare equipment that is designed for repeated
use rather than disposal after a single use or after use by one patient, such as home
hospital beds, wheel chairs, and oxygen equipment.
A current procedural terminology (CPT) code is a five-digit number that identifies each
medical service or procedure included in a classification system established by the
American Medical Association.
A usual, customary, and reasonable (UCR) fee is the amount that physicians within a
particular geographic region commonly charge for a particular medical service.
Administration Policy
In addition to medical policies and benefits administration policies, both of which address what is
covered, health plans maintain policies that provide guidance on how to administer the processes
for making coverage determinations. These administrative policies outline processes and
procedures for the development, application, and revision of medical and benefits administration
policies, including a reconsideration and appeal process for providers and members to resolve
disputes with the health plan. Administrative policies are often based on specific regulatory
requirements or, in the case of health plans that obtain private accreditation, specific accreditation
Administrative policies govern day-to-day implementation of medical and benefits administration
policies. For instance, administrative policies specify timeliness requirements for review of
medical necessity, such as 20 days from the date of the complaint for reviewing medical necessity
questions on non-life-threatening conditions. Administrative policies also document which
medical management activities may be delegated to providers or other entities and the degree of
oversight needed to monitor such delegated services.
A health plan's administrative policy on appeals contains the guidelines to be followed when
handling member and provider complaints and disputes, which can pertain to a wide variety of
issues ranging from questions of medical necessity to the courtesy of health plan personnel. We
discuss the member appeals process in more detail in the lesson, Utilization Review.
Figure 2A-4 summarizes the characteristics of the three types of coverage policy.

Purpose and Scope of Medical and Benefits Administration Policies

Health plans use medical and benefits administration policies to improve the likelihood that
Members receive medically necessary and appropriate care within the framework of the

contract and are protected from unnecessary and unproven services

Coverage decisions are consistent with the purchaser's contract

Coverage decisions are legally defensible and in compliance with all applicable

regulatory requirements
While benefits administration policy is generally established by health plans in collaboration with
purchasers, medical policy is established in accordance with evidence-based medicine and input
from relevant expert providers, with little, if any, input from purchasers. Both must be in
accordance with applicable state and federal laws.
Contract provisions and benefits administration policies vary from one health plan to another. For
example, different health plans may have different positions on covering certain types of care
such as behavioral healthcare, rehabilitative care, and reproductive therapy. A health plan may
also have different contract provisions and benefits administration policies for its different
A number of factors help a health plan determine whether to cover a particular service. Such
factors include (1) state mandates, (2) safety and effectiveness, (3) cost-effectiveness, and (4) the
preferences of purchasers and members.
Benefits administration policy usually addresses the entire continuum of care, including
Preventive services, such as wellness programs, prenatal care, immunizations, routine

examinations, and disease screening

Primary care
Services from healthcare specialists

Mental/behavioral healthcare
Acute care, such as inpatient hospital care and emergency care
Inpatient care at other types of healthcare facilities, such as skilled nursing facilities
Prescription drugs
Vision care, dental care, and other ancillary healthcare services, if applicable
Follow-up care, such as rehabilitation and home healthcare

Medical policies, on the other hand, are confined to an evaluation of whether specific services,
procedures, medical devices, or drugs are medically necessary and appropriate and neither
experimental nor investigational.
Considerations for Medical Necessity and Appropriateness
Health plans must consider a number of factors when determining if services are medically
necessary and appropriate. For example, defining medically necessary and appropriate services
strictly according to evidence-based medicine effectively eliminates coverage for some treatments
that have not undergone rigorous clinical studies but that may be effective treatments nonetheless.
The lack of studies in some cases is because the procedure is so widely used with good effect that
to design an experiment with a control group (i.e., patients who do not receive the treatment
under study) would result in individuals in the control group being denied treatment that common
medical knowledge considers safe and effective.
Experimental services are services that have not been tested for safety and effectiveness or are
being tested outside standard clinical trials. Investigational services are services that are being
tested in humans for safety and effectiveness in accordance with standard clinical trials and for
which conclusive results are not yet available.1 The two terms are sometimes used in conjunction
(experimental/investigational services) to refer to interventions for which the safety and
effectiveness have not been established.
Sometimes, patients are willing to try new or unproven treatments for medical conditions that
have not responded to conventional treatment. In addition, the medical and scientific communities
may embrace new medical technologies before research has been completed. Because of these
factors, most contracts exclude experimental and investigational procedures. In addition, medical
policies indicate which procedures are considered experimental or investigational for specific
Typically, health plans rely on peer-reviewed medical studies and opinions from nationally
recognized medical experts to develop policies concerning services that are considered
experimental or investigational. Also, health plans often use an internal review process that
includes network providers. Some health plans have a team dedicated to evaluating new medical
Proving the effectiveness of a new medical technology may require a research period of several
years or more. The wait sometimes frustrates patients who are anxious for a cure, while also
creating difficulties for health plans seeking to apply medical necessity and appropriateness
provisions based on a requirement that the treatment meet an evidence-based standard of proof.
A prominent example of a controversial experimental treatment is the use of autologous bone
marrow transplants (ABMT) for various medical conditions. Although clinical research has
proven bone marrow transplantation effective in some diseases, for other conditions, the evidence

on the benefits and drawbacks of this approach is inconclusive. When evidence-based medical
data is not sufficient to guide clinical decisions, as is the case with emerging technologies, a
variety of factors (some not medically related) can influence what is considered an appropriate
course of treatment. As Insight 2A-12 illustrates, the widespread use of a particular medical
treatment, consumer demand, public opinion, and government mandates all have the potential to
affect a health plan's medical policy.
Once a particular drug has received approval from the Food and Drug Administration (FDA), it is
no longer considered experimental or investigational. However, even after the FDA approves a
drug, questions of medical appropriateness may arise if that drug is prescribed for off-label use.
Off-label use refers to a situation in which a healthcare practitioner prescribes a drug for clinical
indications other than those stated in the labeling approved by the FDA. For example, using a
drug to treat prostate cancer when the FDA originally approved the drug to treat lung cancer is an
off-label use. The FDA's long-standing policy has been not to interfere with off-label uses, citing
a reluctance to interfere with the practice of medicine. 3
Insight 2A-1. ABMT and Late-Stage Breast Cancer.
The procedure known as autologous bone marrow transplant (ABMT) has been proven effective
in treating certain types of cancer, such as leukemia and lymphoma. However, clinical science
has not yet demonstrated that this painful, expensive, and high-risk procedure is successful in
either curing or prolonging the life expectancy of late stage breast cancer patients. In the case of
breast cancer, several factors combined to delay the process of evaluating the effectiveness of
For new procedures, such as ABMT, evidence-based data is often obtained through clinical
trials. In clinical trials, patients are randomly assigned to either (1) a group that receives the
treatment being studied or (2) a control group that receives conventional therapy. Patients do not
know which group they are assigned to, so they cannot be sure that they are receiving the
treatment that is being studied.
At the time ABMT first started receiving attention as a potential treatment for late stage breast
cancer, many patients were unable to obtain coverage because their health plans excluded ABMT
as an investigational procedure. In addition, many patients were unable to enroll in ABMT trials
because their health plans typically did not provide coverage for clinical trials. However, even
when breast cancer patients did have access to clinical trials, they were reluctant to participate
in the ABMT trials because they did not want to take the chance of being given the conventional
Various factors combined to convince breast cancer patients that ABMT was their last best hope.
A number of physicians recommended it and soon the media began to run stories that touted it as
a promising new procedure. Public pressure quickly mounted for health plans to cover ABMT
and, in response, government programs and a few states mandated coverage. In addition, some
patients filed lawsuits to force health plans to provide coverage. Consequently, health plans were
compelled to treat ABMT as a medically appropriate procedure for breast cancer even though
recent clinical studies have shown that it is no more effective than less risky conventional
In part to avoid problems like those that surrounded the use of ABMT and breast cancer, a
growing number of health plans now provide coverage for clinical trials. Also, America's Health

Insurance Plans (AHIP)and the National Institutes of Health (NIH) have entered into an
agreement intended to make clinical trials available to more health plan subscribers and their
families. AHIP encourages its member plans to cover the costs associated with NIH-sponsored
clinical trials, provided the cost does not substantially exceed the amounts that would have been
incurred for the conventional course of treatment on an in-network basis.
Impact of the Purchaser Contract on Coverage Policies
As we saw in The Role of Medical Management in a Health Plan, an essential provision in the
contract between the health plan and the purchaser is the coverage requirement that healthcare
services be medically necessary and appropriate to support the (1) safety, (2) clinical
effectiveness, and (3) cost-effectiveness of care. Medical policies guide a health plan's personnel
in making these types of decisions.
Because medical policy and benefits administration policy are closely linked to the purchaser's
contract, it is important to understand how the contract works. Figure 2A-5 describes some
common provisions contained in the contract between a health plan and a purchaser.
Determining whether a particular service, medical device, or drug is covered under the contract
can be a complicated process. Medical and benefits administration policies expand upon coverage
provisions in the contract and provide guidance for decision-making. For example, a health plan
may rely on such policies to determine whether the custodial care exclusion in the contract
applies to a particular service. The gradations of services between skilled care (which is typically
covered) and custodial care (which is typically excluded) are often subject to dispute. Benefits
administration policies can help health plan personnel consistently evaluate if specific services
are actually covered according to the purchaser's contract.

As Insight 2A-2 explains, it is impractical to specifically address all the criteria for all coverage
decisions in a contract. Consequently, health plans rely upon medical and benefits administration
policies to provide the additional information that is sometimes needed to make coverage
determinations. These policies are typically approved, documented, organized, and made
available in manuals, a collection of memos, an electronic database, or a combination of these
If the contract contradicts a specific medical or benefits administration policy, then the contract,
which is a legally binding document, takes precedence. Similarly, if a medical or benefits
administration policy addresses a benefit or exclusion that is not included in the contract, then the
medical or benefits administration policy does not apply. The contract takes precedence in all
situations, except when it fails to reflect applicable state or federal requirements. Ideally, all such
requirements are incorporated into the contract, medical policy, and benefits administration
policy; but if not, then regulatory requirements govern.
Insight 2A-2. The Need for Medical and Benefits Administration Policies.
Theoretically, a health plan could include in its contract every piece of information that is used to
make coverage decisions. However, health plans maintain information in medical and benefits
administration policies outside the contract for several reasons.
First, if all the information included in medical and benefits administration policies (see Figure
2A-3 for an example of just one uncomplicated medical policy) were included in the contract, the
sheer volume and complexity would be overwhelming.
Second, the contracts would require constant amendments to keep pace with the extremely
dynamic, rapidly changing healthcare environment.
Third, medical and benefits administration policies provide decision-making guidelines, rather
than legally binding contract provisions, thus allowing the health plan to make exceptions based
on individual circumstances. If all these policies were included in the contract, there would be
little contractual leeway for exceptions.
Impact of the Purchaser Contract on Coverage Policies
Health plans that have different product lines need to specify in their medical and benefits
administration policies any variations in covered benefits across product lines. For example, a
particular healthcare service may be a covered service under the health plan's point of service
(POS) contract, but may be excluded under its HMO contract. Or coverage for physical therapy
may be unlimited under a health plan's HMO contract, but may be limited to a certain number of
days under its PPO contract. In making coverage determinations, health plan personnel must be
aware of these types of product differences. Medicare health plans must cover all services
allowed by the Medicare program and, therefore, health plans must note where Medicare differs
from their coverage for their commercial products. Furthermore, health plans must be careful to
see that their contracts, medical policies, and benefits administration policies are consistent in
their definitions of medical necessity and appropriateness across product lines.
Health plans sometimes provide extra-contractual coverage, also called administrative coverage,
when they wish to authorize a particular service or supply that, although not covered by the
contract, might provide a significant benefit to a member. In this situation, the health plan's

administrative policy establishes the procedure for evaluating the value of noncovered services,
while the plan's utilization review program is used to guide the health plan in choosing the proper
course of action in each particular case.
Health plans usually implement administrative coverage when they believe that the additional
expenditure for the noncovered service will be offset by lower long-term costs of care for a
member. For example, suppose that a plan member with severe arthritis has difficulty getting in
and out of the bathtub and needs handrails installed to assist with this activity. Even if the benefit
contract does not cover the cost of the rails and installation, the health plan may decide to
authorize payment for the rails and installation to reduce the likelihood of the member falling and
possibly experiencing a serious injury. In addition, the coverage of benefits outside the contract
may serve to improve the quality of life for the member.
A certain amount of risk is involved in providing administrative coverage because it may set a
precedent for the health plan to pay benefits for other noncovered services in the future. One
approach that health plans take to reduce this risk is to include an alternative care provision in
their contracts. An alternative care provision is a contractual provision or a rider that states that,
at the discretion of the health plan, noncovered services are considered to be covered, provided
they are medically appropriate and comparable in cost to the applicable covered services.
Similarly, a health plan may prepare a letter, as needed, to document that services are being
covered on an exception basis. Both the health plan and the member sign this letter, which is not a
part of the contract, to indicate their understanding and agreement.
The health plan should be aware of any applicable laws or regulations regarding care alternatives.
For example, in Washington, if a patient who meets the criteria for inpatient hospital care
requests care in another setting (e.g., in a skilled nursing facility or in the patient's home), the
health plan must cover the care in the alternative setting.
Quality-of-Life Considerations for Medical and Benefits Administration Policies
One issue that health plans have to contend with is coverage determinations related to care that
may be classified as quality-of-life services. Typically, quality-of-life services are not associated
with a specific disease or injury, but with diminished function, such as infertility or impotence.
Sometimes, however, the line between disease and function is blurred. Usually, the contract or
benefits administration policy states whether or not coverage is provided for treatments for hair
loss, impotence, infertility, weight management, memory loss, birth control, and incontinence.
Further, the benefits administration policy might state which therapies for quality-of-life issues
are covered, and the medical policy might list the clinical circumstances under which a specific
quality-of-life therapy is covered. For quality-of-life services, some health plans apply unique
authorization systems or contract provisions, such as a case-by-case review of need or specific
benefit limits.
Monitoring Medical and Benefits Administration Policies
Because of rapid changes in healthcare technology and the regulatory environment, a health plan
must closely monitor and modify its medical and benefits administration policies. If a health plan
fails to keep its medical and benefits administration policies current, then functions such as
quality management (QM), utilization management (UM), and claims administration might
become inconsistent with each other, as well as with the contract, current medical evidence,
current medical practice, and legal and regulatory requirements. Health plans that have lengthy

policy resources may review part of the policy each year, with a goal of routinely reviewing all
these resources every two to three years.
In addition to conducting ongoing or periodic reviews of its medical and benefits administration
policies, a health plan performs reviews and makes modifications on an as-needed basis. For
example, whenever an existing medical policy no longer reflects current medical practice, the
medical policy needs to be revised. Factors that could prompt a review of medical policy include

New scientific evidence

Significant changes in medical practice
Matters of safety for plan members or providers
New legal or regulatory agency requirements for the delivery of medical services
Changes in accrediting agency standards
Medical services that are new from a technological standpoint (for example, a new
magnetic resonance imaging scan)
Medical services that are new from a procedural standpoint (for example, a new surgical
Health plans must incorporate newly mandated benefits and other laws and regulations into their
medical and benefits administration policy resources on a timely basis, which often presents a
challenge, especially when trying to comply with the multitude of state requirements. In addition,
health plans that seek accreditation must have medical and benefits administration policies that
meet applicable accreditation standards. For example, the National Committee for Quality
Assurance (NCQA) uses Health Plan Employer Data Information Set (HEDIS) measures, such as
preventive care measures pertaining to childhood immunizations, flu shots for older adults, and
breast cancer screenings, to evaluate a health plan's effectiveness of care.
One critical aspect of maintaining current, appropriate medical policies is technology assessment,
as we will discuss in the next section.
Medical Policy Development
Technological advances in medicine have contributed to the U.S. population's longevity and its
quality of life. Many providers, purchasers, and consumers tend to assume that new medical
technology means more effective medical care. Often, however, the effectiveness and safety of a
new treatment or procedure has not been established at the time of its introduction, as we saw in
Insight 2A-1. Further, advances in medical technology have also contributed to the increased
costs of healthcare. Careful development of medical policies is necessary to address concerns
about safety, effectiveness, and cost-effectiveness.
To make informed decisions about the safety and effectiveness of medical technologies, health
plans rely on technology assessment, a process that evaluates the clinical aspects of new medical
procedures, devices, drugs, and tests (as well as new applications of existing medical technology)
to determine which approaches should be incorporated into the plan's medical policy. Technology
assessment may also be applied to older tests and treatments that scientific evidence suggests may
be obsolete or to nontraditional approaches to healthcare, such as acupuncture or herbal remedies,
that are becoming increasingly popular. The use of technology assessment for evaluating
currently accepted practices is sometimes controversial since many of these practices are based
on accumulated experience without formal scientific evidence.

Technology assessment provides the scientific rationale for covering or not covering a service
and for the medical policy section that specifies when the service is appropriate and when it is
not. Examples of technology assessment include evaluations of
Tests, such as a new prostate-specific antigen (PSA) test, for screening prostate cancer
Treatments, such as bone marrow transplants for various types of cancer or other diseases

such as sickle cell anemia

Devices, such as coronary artery stents and lasers for various applications
Procedures, such as minimally invasive (laparoscopic) heart surgery

Evaluation of New Treatments

The medical policy development process varies by health plan. Health plans may conduct
technology assessment on a national, regional, or (in the case of small plans) local level.
Typically, technology assessment is conducted internally by a health plan, although many health
plans obtain safety and effectiveness information from other organizations to accelerate the
assessment process. Several external organizations offer technology assessment services. Health
plans also collectively pool resources needed for high level assessments. In all cases, the final
assessment decisions are made by the health plan.
In many health plans, either the quality management committee or the medical advisory
committee oversees medical policy development for new procedures, devices, and tests. Other
health plans have committees specifically dedicated to the oversight of this activity. The
pharmacy and therapeutics (P&T) committee usually oversees the evaluation of new drugs.
A health plan needs to see that its medical policy development follows a logical progression to
the accept-reject decision and that technology assessment is neither too narrowly focused nor too
inclusive. If a health plan's technology assessment is too strict, it will reject technologies that are
effective medical services. On the other hand, less stringent assessment may result in waste of
health plan resources on services that are not effective or that may endanger plan members.
Medical Policy Development
Although each health plan tailors medical policy development according to its own goals,
resources, and limitations, the process generally includes the following four steps:

Identification and research of promising new technologies

Clinical review of the research findings and the proposed medical policy
Operational review of the proposed policy's impact on the health plan
The decision to accept or reject a proposed policy

Identification and Research of New Technologies

The purpose of the first step is to gather information on a new technology and draft a proposed
medical policy. The technology evaluation staff in a health plan monitor new developments and
gather evidence regarding the most promising technologies. Staff members may learn about new
technologies from a variety of external sources, such as medical literature, general media reports
on healthcare issues, providers, members, purchasers, and pharmaceutical and device
manufacturers' sales representatives. Internal sources (e.g., medical directors, provider relations
representatives, and sales representatives) may also provide leads about new medical approaches.

To gather information about the safety and effectiveness of new technology, staff members
review information from a variety of research sources, including:
Published information in peer-reviewed medical journals
Position statements and technology assessments from specialty medical societies
Policies of federal health agencies such as the FDA, the Centers for Medicare and

Medicaid Services (CMS), and the Agency for Healthcare Research and Quality (AHRQ)

Opinions of experts not affiliated with the health plan, often physicians from academic

medical centers
The staff may also consult external resources that specialize in medical technology assessment.
Figure 2A-6 briefly describes several professional organizations whose recommendations may
influence a health plan's medical policy development. Many of these and other organizations
provide Web site access to information on technology assessment. Consulting these resources is
not a one-time event. Health plans need to monitor the safety and effectiveness of medical
technology and obtain access to independent reviews of experimental or unproven technology on
an ongoing basis.
The staff members then prepare an evaluation report, which summarizes their findings on safety,
effectiveness, and any problems with the technology, and draft a proposed medical policy. The
staff report may also include information on the costs of the technology and any special
considerations for implementation. Typically, the next step in the assessment process is a clinical
review of the proposed policy and evaluation report.

Clinical Review
In some health plans, an internal review panel, composed of a health plan's medical directors and
other physician employees, reviews a proposed medical policy and makes recommendations on
whether to accept, modify, or reject the policy. In other health plans, a standing committee that
addresses clinical issues, such as the medical advisory committee (for new devices, procedures, or
treatments) or the pharmacy and therapeutics committee (for new medications) performs the
clinical review. Recall from The Role of Medical Management in a Health Plan that such
standing committees typically incorporate community providers as well as health plan personnel.
Regardless of the panel structure, the focus of the clinical review is on the impact of the medical
policy on clinical outcomes.
A health plan may develop its own clinical review criteria for assessing technology, or it may use
existing criteria, such as the assessment criteria developed by the Technology Assessment
Committee of the Institute for Clinical Systems Integration (ICSI), which is presented in Figure
The clinical review often occurs prior to the operational review, although some health plans
perform the two types of review simultaneously. In some cases, a single multidisciplinary panel
performs both types of review.

Operational Review
The operational review panel may include representatives from finance, claims administration,
legal affairs, member services, marketing, quality management, and network management. This
panel analyzes the expected impact of a proposed medical policy on financial outcomes, member
and provider satisfaction, and operating efficiency.
The financial analysis considers both the cost-effectiveness of a new technology compared to
existing interventions and the potential cost impact of a medical policy on health plan premiums
and provider reimbursement. Since premiums are based on actuarial forecasts of the cost of care,
a new technology that substantially impacts healthcare delivery costs must be taken into
consideration when premium rates are developed. In addition, if a health plan pays providers on a
capitated basis, the financial impact of a new technology might impact provider reimbursement
arrangements. For example, if covering an expensive new technology places an undue burden on
certain providers because of the equipment required, the health plan might decide to adjust the
capitation rate to take into account the increased cost of care. Unfortunately, data for in-depth
financial analysis is often lacking, especially early in the life of a new technology.
The operational review panel determines whether the plan's existing delivery system of network
providers and facilities can deliver the care described in the proposed policy. The panel also
considers the capabilities of the health plan's medical management and claims administration
processes to accommodate the proposed policy as it is written. For example, does the current
claims coding system cover the technology? If not, how should providers code it? Another
consideration for this panel is any impact that the proposed policy may have on the health plan's
compliance with laws, regulations, or accrediting standards.
The Accept-Reject Decision
Following the clinical and operational reviews, the health plan makes a decision on whether to
adopt a proposed medical policy. Depending on the structure of the health plan and its medical
policy development process, the committee overseeing the development process (e.g., the medical
advisory committee), a higher level committee (e.g., the quality management committee), or the
board of directors may make the actual decision. If a higher level committee or the board of
directors makes the final decision, then the committee overseeing medical policy development
typically plays an advisory role and submits its recommendations.
The accept-reject decision often depends on how a new technology compares to currently used
interventions. Generally, when compared to an existing technology, a new approach may be
rejected because of

Inferior safety or effectiveness

Few or no clinical advantages
Higher costs coupled with no significant clinical advantages
Insufficient information about benefits and/or drawbacks

If a proposed policy is accepted, then the new medical policy is distributed to the various health
plan departments affected by the change (e.g., utilization management, quality management,
claims administration, and marketing) and to network providers

Clinical Practice Guidelines

Recall from The Role of Medical Management in a Health Plan that a clinical practice guideline
is a clinical practice management tool intended to guide providers in the delivery of care to
individual patients. Through CPGs, health plans encourage providers to follow standards of care
and, thus, deliver consistent, efficient, and high-quality healthcare.
The documents and resources that we refer to as clinical practice guidelines in this course are also
known as clinical guidelines, practice guidelines, practice parameters, practice policies, or clinical
criteria. Regardless of what they are called, however, these documents and resources are intended
to state, clearly and systematically, the appropriate care for a specific type of patient in specified
clinical circumstances, providing a framework for care while also allowing for patient-specific
variations, based on physician judgment.
In addition to providing guidelines to healthcare practitioners, CPGs have a number of other uses.
They are frequently integrated into medical policies to guide health plan decision-making about
medically appropriate services, and they often form the basis for health plan activities intended to
influence the quality of care delivered to plan members. CPGs are an integral part of QM and UM
programs, such as disease management. In some health plans, CPGs serve as the basis for
evaluating whether providers are practicing in accordance with accepted standards. Some health
plans even include CPGs in their member education programs. Finally, CPGs enable health plans
that seek accreditation to satisfy applicable criteria for quality management of medical service
delivery. For example, NCQA states that a health plan has a responsibility to adopt or develop
CPGs for acute and chronic care services that are relevant to the member population. 13
CPGs usually take the form of guidelines that are intended to provide healthcare practitioners
with an outline of the accepted standard of care based on a summary of the current medical
evidence. Many of a health plan's CPGs focus on the prevention or early detection of a particular
condition. For example, to help detect breast cancer, CPGs might recommend a single baseline
mammogram for women ages 35 through 39, followed by one mammogram every one to two
years for women ages 40 through 49, and one mammogram every year for women ages 50
through 69.
CPGs may outline the course of care in sequential order for a given condition. They are often
presented in a clinically detailed, step-by-step plan for delivering care. For example, in the case of
a patient with suspected congestive heart failure, the CPGs might initially indicate that an
electrocardiogram (EKG), specified blood tests, and a chest X-ray be done, followed by treatment
with oxygen and diuretics as indicated by the tests.
CPGs indicate the approach that can generally be expected to work best with respect to a
particular medical condition. A health plan establishes CPGs to achieve the best possible outcome
in the most cost-effective way by increasing consistency of care for routine, uncomplicated cases.
With this objective in mind, some health plans audit and track compliance with CPGs. However,
a health plan needs to temper this standardization of medical procedures with the flexibility to
accommodate the needs of different plan members. CPGs are guidelines, not strict policies, and
are intended to be flexible. The only requirement for a provider to vary from the guideline is the
documentation of a sound clinical reason for the variation.

In addition, a health plan's CPGs must be regularly reviewed and updated to reflect medical
advances and changes in the legal and regulatory environment. Insight 2A-4 shows the essential
characteristics of an effective CPG, according to AHRQ.
A health plan's covered services must also be consistent with the CPGs that it uses. For example,
if a health plan's benefits administration policy indicates that positron emission tests for coronary
artery disease are not covered, then the CPGs for coronary artery disease should generally not
include this test as a recommended option.
Often, the first step in developing CPGs occurs when the health plan identifies an area in which
new or modified CPGs are needed. The sources of information about the need for new CPGs or
modifications include medical literature, network providers, health plan medical directors or other
medical staff, and provider relations representatives.
The health plan then decides whether to develop their own CPGs or adopt existing guidelines.
Many health plans adopt existing, nationally valid CPGs to reduce the likelihood that providers
will be overburdened by a variety of CPGs from different health plans pertaining to the same
condition. Figure 2A-8 lists various sources that health plans may use when developing CPGs.
Many health plans also solicit network providers' input into the development or selection process.
Once the appropriate CPGs have been developed or identified, the health plan's medical policy
director submits the recommendations to the appropriate health plan committee (typically the
medical advisory committee or quality management committee) for review. The committee in
turn may present its CPG recommendations to the health plan's senior management or board of
directors for approval.

Implementation Strategies for CPGs

It is essential for health plans to bridge the gap between developing CPGs and making sure that
CPGs are put into practice. Successful implementation is accomplished by attempting some or all
of the following measures:
Establishing guideline credibility by incorporating information from resources that

providers know and respect

Involving local providers in the development process and allowing some customization

of the guidelines according to the medical practice conventions in the area

Recruiting opinion leaders that the providers trust to assist with dissemination of CPGs
Measuring and reporting improvements in outcomes that result from the use of CPGs
Introducing CPGs gradually into the provider community, with the initial focus on

clinical conditions that providers consider most important or encounter most frequently

Presenting CPGs as decision support tools (recommendations) rather than requirements

Dividing lengthy guidelines into interrelated modules to facilitate usage

Making CPGs available in an interactive computerized format
Providing preprinted patient education information and flowsheets that are consistent

with CPGs for common health problems

Keeping guidelines current with changes to generally accepted medical practices

Working with other health plans in the region, state, or locality to develop guidelines that

are consistent across health plans and relevant to the needs of the member population

Giving members health education guidelines that are based on and consistent with current

CPGs to help members understand their conditions, comply with recommended

treatment, and ask their providers appropriate questions
For clinical practice management, risk management focuses on developing and implementing
clinically sound and clearly presented policies and guidelines that comply with all applicable
regulatory requirements. As we have seen, health plans strive for clinical practice parameters that
are scientifically sound. Rigorous examination of the available scientific evidence when assessing
new medical technology or developing CPGs demonstrates due diligence and good faith on the
part of the health plan.
Furthermore, the involvement of network providers and other healthcare experts in clinical
practice management activities increases the likelihood that the plan's policies will reflect both
current standards of medical practice and any special considerations for particular member
populations. Well-crafted benefits administration and medical policies, which form the basis of a
health plan's UM programs and claims administration, help demonstrate that decisions are made
in good faith, thereby reducing the risk of litigation.
In addition to scientific trends, health plans continuously monitor new legislation and court
decisions that might affect clinical practice management. They then incorporate relevant changes
into their policies and programs.
Also, health plans should see that all documentation of covered services-such as marketing
brochures, contracts with purchasers, certificates of coverage, and contracts with providers-are
consistent and accurate. These documents must all present the same benefits, exclusions, and
limitations as described in the plan's benefits administration and medical policies. These
documents must be
Reviewed and updated on a regular basis
Readily available during the course of member or provider appeals
In compliance with all applicable state and federal regulations such as benefit mandates

and process requirements

Finally, it is essential for health plans to inform members and providers of their right to appeal
coverage decisions. A consistently administered appeals process can resolve disputes in a fair,
open, and timely manner and reduce the likelihood that a court will decide that a plan has been
negligent or operating in bad faith.

AHM Medical Management: Quality Management

After completing the lesson Quality Management you should be able to:

Describe the major steps in the quality management process

Describe the role of outcomes in quality management
Identify the characteristics, uses, and sources of quality standards
Describe the differences between traditional healthcare and population-based healthcare
Describe how quality management relates to risk management and information

When managed healthcare first appeared, it offered a way to control the spiraling costs of
healthcare and to improve access to healthcare services. While these goals remain important, they
are no longer the only factors consumers and purchasers consider when they make healthcare
decisions. Quality has also become an important consideration.
Much of the impetus for this shift toward a quality perspective comes from employers whose
commitment to quality management and continuous quality improvement is often reflected in the
requirements and expectations they set for health insurers and health plans. A recent poll of more
than 200 benefits managers in large companies indicated that the majority of employers (56
percent) view quality as an important issue in selecting a health plan.1 Consumers are also
concerned with quality. A Wall Street Journal/NBC News poll taken in 1998 reported that 23
percent of consumers felt that quality was the most important issue in healthcare, up from only 8
percent in 1993.2
In this lesson, we will describe the concept of quality and present some of the tools health plans
use to measure, monitor, and improve the quality of their services. We will also describe the
impact of quality management on current and future health plan operations.
Defining Quality
Developing a single definition of quality healthcare that will be acceptable to patients, providers,
purchasers, and health plan administrators is nearly impossible. Each of these groups tends to
define quality in terms of individual needs and expectations, and because their perspectives are
different, their definitions of quality are also different. The following dimensions, however, are
essential to quality services:
Accessibility: services are available when and where they are needed
Effectiveness: services produce expected healthcare outcomes
Efficiency: services result in the best care for a given cost or the lowest cost for a given

level of care
Acceptability: services satisfy needs and expectations

Health plans generally focus on two types of quality: the quality of the health plan's
administrative services and the quality of the healthcare services the health plan makes available
to its members. Administrative services encompass all of the nonclinical services a health plan

delivers to plan members, providers, purchasers, and employees. Healthcare services are clinical
services that affect the health of plan members.
Administrative Quality
HMOs typically provide their customers with a full range of administrative services, including
medical management, assistance with PCP selection, enrollment processing and distribution of
identification cards, claims processing, member services, and systems and operational support.
Health plans that offer a PPO or clinical management on a contract basis provide more limited
services. Because the most visible of a health plan's administrative services are customer services
delivered to plan members by the health plan and its providers, our discussion will focus on this
aspect of administrative quality.
As you recall from The Role of Medical Management in a Health Plan, service quality refers to
the success of a health plan and its providers in meeting the nonclinical needs of plan members.
In assessing service quality, the health plan is concerned with the following issues:

The attitude, competence, availability, and efficiency of the member services staff
The speed and accuracy with which claims, if any, are processed and benefits are paid
The ease with which members can obtain information and resolve problems
The availability of appropriate and understandable educational materials

Service quality is important at the provider level as well. Office staff are responsible for
scheduling appointments, processing referrals, obtaining authorizations, and maintaining patient
files. Physicians provide treatment information and address patients' concerns. The following
considerations are important in assessing the quality of customer services delivered by providers:

The ease with which patients can schedule appointments and obtain referrals
The amount of time patients must wait at the office before being seen by a physician
The attitude, competence, and efficiency of the office staff
The manner in which the clinician handles patients' concerns, answers questions, and
explains clinical findings and treatment options

Health plans measure service quality primarily through member feedback gathered from customer
satisfaction surveys and member complaints and grievances. Data regarding after-hours
availability, telephone wait times, the percentage of calls that are abandoned before they are
answered, the percentage of calls that are resolved on the spot, the number of contacts per day,
and the length of time needed to complete each contact provide additional service quality
Health plans are also concerned with the quality of services, such as processing authorization
requests and providing education and training on plan policies and procedures, that they offer to
their providers.
Healthcare Quality
Plan members receive a variety of healthcare, or clinical services, as illustrated in Figure 3A-1. A
plan's primary prevention efforts are designed to keep plan members healthy. Screening services,
such as mammography and cholesterol testing, allow physicians to detect disease conditions
before they result in acute episodes. Acute care, post-acute care, chronic care, and long-term care

focus on treating patients who are sick, helping them live with their illness, and preventing future
acute episodes. Palliative care focuses on delivering care and support to patients who are dying.
Plan members receive healthcare services from a variety of providers, including physicians,
nurses, therapists, medical groups, or other healthcare professionals in hospitals, nursing homes,
and other healthcare facilities. Quality is an important aspect of care at each of these points in the
delivery system.

Health plans generally assess healthcare quality in terms of the structure, process, and outcome
measures proposed by Dr. Avedis Donabedian.3 Although most of the measures currently used to
assess healthcare quality are structure and process measures, an increasing number of health plans
are beginning to focus their attention on outcome measures. We will describe these measures in
more detail in the lesson, Quality Assessment.
What Quality is Not
Perhaps as important as the definition of quality, is an understanding of what quality is not. For
example, quality is not equated with quantity. Excessive, unnecessary, or inappropriate services
have been shown to affect quality adversely by exposing patients to unnecessary risks. For
example, a 1997 study of patients admitted to a large teaching hospital reported that 17.7 percent
experienced at least one adverse event. The longer patients remained hospitalized, the higher their
chances were of experiencing adverse events.4 Quality services are appropriate, medically

necessary, and provided in the most efficient manner, using available resources. (We will discuss
the issue of patient safety in more detail later in this lesson.)
Quality is not an intangible attribute. From a patient perspective, quality often depends on patient
goals and expectations, which are very personal and differ according to age, gender,
race/ethnicity, and health status. Healthcare, however, is also a system defined by structures,
processes, and outcomes, all of which have quantifiable, measurable elements. Analyzing those
elements and comparing them to established standards or to similar elements in other
organizations provides an indication of the quality of a health plan's services.
Quality is not expensive over the long term. Delivering quality services does generate costs-not
just for preventive services, but for training personnel, expanding networks, increasing benefits,
monitoring performance, upgrading information systems, and improving care. Over the short
term, these costs can be very high. Quality, however, is a long-term investment designed to
produce long-term results.
Critics of the cost-effectiveness of providing quality care argue that maintaining healthy
populations through disease prevention and other quality initiatives costs more than it saves. As
proof, they compare the costs of providing preventive services such as immunizations and
mammograms to large numbers of healthy patients with the costs of treating diseases that occur
naturally. For example, one commentator, analyzing data from a health plan's study of the effects
of infant immunization against pneumonia, asserted that the $197,600 it would have cost the plan
to treat 38 non-immunized control-group infants who contracted pneumonia was far less than the
estimated $950,000 it cost to immunize the 19,000 infants in the study group. 5
To a certain extent, such assertions have merit. Concluding that quality is not worth these costs,
however, ignores equally important facts. Assuming a one-to-one relationship and comparing
short-term costs with short-term savings, as the critic in our example does, can produce
misleading results. A more accurate picture develops when the costs of providing quality care are
compared with the costs of not providing quality care.
Treatment costs are the short-term results of lower-quality care. The long-term costs of not
providing quality care result from internal failures such as waste, duplication, and mistakes, and
from external failures such as malpractice and liability actions. To assert that "a few runaway
breast-cancer cases are a lot cheaper than 100,000 mammograms for healthy women"6 appears
dangerously short-sighted.
Quality is not the responsibility of a single employee or department. Quality is achieved when the
organization provides policies, procedures, tools, and methods for making changes proactively
and when every individual within the organization recognizes improvement opportunities and
accepts responsibility for putting quality-based policies, procedures, and tools to use when
providing services to plan members.
History of Quality Management
The use of quality as a management tool began in the 1950s when W. Edward Deming showed
Japanese manufacturers how they could use quality improvement to reduce process variability
and improve productivity. Quality management (QM) was introduced into healthcare in the 1960s
when Congress amended the Social Security Act to create Medicare and Medicaid. Although
these amendments were designed primarily to increase access to healthcare services, they also

established mechanisms to monitor the quality of care that beneficiaries receive. By the 1980s,
QM had become an integral part of managed healthcare. The terms used to describe the quality
efforts of healthcare organizations vary and include such labels as total quality management
(TQM), total quality improvement (TQI), performance management, and continuous quality
improvement (CQI).
In simple terms, QM is a process designed to coordinate and facilitate a health plan's efforts to
define, measure, monitor, and improve quality. Although QM is a continuous process consisting
of interrelated activities, for the purposes of our discussion, QM activities are divided into two
broad categories: quality assessment activities and quality improvement activities. In the
following sections, we will provide a brief description of QA and QI activities. A more detailed
discussion is presented in the lessons, Quality Assessment and Quality Improvement.
Quality Assessment
Quality assessment (QA), which is also referred to as quality assurance, encompasses a health
plan's efforts to define and measure quality. It includes the following activities:

Developing quality goals and objectives based on key customers, services, and processes
Establishing quality standards and indicators
Collecting and analyzing performance data relevant to standards
Reporting performance results to interested parties

QA has been an important issue in healthcare since the mid-nineteenth century when practitioners
began to notice a positive correlation between improvements in patient care and decreases in
mortality rates. By the early twentieth century, research studies had documented a similar
correlation between physician education and the quality of patient care. These studies generated a
series of medical education reforms, including the use of education, licensing, and certification as
criteria for "qualifying" physicians and educational institutions.
In the 1950's, the focus of QA expanded from assessing structures to evaluating the processes
involved in healthcare delivery. Studies conducted during this period looked at the processes and
procedures used during patient examinations and follow-ups, the level of ambulatory care given
by physicians, and the performance of physicians in acute care facilities compared to
predetermined criteria. These studies concluded that deficiencies in patient care existed across the
healthcare industry and that quality could be assessed only through continuous monitoring and
Quality Improvement
Whereas QA focuses on identifying areas in which the quality of a health plan's performance
varies from established standards, quality improvement (QI) involves planning and implementing
actions to reduce that variance. Because improved care produces improved results for plan
members, QI represents a shift in focus from structures and processes to outcomes. Because
improvements must be generated from within the organization, QI also represents a shift from the
external evaluations provided by accrediting organizations and government agencies to a system
of self-measurement by the health plan. The combination of quality assessment and quality
improvement constitutes the quality management process, as illustrated in Figure 3A-2.

Although QM programs vary according to the specific needs of the health plan, successful
programs typically exhibit the following characteristics:
Management commitment and leadership. Successful QM programs are built into a

health plan's strategic framework and are supported by company leaders at all levels.
Management does not simply give lip service to these programs; it is actively involved in
seeing quality initiatives through to completion.
A company-wide vision. In order to succeed, a QM program must be visible, achievable,
and accepted by the entire organization. It must be openly communicated in the health
plan's vision, mission statement, and goals and accepted by employees throughout the
A competent, knowledgeable, and motivated workforce. Management should identify
the organization's educational needs and should meet those needs through formal and
informal training and education. Like the quality improvements they are designed to
support, training and education should be part of a continuous process.
A system of measurement and feedback. Decision making in a quality environment
demands a continuous flow of data related to quality issues. Quality measures must be
applied regularly and consistently, and the results must be communicated back through
the organization in clear, actionable terms.
A focus on customer satisfaction. The goal of QM is to maximize both the quality of the
services a health plan provides to its members and the plan members' perceptions of that
quality. To achieve that goal, the health plan must pay attention to what its customers
need, what they expect, and what they think they get. Ultimately, it is customer
satisfaction that determines the quality of a health plan's services.
Continuous improvement. Quality is not achieved through one-time, "quick fix" efforts.
Successful QM programs remain flexible to allow for adjustments and improvements as
the environment changes.

The Role of Outcomes in Quality Management

Although the public typically associates healthcare outcomes with specific clinical interventions
and results, health plans are concerned with all the outcomes associated with healthcare
processes. These outcomes can be divided into three categories: organizational outcomes,
provider outcomes, and customer/patient outcomes.
Organizational outcomes are based on system-wide clinical and financial data such as mortality
rates, hospital length-of-stay averages, drug and laboratory use, and operational efficiencies.
Provider outcomes focus on clinical procedures, utilization rates, and performance of individual
physicians and other healthcare professionals. Customer/patient outcomes provide information
about patient satisfaction, functional status, quality of life, emotional well-being, and compliance.
Each of these types of outcomes has both quality and cost components. Quality management
attempts to maximize the quality of all these outcomes through outcomes research and outcomes
Outcomes Research
Outcomes research has been defined as the "scientific study of the outcomes (results) for patients
receiving different treatments for a single disease or illness." 7 In other words, outcomes research
examines the effect on outcomes of a specific treatment for a given condition, usually compared
either to no treatment or to an alternative treatment. Although outcomes research is built on the

same model as traditional clinical research-that is, the relationship between diagnoses,
interventions, and outcomes-it serves a very different purpose. Whereas clinical research focuses
on the efficacy of treatment, outcomes research is intended to determine which interventions are
most effective.
Treatment efficacy refers to the strength of a particular treatment under ideal conditions, such as
those found in controlled clinical trials. Because diseases and treatments are examined in
isolation, free from external influences, efficacy provides an absolute measure of results.
Treatment effectiveness refers to the strength of a particular treatment under average conditions
such as those found "in the field" of clinical medicine. Effectiveness is a relative measure that
takes into account changes in both health status and quality of life. Health status is the degree to
which a patient is able to function physically, emotionally, and socially, with or without
assistance from the healthcare system. Quality of life is a patient's perception of and satisfaction
with his or her functional ability.
The difference between treatment efficacy and treatment effectiveness can be illustrated by
looking at the findings reported by clinical research and outcomes research on a procedure such
as surgical hip replacement. Clinical research, in this example, would focus on the degree of
improvement in range of motion achieved by the procedure. Outcomes research would assess
both the degree of improvement in mobility and the patient's perceptions of the physical,
emotional, and social benefits associated with that improvement.
The goal of outcomes research is to measure the quality of medical care by collecting and
analyzing outcomes data. Outcomes research can take a variety of forms, including patient-based
studies, records-based studies, and process assessments. Patient-based studies rely on an
extensive systematic analysis of health status, quality of life, and disease-specific clinical
information. Projects such as the Patient Outcomes Research Teams (PORTs) initiated by the
Agency for HealthCare Research and Quality (AHRQ) are examples of patient-based outcomes
research. PORTs follow a standard research methodology and are designed to provide
information that can be used to support decision making and to develop strategies for improving
the quality of healthcare.
Records-based studies gather information from existing clinical, financial, and administrative
databases. Records-based studies are more widely used than are patient-based studies because
they are typically easier, faster, and less expensive to design and conduct. Process assessments,
which focus on how a treatment is delivered rather than on which treatment is delivered, provide
important information related to evidence-based outcomes.
Outcomes research can be a challenge for health plans because outcomes often require long-term
evaluation and analysis. For example, outcomes for diabetes care are generally measured by the
presence or absence of peripheral vascular disease, heart disease, retinopathy, and stroke. These
conditions may not appear until long after patients have left health plans. To account for such
situations, health plans often focus on intermediate, rather than long-term, outcomes.
Outcomes management can perhaps be defined best as a systematic analysis of outcomes applied
to improving the quality of patient care and services. In other words, outcomes management takes
what is known about the outcomes of a given condition using various treatments and develops
and implements an approach to care that seeks to maximize the outcome.

Outcomes management differs from outcomes research in several ways. Perhaps the most
important of these differences involves goals. Whereas the goal of outcomes research is to
determine treatment effectiveness, the goal of outcomes management is to identify and implement
treatments that are cost-effective and deliver the greatest value. For outcomes management, costeffectiveness refers to the strength, or benefit, of a treatment in achieving desired outcomes with
the least use of resources. Outcomes management, therefore, is an effort to balance quality with
A second difference between outcomes research and outcomes management involves scope.
Outcomes management incorporates three separate but interrelated processes:
A systematic, quantifiable evaluation of healthcare outcomes at a single point in time
Repeated measurements of outcomes over time to determine causal relationships between

treatments and outcomes

Implementation of programs designed to improve outcomes by reducing unintended

variations and managing resources

A final difference between outcomes research and outcomes management is the introduction of
performance as a critical factor in the measurement and management of outcomes. Performance
evaluation is not a new concept; peer review models, for example, are widely accepted among
clinicians. Subjective reviews based on expert opinion, however, are rapidly being replaced by
objective performance measurement based on specific evidence-based criteria that cover both
quality and cost.
The same attributes that set outcomes management apart from outcomes research form the basis
of the link between outcomes management and quality management. The emphasis on managing
rather than simply measuring outcomes requires health plans to evaluate the combined effect of
clinical, financial, and satisfaction factors rather than the individual effects of specific variations
in treatment. The emphasis on management also introduces the concept of value, which
represents the relationship between quality and cost.
Quality Standards
Health plans typically rely on standards to assess the quality of the services they provide.
Standards are defined by the Institute of Medicine as "authoritative statements of: (1) minimum
levels of acceptable performance or results, (2) excellent levels of performance or results, or (3)
the range of acceptable performance or results." Standards represent what the healthcare system
as a whole expects in terms of resources, delivery processes and procedures, and outcomes.
Standards are an important part of a health plan's QM program because they provide a vehicle by
which the health plan can translate quality into operational terms and measure how well the
system's performance meets expectations. Standards also provide a means of holding everyone
within the organization-providers, support staff, and management-accountable for providing
quality services. We will discuss the development and use of standards in more detail in the
lesson, Quality Improvement.
Sources of Standards
Standards can be developed internally or externally. Internal standards are developed inside the
health plan and are based on the health plan's own historic performance levels. External

standards are based on outside information such as published industry-wide averages or best
practices of recognized industry leaders. Health plans often use standards developed internally to
assess the quality of administrative services. They rely primarily on external standards to evaluate
healthcare services.
The majority of the external standards used to evaluate managed healthcare come from
accrediting agencies. These agencies confer accreditation status on a health plan or its component
parts following an extensive review of the health plan's operations and performance. Health plans
also use standards developed by government agencies and professional societies, published data,
and aggregate data from provider networks.
In order to qualify as valid measures of health plan or health network quality, standards must
relate to conditions that are important to the plan and its members, that can be influenced through
quality improvement initiatives, and that are under the control of the organization. Standards are
also affected by such factors as the availability of reliable data, the availability of evidence
regarding treatment improvements, and the need for risk adjustment. In this section, we will
describe the major accrediting programs and other agencies that provide managed healthcare
Accrediting Agencies
Health plans deliver administrative and healthcare services to their customers through a complex
healthcare delivery system that includes various prepackaged health plans and various types of
providers. A health plan can seek accreditation for its entire delivery system; for particular
components of the system such as specific health plans or products, provider networks, or
individual providers; or for both the system and its individual components. We introduced the
major accrediting agencies in Environmental Influences on Medical Management. In this section,
we will describe these agencies and the types of quality standards they offer in more detail.
National Committee for Quality Assurance (NCQA)
The National Committee for Quality Assurance (NCQA) began accrediting HMOs in 1991 and is
now the primary source of accreditation for health plans. NCQA's original accreditation program
based accreditation decisions on an HMO's compliance with NCQA standards related to the
quality of the organization's systems and processes. In 1992, NCQA developed a second set of
measures-the Health Plan Employer Data and Information Set (HEDIS)-which provides a
measure of an organization's actual performance in the areas of clinical quality and member
satisfaction. In 1999, NCQA began combining traditional NCQA accreditation standards and
HEDIS results to form a performance-based accreditation program. The introduction of HEDIS
results into the accreditation process represents a significant shift in focus from structure and
process to outcomes.
Under Accreditation '05, organizations must undergo an on-site survey of clinical and
administrative systems and processes at least every three years. During these surveys, evaluators
conduct a comprehensive review of written documents and medical records, interview key plan
personnel, and assess customer service practices to verify that plans comply with established
standards. NCQA measures performance on the following standards related directly to quality
management and improvement:
Program Structure (QI 1.1-1.8)

Program Operations (QI 2.1-2.3)

Health Services Contracting (QI 3.1-3.2)
Availability of Practitioners (QI 4.1-4.4)
Accessibility of Services (QI 5.1-5.5)
Member Satisfaction (QI 6.1-6.7)
Health Management Systems (QI 7.1-7.2)
Clinical Practice Guidelines (QI 8.1-8.6)
Continuity and Coordination of Care (QI 9.1-9.4)
Clinical Measurement Activities (QI 10.1-10.3)
Intervention and Follow-Up for Clinical Issues (QI 11.1-11.2)
Effectiveness of the QI Program (QI 12.1-12.3)
Delegation of QI Activity (QI 13.1-13.2)

Plans must also submit audited HEDIS results on selected effectiveness of care and consumer
satisfaction measures.
Consumer satisfaction is measured by the CAHPS 2.0H survey, which is a combination of the
original HEDIS Member Satisfaction Survey and the Agency for Healthcare Research and
Quality's (formerly the Agency for Health Care Policy and Research) Consumer Assessment of
Health Plans Survey (CAHPS). The core survey is administered separately to commercial,
Medicare, and Medicaid populations. All plans participating in the Federal Employee Health
Benefits Program (FEHBP) are also required to use CAHPS. Health plans must contract with an
NCQA-certified survey vendor to administer the survey according to HEDIS protocols.
National Committee for Quality Assurance (NCQA)
The core survey questions cover specific aspects of customer service and overall measures of
consumer experience with the plan. Customer service questions are divided into the following six

Claims Processing (three questions)

Courteous and Helpful Office Staff (two questions)
Customer Service (three questions)
Getting Care Quickly (four questions)
Getting Needed Care (four questions)
How Well Doctors Communicate (four questions)

National Committee for Quality Assurance (NCQA)

Consumer experience questions cover four areas: (1) rating of all healthcare, (2) rating of health
plan, (3) rating of personal doctor, and (4) rating of specialist seen most often. Health plans must
submit results on all HEDIS Consumer Survey questions for all product lines under evaluation.8
The accreditation decision is based on the results of both the on-site survey and the HEDIS
measures. Plans can earn one of five accreditation levels.
Excellent. The plan consistently delivers outstanding care and service, and its clinical

and administrative systems far exceed NCQA standards for consumer protection and
quality improvement

Commendable. The plan delivers high quality care and service and its systems for

consumer protection and quality improvement exceed NCQA standards.

Accredited. The plan delivers sound care and service, and its systems for consumer

protection and quality improvement meet NCQA standards.

Provisional. The plan meets some, but not all, of NCQA's requirements for consumer

protection and quality.

Denied. The plan's systems for consumer protection and quality improvement contain

serious flaws.
The public reporting framework organizes plan results into five categories based on the
Consumer Information Framework created by the Foundation for Accountability (FACCT).
These reporting categories include (1) access and service, (2) qualified providers, (3) staying
healthy, (4) getting better, and (5) living with illness. NCQA publicly reports the accreditation
status and performance results in each framework category for each of the health plan's product
NCQA continually updates standards that address the increasing concern for consumer protection.
For example the 2000 Accreditation New Accreditation 2000 standards include the following
An independent, external review process for evaluating medical appeals
An evaluation of appeals by a physician in the same specialty or a similar specialty

during at least one stage of the internal review process

An extension of care for up to 90 days for plan members undergoing an active course of

treatment from a provider that leaves or is removed from a plan's network

The American Accreditation HealthCare Commission/Utilization Review Accreditation
Commission (URAC) was originally organized to provide accreditation for stand-alone utilization
review programs. In 1996, URAC expanded its accreditation programs to include provider
networks, HMOs, PPOs, POS products, IPAs, and other integrated delivery systems. It is now
one of two agencies that provide comprehensive accreditation for PPOs. URAC also offers
accreditation for health plans that provide workers' compensation services, credentials
verification organizations (CVOs), health plan call centers, and case management organizations.
American Accreditation HealthCare Commission/URAC
URAC offers health plans two accreditation options: health plan accreditation, which primarily
targets HMOs, and health network accreditation, which targets PPOs. Although the standards
used for these options are fundamentally the same, certain designated standards apply to health
plans only. Networks that do not meet URAC's definition of "health plan" should not address
these standards. In addition, standards covering the scope of the credentialing program are
different for the health plan and health network options.
URAC's quality management standards address such areas as

QM structure, organization, and staffing (four standards)

Scope of the network's QM program (three standards)
QM plan (two standards)
QM complaints, corrective action, and disciplinary action (four standards)

URAC does not currently include performance data as part of the accreditation process. However,
standards for quality management do require health plans and health networks to engage in
quality improvement projects, at least one of which must be related to clinical quality
improvement. Plans that administer the CAHPS survey to enrollees are considered to have met
URAC's requirement for one quality improvement project.
URAC classifies its standards as either "shall" standards or "should" standards. "Shall" standards
identify issues that are essential to heath plan or health network quality and define minimum
levels of acceptable performance. "Should" standards identify desirable levels of performance.
Over time, "should" standards often become "shall" standards. To receive full accreditation, a
health plan must satisfy 100 percent of the applicable "shall" standards and 60 percent of the
applicable "should" standards.
The accreditation process consists of a "desktop" review of an organization's policies and
procedures and an on-site visit by URAC reviewers to verify compliance with the accreditation
standards. Once granted, URAC accreditation remains in effect for two years.
Joint Commission on Accreditation of Healthcare Organizations (JCAHO)
The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) began offering
accreditation of hospitals in 1951. Since then, it has expanded its accreditation programs to
include healthcare networks, which include health plans, integrated delivery systems, providersponsored organizations, specialty networks, and physician-hospital organizations. PPOs that
assume financial risk, manage benefits, and/or assume responsibility for integration of healthcare
services are also eligible for accreditation under the Standards for Health Care Networks. PPOs
that offer providers' services to insurance companies, employers, or other purchasers and that do
not assume financial risk or responsibility for integrating services are eligible for accreditation
under a program designed specifically for PPOs-the Accreditation Manual for Preferred Provider
Organizations (AMPPO).
The accreditation process for health plans and other healthcare networks consists of on-site visits
conducted every one to two years. During these on-site visits, reviewers evaluate the following
operational components:
The health plan's central office and any network services not already accredited by the

Joint Commission
All high-risk services performed by the organization
A sample of low-risk services
Key documents
A sample of practitioners' offices

The results of the on-site surveys are measured against established performance standards and
rated on a five-point scale. Standards are organized into eight functional areas that focus on the
processes and activities of the network and its member services. Figure 3A-4 provides a brief
description of each of these functional areas.
Accreditation is based on compliance with JCAHO standards at the network, component, and
practitioner levels. Organizations that comply with all JCAHO standards are awarded full
accreditation status in the form of Accreditation with Commendation or Accreditation without
Type 1 Recommendations. Organizations that fail to satisfy standards in one or more specific

performance areas are granted Accreditation with Type 1 Recommendations or Conditional

Accreditation, depending on the degree of noncompliance. Networks that have successfully
completed the first of two surveys under the Early Survey Policy-Option 1, receive Provisional
Accreditation. Significant noncompliance or withdrawal of accreditation by either JCAHO or the
network results in Provisional Nonaccreditation or Not Accredited decisions.

In response to the demand for outcomes measures, JCAHO introduced the ORYX system,
which incorporates outcomes and other performance measures into the accreditation process.
Performance measures for ORYX are listed according to type of care in JCAHO's Indicator
Measurement System (IMSystem) and cover such areas as preoperative, obstetrical, and
cardiovascular care; oncology; trauma; medication use; and infection control. Networks that fail
to meet ORYX requirements receive a Type 1 recommendation and have one month to provide
proof of corrective action. Continued failure to comply with ORYX requirements results in
possible loss of accreditation.
JCAHO accredits hospitals and long-term care facilities every three years. All facilities
undergoing accreditation must select at least two clinically focused performance measures for
inclusion in the accreditation review. Facilities that wish to develop or purchase computer
software to measure performance on these measures must obtain JCAHO approval.

The Value of Accreditation

Accrediting agencies, regulators, and most health plans believe that accreditation is a critical
element in improving the quality of healthcare. The NCQA report "State of Health Plan Quality
1999," which was compiled from HEDIS results, noted the following:
HMOs with NCQA accreditation outperformed HMO plans that had not received NCQA

accreditation on every performance measure. Scores on clinical and service measures

were from 3 percent to 16 percent higher for NCQA accredited plans.
Members of accredited plans reported higher levels of overall satisfaction with their
health plan and better customer service than did members of nonaccredited plans.
Plans that publicly reported data to NCQA consistently scored higher on performance
measures than did plans that did not report data, often by as much as 10 percent.
Plans that reported data for two consecutive years improved more quickly than first-time
reporters and outperformed the industry as a whole 9.
Accreditation is evidence of the quality of health plans as well as the quality of healthcare
services. Plans that monitor and publicly report their performance are considered more
accountable to the public than are plans that do not disclose performance information.
A health plan can also seek accreditation for individual parts of its delivery system, such as
individual products or provider networks. This type of focused accreditation allows the health
plan greater flexibility in positioning and selling its services. For example, enrollees tend to base
their healthcare decisions on the services that affect them directly-the quality and availability of
primary care physicians or specialists or the quality of hospital care available through the
network. Accreditation of a health plan's provider network applies more detailed standards and
involves a more in-depth review of particular providers than does a process that evaluates an
entire system.
In addition, even in plans that have achieved overall accreditation, significant quality variations
can exist among individual providers. An employer whose employees are concentrated in a
particular geographic area is likely to be far more concerned with the quality of network hospitals
and other facilities that serve that area than it is with the quality of facilities that are outside the
Finally, contracting with health plans does not always involve contracting for comprehensive
services. Self-funded groups often contract only for specified services such as prescription drug
services or behavioral healthcare. In such cases, the employer or contracting health plan is likely
to focus on the quality of the carved out services rather than on the quality of the health plan as a
Accreditation, however, also presents challenges. As part of its quality management efforts, a
health plan gathers an enormous amount of data about its services from a number of different
sources. To assess its structures and processes, the health plan gathers information about provider
credentials, the locations of providers and facilities, and compliance with applicable state and
federal regulations. To assess healthcare services and outcomes, the health plan collects
information on key performance measures. It reviews medical records, claim forms and encounter
reports, utilization reports, quality reports, customer complaints, and consumer surveys.
Translating this information into the formats required for accreditation is often time consuming
and costly. The effects are magnified when a single organization seeks more than one type of

accreditation. The key factor in determining the cost-effectiveness of this process is how the
organization uses the data it collects.
Although reporting data and obtaining accreditation are important from an organizational
perspective, the usefulness of accreditation to purchasers and consumers has been questioned.
One study by KPMG Peat Marwick showed that only 11 percent of 1,502 employers polled
considered NCQA accreditation important in selecting a health plan. Only 5 percent of those
employers considered HEDIS data important. Some small employers were not even familiar with
HEDIS.10 This kind of feedback has led a number of plans-some of them very large plans with
high ratings on past evaluations-to withdraw from accreditation programs and adopt alternative
methods of measuring quality. As Figure 3A-5 indicates, the most commonly used assessment
tool among hospitals, health plans, and physician groups is the patient satisfaction survey.
The number of plans willing to publicly report performance data has also decreased. The main
reason plans cite for not going public is the tendency among media sources to focus on below
average performance and to use published information to judge plans unfavorably. In spite of
these drawbacks, however, accrediting agencies stress that reporting performance data, even if it
does not meet expectations, is better than not reporting at all.

Additional Sources of Quality Standards

Information designed to improve the quality of healthcare and enhance consumers' ability to
make informed healthcare choices is also available through other programs. Some of these
programs apply to a broad base of health plans and health networks. Other programs relate to
specific types of healthcare systems. This section presents a brief description of additional
sources of quality standards and measures.
Agency for Healthcare Research and Quality (AHRQ)
The Agency for Healthcare Research and Quality (AHRQ), originally known as the Agency for
Healthcare Policy and Research (AHCPR), is the primary research arm of the U.S. Department of
Health and Human Services. In addition to the CAHPS consumer surveys discussed earlier in this

lesson, AHRQ has initiated a series of projects designed to develop quality measures and
improvement strategies for medical care. These projects include the following:
Computerized Needs-Oriented Quality Measurement Evaluation System

(CONQUEST): A program designed to assist health plans, practitioners, and employers

identify and compare alternative quality of care measures. The program consists of 1,200
clinical performance measures related to 52 clinical conditions.
Quality Measurement Network (QMNET): A partnership between AHRQ, The Joint
Commission, NCQA, and FACCT that adds a technical assistance network to the
CONQUEST program to help users implement quality measures.
Expanding Quality of Care Measures (Q-SPAN): A series of eight projects designed to
strengthen the science base of quality measurement as it applies to quality of care in
health plans.
Accreditation Association for Ambulatory Health Care (AAAHC)
The Accreditation Association for Ambulatory Health Care (AAAHC) focuses primarily on
accrediting ambulatory surgery centers. It also accredits HMOs. The AAAHC uses two types of
standards in its evaluations: core standards, which are applied to all organizations, and adjunct
standards, which are applied as appropriate. Core standards cover patient rights and
responsibilities, governance, administration, quality of care, quality management and
improvement, clinical records, professional improvement, and facilities and environment
Community Health Accreditation Program (CHAP)
The Community Health Accreditation Program (CHAP) is a specialized accreditation program
that focuses on providing accreditation for home healthcare and community healthcare programs.
Population-Based Healthcare
As a result of their efforts to measure and monitor quality, health plans have gathered enormous
amounts of data about patients and treatment options. Recent advances in technology and
increases in the number of providers grouped into centralized organizations and the number of
patients merged into population groups are likely to expand health plan's data-gathering
capabilities even farther. Armed with this wealth of information, health plans have begun to shift
their view from traditional, patient-based healthcare to population-based care.
The premise of population-based healthcare is that patients within a population share certain
characteristics and that healthcare services can be designed to address those commonalities. By
analyzing population characteristics, health plans can.
By analyzing population characteristics, health plans can:
Identify those individuals within a given patient population who are at risk for specific

disease states

Predict which individuals identified as high risks are likely to turn into high resource

users in the future

Intervene with both at-risk and high-risk patients to implement lifestyle changes
Prevent disease and dysfunction and promote wellness
Establish pricing structures for their products

The assumption driving the move toward population-based healthcare is that early intervention
targeted at preventing disease will reduce the demand for healthcare services and the financial
burden on providers, purchasers, and health plans of providing those services. For example, a
health plan analyzing the individual characteristics of all patients in a population with coronary
artery disease might find that high-risk patients within the population all share a particular
characteristic. Knowing that a correlation existed between that characteristic and the risk of future
acute episodes would allow the health plan to target its efforts toward early intervention and
prevention. Reducing the number of future episodes would reduce the number of services needed,
lower the cost of treating the disease, and improve the general health of health plan members.
There is clear evidence that population-based healthcare offers significant benefits. Research
studies show that increasing numbers of deaths are attributable to environmental and behavioral
factors such as domestic violence, unsafe sexual practices, and substance abuse. Many of these
deaths can be eliminated through prevention efforts. Improvements in the health status of the
population, in turn, have a positive impact on employee productivity and quality of life.
How such benefits are to be achieved is not quite so clear. Before the healthcare industry can
move forward into population-based care, it must address a number of important issues, such as
conflicts of interest, organization and coordination of effort, expanded responsibility, and
allocation of resources.
Conflicts of Interest
Current medical practices place a high value on the individual provider and the individual patient.
Shifting this focus to the healthcare status of entire populations of patients creates immediate
conflicts of interest. Providers, who were traditionally considered agents of their patients, now
serve as agents for their healthcare systems as well. In the future, they will also become agents of
the community. As a result, providers in a population-based system may be required to balance
the immediate interests of individual patients with the future interests of the community as a
whole and to balance the medical welfare of their patients with the economic welfare of the
organizations with which they contract. Health plans must balance costs with outcomes. Patients
must balance their "rights" as individuals with their responsibilities as members of the
So far, this conflict has proven to be a major obstacle to the development of population-based
healthcare programs. For example, although clinical trials have demonstrated the benefits of
preventive efforts, interventions targeted at high-risk segments of the patient population remain at
low levels in many systems. In the long term, the increased demands that have triggered current
objections to population-based healthcare may also resolve those objections. As health plans and
providers move out into the community, they will have an opportunity to build healthcare
partnerships that can reduce the impact of health threats and destructive behaviors.
Organization and Coordination of Effort
Traditional healthcare is physician driven. Population-based healthcare combines the efforts of
physicians-both generalists and specialists-and non-physicians. In fact, some of the most
successful interventions have been applied by nurses, physicians' assistants, case managers,
public health personnel, and wellness program sponsors. Population-based healthcare also relies
heavily on information technology to track population health status and to develop systems for
managing disease. Studies are being conducted to determine the proper roles of all these players.

Expanded Responsibility
Population-based healthcare is based on the needs of individuals as well as the population as a
whole. In order to provide the best and most effective care for populations, physicians need to
move beyond their offices to work with schools, churches, public health departments, businesses,
employers, and social welfare agencies. Health plans need to use their infrastructure and data
systems to address their entire membership, whether they see a physician regularly or not. Some
physicians may see these additional activities as a threat to their autonomy. Others will recognize
them as an opportunity to serve their patients better. In most cases, plans are not asking
physicians to handle outreach activities on their own. These are competencies that health plans
bring to the table.
Allocation of Resources
One of the fundamental questions that arise from population-based healthcare is how to serve
individual patients and provide care for populations at a fixed cost. Market forces, competitive
pressures, an analysis of potential health status and outcomes, and politics will all have to be
considered in formulating an answer.
How far and how fast the healthcare industry will move toward population-based healthcare
remains to be seen. Such a move requires fundamental changes in the way healthcare is defined
and delivered. At present, it has generated more questions than answers. The process, however, is
clearly underway.
Perhaps the most compelling evidence of the move into population-based healthcare is the
increasing number of healthcare partnerships being established between health plans and local
and public health programs. These partnerships range in scope from multi-year research projects
designed to promote enhanced access to care and community-wide health and quality of life, to
targeted efforts to improve childhood and adult immunization, control adult tobacco use, and
improve healthcare delivery to specific patient populations.
Integrating Quality into Health Plan Operations
So far in this lesson, we have focused our discussion on the tools health plans use to measure,
monitor, and improve the quality of their administrative and healthcare services. QM, however, is
not an isolated function; it both depends on and contributes to other important functional areas.
The relationships between QM and risk management and between QM and information
management are especially strong.
Quality Management and Risk Management
As you recall from The Role of Medical Management in a Health Plan, risk management includes
a health plan's efforts to identify and evaluate exposure to risk and to prevent or minimize any
harm that may result from such exposure. QM, which focuses on improving the quality of the
health plan's services, is an important part of the risk management process.
Risk management activities serve to focus a health plan's QM programs, especially when efforts
to reduce the risk of negligent care reveal inadequate or inappropriate quality standards or when
liability actions against the health plan can be traced back to a provider's failure to adhere to
practice guidelines. QM has a similar impact on the context and direction of risk management

activities. For example, QM efforts to ensure that health plan members receive quality care and
achieve quality outcomes often have a direct impact on cost-management programs proposed by
risk managers.
One of the most important links between risk management and QM programs is patient safety.
Research studies conducted over the past 25 years have documented a disturbing rise in the
incidence and consequences of medical errors, and examples of botched surgery, death or
disability caused by improper medication, and other medical errors have appeared in the media in
increasing numbers. On November 29, 1999, the Institute of Medicine (IOM) issued a report
confirming these findings. In the report, the IOM stated that "at least 44,000 and perhaps as many
as 98,000 Americans die in hospitals each year as a result of medical errors." The IOM estimated
the cost associated with medical errors at between $17 billion and $29 billion.11
The following factors contribute to medical errors:
The complexity of modern medicine and healthcare delivery systems. Healthcare is

no longer delivered by family doctors who carry everything they need in a black bag, but
rather by healthcare systems that include large numbers of professionals with a wide
variety of skills and sophisticated, high-tech equipment. This complexity increases
patients' chances of obtaining satisfactory medical outcomes, but it also increases
patients' exposure to risks.
The lack of a consistent quality oversight system. Although states all have boards
responsible for licensing various healthcare professionals, these boards tend to operate
independently and focus on a single profession. The system for regulating and accrediting
healthcare organizations and facilities is equally diverse. This lack of consistent oversight
and accountability increases the potential for substandard care.
The ineffectiveness of mechanisms designed to ensure the continuing competence of

individual practitioners. Federal law requires hospitals to notify the National

Practitioner Data Bank (NPDB) of any disciplinary action that affects a physician's
clinical privileges for 30 days or more. Studies show that, during the first three years of
the NPDB's operation, 75 percent of hospitals did not report any disciplinary action and
that reporting levels are still low. 12 Compliance with internal incident reporting
requirements is also low. For example, research shows that as many as 95 percent of
adverse drug events go unreported. The main reasons given for the lack of incident
reports were (1) they take too much time, (2) they get people in trouble, and (3) nothing
The reliance on individual observations in medical decisions. Studies on the error
rates of various observation-based processes report a 28 percent error rate on readings of
angiograms, a 17 percent error rate on interpretations of electrocardiograms, and a 15
percent error rate on readings of chest X-rays.14
An effort to reduce the effects of these factors, the IOM recommended a series of actions to be
taken by Congress and the healthcare industry. These recommendations are outlined in Figure
In response to the IOM report, the president announced that health plans participating in the
FEHBP will be required to institute quality improvement and patient safety initiatives and that
agencies administering other federal health programs, including Medicare and Medicaid, will be
required to implement strategies for reducing medical errors. Furthermore, the AHRQ announced

that it would conduct research on patient safety and medical errors and support an initiative to
reduce adverse events resulting from prescription drug errors.

The interaction between quality management and risk management has generated a variety of
changes in job responsibilities and reporting relationships. In addition, a number of functions
once handled independently by risk management or quality management personnel are now
handled jointly. These integrated functions include such activities as incident reporting,
compliance, complaint resolution, board reporting, data management, resource management,
policy development, and training. Some activities, such as incident reporting, require minimal
interaction. QM regularly reviews patient records as part of its quality assurance efforts. If those
records are in order, no further action is necessary. If the review uncovers an adverse event
involving a patient, QM personnel report the event to risk management, which then takes over to
investigate the incident and follow through. Functions such as policy coordination and training,
on the other hand, require maximum cooperation. For these functions, QM and risk management
work together to collect information, analyze results, and develop policies and procedures that
will affect the entire organization.
Quality Management and Information Management
As you can see from Figure 3A-7, HMOs have access to a wealth of information to support
quality initiatives, including details about the patients enrolled in their health plans, the providers
who treat them, and the services they receive. HMOs also receive a continuous flow of data from
external sources regarding regulatory activity, accreditation standards, best practices, and
research studies. Gathering quality data is more difficult for PPOs and other non-HMO plans that
often have sparse data about subscribers and limited information systems.

Turning data into usable information to improve quality can be a challenge for all health plans.
Much of the data that health plans need to support QM activities is recorded on paper in the form
of patient records, claim and encounter reports, customer satisfaction surveys, and management
reports. Health plans often do most of their data analysis on paper as well. The more data the
health plan receives in paper form and the more extensive its QM efforts become, the more
sluggish, labor intensive, and costly this approach becomes.

Information frameworks offer benefits to patients, providers, and health plans. Maintaining
patient records electronically helps keep important clinical information current and immediately
accessible to all the professionals involved in a patient's care. It also supports continuity of care
by facilitating the transfer of information from provider to provider and from health plan to health
plan. Access to a patient's entire program of care is likely to enhance providers' treatment options
and improve outcomes. Access to performance information can help health plans monitor and
improve the quality of their administrative and healthcare services.
Information frameworks involve challenges, too. A major concern facing health plans is the cost
of developing the information systems necessary to support frameworks. Sophisticated computerbased systems are expensive, and resources are already being stretched. Establishing information

frameworks also requires commitment and cooperation of the entire healthcare community. The
success of information frameworks, therefore, will depend on the ability of health plans to find
ways to share responsibility for implementing the framework among all stakeholders and to
balance short-term costs against the long-term benefits of improved clinical care and service.
Quality is receiving more attention today than ever before, as health plans strive to ensure that
their services satisfy the needs and expectations of their customers. As the healthcare
environment continues to change, and consumers, purchasers, and regulators continue to demand
better care and service, quality is likely to become even more important.
1. T.R. Beauregard and K. R. Winston, "Employers Shift to Quality to Evaluate and
Manage Their Health Plans," Health Plan Quarterly 5 (1997): 51-56.
2. A.R. Hunt, "Politicians Risk Voter Backlash This Autumn If They Ignore Call for
Action," The Wall Street Journal (25 June 1998): A12.
3. A. Donabedian, "The Quality of Care: How Can It Be Assessed?" JAMA 260 (1988):
4. L. B. Andrews, C. Stocking, T. Krizek, L. Gottlieb, C. Krizek, T. Vargish, et al., "An
Alternative Strategy for Studying Adverse Events in Medical Care," Lancet (1997): 309313.
5. J.D. Kleinke, "HMOs: The Law and Economics," Barrons (13 December 1999): 70.
6. J.D. Kleinke, "HMOs: The Law and Economics," Barrons (13 December 1999): 70.
7. P. M. Ellwood, "Outcomes Management: A Technology of Patient Experience," New
England Journal of Medicine, 318 (1988): 1549-1556.
8. Accreditation '99: Standards for the Accreditation of Health Plans (Washington, DC:
National Committee for Quality Assurance, 1998), 14.
9. Joint Commission on Accreditation of Healthcare Organizations, 1998-2000 Standards
for Health Care Networks: Health Plans, Integrated Delivery Networks, Provider
Sponsored Organizations (Oakbrook, IL: Joint Commission on Accreditation of
Healthcare Organizations, 1998).
10. National Committee for Quality Assurance, "State of Health Plan Quality," Medical
Benefits (30 July 1999), 3.
11. KPMG Peat Marwick, "The State of Health Care in America 1998," Business and Health,
(1998): 18.
12. Institute of Medicine, "To Err Is Human: Building a Safer Health System,"

13. Lucian L. Leape, MD, David S. Swankin, JD, and Mark R. Yessian, PhD, "A
Conversation on Medical Injury," Public Health Reports 114 (July/August 1999): 309.
14. Lucian L. Leape, MD, David S. Swankin, JD, and Mark R. Yessian, PhD, "A
Conversation on Medical Injury," Public Health Reports 114 (July/August 1999): 311.
15. Lucian L. Leape, MD, David S. Swankin, JD, and Mark R. Yessian, PhD, "A
Conversation on Medical Injury," Public Health Reports 114 (July/August 1999): 308.
16. "NCQA Releases a Road Map for Information Systems," The Genesis Report/McxI (May
1997): 1-7.

AHM Medical Management: Quality Assessment

After completing the lesson Quality Assessment, you should be able to:
Describe the major components of a quality assessment program
Describe the methods health plans use to identify and prioritize key services and
Identify the types of standards and indicators used in performance measurement
Identify the three main types of performance measures and describe their advantages and
Explain the importance of case mix/severity adjustment
Describe the types and sources of data needed to measure performance
Describe the use of plan and provider report cards
Identify some of the major issues and barriers in performance measurement
In the lesson Quality Management, we introduced the concept of quality and described how
efforts to address healthcare quality can be divided into quality assessment activities and quality
improvement activities. We also described the relationship between quality and performance. In
this lesson, we will examine the major components of performance-based quality assessment
In the lesson Quality Management, we introduced the concept of quality and described how
efforts to address healthcare quality can be divided into quality assessment activities and quality
improvement activities. We also described the relationship between quality and performance. In
this lesson, we will examine the major components of performance-based quality assessment
Developing a Performance Assessment Plan
In order to assess the quality of their administrative and healthcare services, health plans need to
have a clear understanding of the following performance components:

The customers who are most affected by healthcare processes and outcomes
The range of services that the health plan offers to its customers
The critical processes involved in delivering those services
The standards of performance the health plan expects to meet

The relationships between these components are illustrated in Figure 3B-1.

Identifying the Customer Base

A health plan's customer base consists of all the organization's network providers and other
medical professionals, employees, plan members and their families, accrediting agencies and
regulators, and third party payors such as employers, insurance carriers, and government
purchasers. Because it is directly impacted by the performance of its providers and staff, the
health plan itself is also a major customer.
From a medical management perspective, the health plan's primary customers can be divided into
three main groups: patients and families who receive healthcare services, providers who deliver
healthcare services, and employers and other third party payors who purchase healthcare services.
These are the groups most affected by healthcare processes and outcomes.

Once the health plan has defined its customer base, it can identify the major services it provides
and the key processes that underlie those services. For example, one of the primary services a
health plan offers to patients and their families is the system of care that we introduced in the
lesson Quality Management. At each of the entry points into this system, patients receive a
variety of specialized services. Patients receive primary care, for example, in the form of
Preventive services, such as annual physical examinations and childhood immunizations,

designed to keep people healthy

Screening services, such as mammography and prostate screening, to detect disease early
Treatment of routine illnesses or injuries
Additional services are provided to other customer groups.
Identifying the Health Plan's Range of Services
Health plans gather information from all their providers in all care settings to produce an
inventory of organizational services. From this inventory, the health plan can identify services
that are provided routinely, services that are provided as needed or by request, and services that
are provided in emergency situations.
In order to provide a base for performance measurement and improvement, a health plan
generates a list of the processes associated with the services it offers. It then eliminates from the
list any duplicate or less important processes. The remaining key processes must then be
prioritized for each customer group.
From a performance perspective, the processes that health plans measure can be divided into four
broad categories: high-risk processes, high-volume processes, problem-prone processes, and
high-cost processes.
High-risk processes are activities that expose patients to the risk of adverse outcomes. High-risk
processes most often involve medical interventions or treatment plans for acute illnesses or case
management processes for complex conditions. High-volume processes are processes that are
performed frequently or that affect large numbers of people. Administrative processes such as
scheduling appointments or billing patients are examples of high-volume processes. Problemprone processes are processes that have produced problems for clients or the health plan in the
past. Non-coverage of benefits and liability issues often fall into this category. High-cost
processes are activities that require large financial expenditures or significant human, physical, or
technological resources. Activities that involve the use of very expensive equipment are obvious
examples of high-cost processes. Relatively inexpensive processes, if performed in high volume
or if associated with serious problems, can also qualify as high-cost processes.
These four categories are not mutually exclusive, and it is not uncommon for a single process to
fit into more than one category. For example, medication administration is often a high-risk, highvolume, and problem-prone process. If medication is administered incorrectly, the process also
becomes a high-cost process.
Once the health plan has categorized key processes, it can prioritize them in terms of their
importance. Processes that fit into all four categories are considered critical processes. These are
the organization's top priority from a performance perspective. Extremely important processes
are those activities that fit into three of the four categories. Processes that fit into two categories

are classified as very important processes; those that fit into a single category are labeled
important processes.
Categories can also be prioritized according to their importance. High-risk processes are typically
ranked highest because of the harm they can cause to plan members and to the organization.
Following high-risk processes are high-volume processes, problem-prone processes, and highcost processes.
The frequency with which processes are measured depends on both the importance of the process
and on the health plan's need for performance information. Processes that are in a steady state-for
example, preventive screenings-may need only annual or semiannual measurement. New
processes that the health plan implements to improve quality may need to be monitored on a
quarterly or even monthly basis. Processes, such as telephone wait-time, that require regular
feedback for internal reports may demand weekly or even daily measurement.
Prioritized lists of key processes are submitted to management. Management then organizes these
lists into a composite profile of critical performance activities. The composite profile serves as
the basis for the development of performance standards and indicators. It also serves as the
starting point for the health plan's performance measurement program.
Developing Quality Standards
The kinds of standards a health plan uses depend on the nature of the services being evaluated
and on the intended use of the information that the health plan obtains from its evaluation.
Quality standards come in a variety of formats. They can be expressed as statements, algorithms,
formulas, case management plans, or critical paths. They can be presented in the form of lists of
steps, flow charts, or decision trees. They also serve a variety of purposes. Figure 3B-2 describes
some of the more commonly used types of quality standards.
Benchmarks describe what a health plan has achieved on a given service dimension relative to the
best performance that has been achieved on that same service dimension by another entity.
Benchmarks can be internal, competitive, or generic. Internal benchmarks are based on the
performance of individuals or units within the health plan, such as individual practitioners within
a given specialty or different hospitals in the plan's provider network; competitive benchmarks
are based on the performance of the organization's best external competitor; generic benchmarks
are based on the performance of leading organizations in other industries. By comparing its
performance on a given service dimension to a benchmark, the health plan can identify relative
strengths and weaknesses, track performance over time, or evaluate the success of quality
improvement initiatives. Benchmarks also provide a strong incentive for individuals and work
groups to improve their performance.

Developing Quality Standards

Prescriptive standards, accreditation standards, and standards of care describe the levels of
performance an organization should achieve on a given performance dimension. Most often, these
standards define minimum levels of performance associated with various degrees of excellence.
Performance that falls below the minimum acceptable level may trigger further investigation and
may lead to changes in the health plan's structures or processes.
The standards that health plans use in performance-based quality assessment programs serve the
following purposes:
To help individuals, departments, and provider groups adhere to generally accepted


To eliminate ambiguity by providing specific definitions and specific measurement

parameters for concepts such as "quality" or "quality of life."

To replace subjective comparisons based on "norms" with comparisons based on

objective criteria or benchmarks. For example, a procedure that meets established criteria
for that procedure and produces expected outcomes is considered appropriate and
acceptable even if it does not use the latest technology.
To provide organizational stability by expressing shared values.
To create consistent approaches that are necessary to implement organizational change.
Developing Quality Indicators
Each of the quality standards adopted by the health plan is associated with quality indicators,
which are factual statements of existing conditions that are used to measure the variance between
actual performance and the expected performance expressed in a standard. For example, a health
plan might set as a standard that physicians participating in the plan's network should be board
certified. An indicator of the plan's performance on this standard would be the percentage of
network providers who are board certified.

Performance indicators help the health plan quantify performance in terms of structures,
processes, and outcomes. We will describe these performance categories later in this lesson.
Health plans also develop indicators related to specific aspects of performance. For example,
health plans use specialized indicators to measure performance related to sentinel events. Sentinel
events are events that lead to serious, undesirable, and often avoidable outcomes such as trauma
or death. Because the outcomes of sentinel events are severe, they typically trigger immediate
individual case review. The use of sentinel event indicators, however, is limited, because sentinel
events represent performance extremes rather than normal conditions.
Aggregate data indicators are specialized performance indicators that are used to measure
outcomes related to groups of cases rather than individual cases. The variables measured by
aggregate data indicators can be either discrete or continuous. Discrete variable indicators, or
yes/no indicators, limit measurement results to specified options, such as "greater than" or "less
than" a defined quantity. For example, a discrete variable indicator might measure whether
laboratory results were available in more than or fewer than two days. These indicators are used
to show whether a plan has or has not met a standard. Continuous variable indicators produce
results that fit within a specified range, such as the length of time to schedule an appointment, or
the number of patients referred to a specialist. Results are typically presented as a mean or
In order to provide a true measure of quality, indicators should exhibit the following
Relevance. A strong, demonstrated relationship should exist between the indicator and

the standard it is designed to represent. An indicator designed to measure clinical

performance, for example, should be important to clinical outcomes and should trigger
action if the results fall below the standard.
Validity. The data collected by the indicator should accurately represent the service
dimension being measured.
Reliability. The information collected by the indicator should be reproducible. The
health plan analyzing information from multiple sources across the organization should
reach uniform conclusions.
Clarity. The indicator should be expressed in clear, unambiguous terms in order to avoid
Feasibility. The health plan should be able to collect and analyze information required by
an indicator and make necessary changes to structures, processes, or outcomes using
available human, technological, and financial resources.

Insight 3B-1 provides an example of how health plans use quality indicators to measure plan
performance. This example describes the quality indicator, the method and results of data
collection, comparisons of current plan performance with internal and external standards, and
improvement initiatives.
Measuring Performance
Assessing the quality of healthcare and administrative services requires health plans to ask three
important questions: (1) How are we doing? (2) How do we know? and (3) Can we fix problems
we identify? Performance measurement can help health plans answer all of these questions.
Performance measurement can also provide information the health plan needs to improve its
services and effectively allocate resources. Outside the organization, performance measurement

provides members, purchasers, regulators, and the media with objective reports about how well a
plan is meeting expectations.
Designing a Performance Measurement System
Establishing a performance measurement system requires a health plan to make decisions
regarding the following factors:

Purpose of the measurement

Entity, or service unit, being measured
Proposed user of the information
Quality dimension being measured

The value of performance measurement depends on how well the health plan addresses each of
these factors.
The Purpose of Performance Measurement
Performance measurement systems can be designed to address one of the following three primary
purposes: Performance measurement systems can be designed to address one of the following
three primary purposes:
To measure the current status or result of administrative or clinical treatment

processes. This purpose, which forms the basis of quality assessment programs, is
typically the easiest to implement because it requires a single measurement taken at a
specified time and because it requires no comparisons across time or providers.
To measure changes in outcomes caused by modifications in administrative or
clinical treatment processes. This purpose requires two measures, one before a service
change is implemented and one at the end of a specified interval after implementation.
All factors, other than the specific service change, that might affect outcomes must
remain constant during the interval. The results of these measures can be used as
evidence of quality improvement. Although this purpose requires more complicated
measures, the process is still relatively simple because measurement and comparison of
results remains in-house.
To compare the quality of service or care a health plan delivers with the quality of
service or care delivered by other entities. This purpose is the most difficult to achieve
because outcomes are only partially controlled by the health plan and its providers and
because differences between plans and member bases can affect outcomes independently
of quality of care.
A fourth purpose of performance measurement, which is part of the first two purposes described
here, is to stimulate interest in and support for specific service changes targeted at specific disease
states or patient populations.
The purpose a health plan chooses to address determines the type of data that are collected and
the way those data are collected, analyzed, and reported. Purpose also affects the usefulness of the
data because the methods used to achieve one purpose do not necessarily work for other purposes.
For example, data collected to describe current performance levels (purpose #1) are not sufficient
to describe performance improvements that result from modifications in treatment processes
(purpose #2).

The Entity or Service Unit Being Measured

Performance measurements can be designed to address the level of service provided by the health
plan as a whole or the service provided by specific components of the system, such as individual
physicians, nurses, hospitals, and ancillary care providers. Organizational performance is usually
measured in terms of service and includes such factors as satisfaction, utilization, access,
coverage, and cost. Specific measures can address fundamentals of performance such as
efficiency and cost, or they can examine more complex elements such as the organization's ability
to implement appropriate changes in a timely fashion, to communicate changes effectively, and to
motivate employees and providers to adopt and support new programs.
At the provider level, performance is measured in terms of clinical care and member service.
Clinical care measures can describe single episodes of care, such as hospital length of stay or
procedure-based success rates. Alternatively, clinical care measures can describe a continuum of
care beginning with preventive interventions for patients known to be at risk and including
utilization rates, patient recovery and outcomes following in-patient care, ongoing management
of chronic diseases, and patient perceptions. Service measures include patient satisfaction,
accuracy of medical records, and access.
As in the case of purpose, measures designed to assess the performance of one entity are not
applicable to other entities. Measures used to evaluate the administrative services of the
organization, for example, are not appropriate for assessing the clinical performance of a health
plan's providers.
Proposed Users of Performance Information
The potential audiences for performance information include providers, patients, employers,
payors, accreditation agencies, professional societies, government regulators, and the health plan
itself. Each of these groups has its own orientation and its own interest in performance
information. Figure 3B-3 lists some of the most commonly used performance measurement
systems, along with their sponsors, their target audiences, and their chief characteristics.

Performance Dimension Being Measured

As we mentioned earlier, quality is typically assessed through a composite of structures,
processes, and outcomes. In developing a performance measurement system, the health plan must
decide which of these service dimensions can and should be measured. Many of the same criteria
that health plans use to identify key services and processes can be used to select performance
dimensions. For example, in evaluating the performance of its providers, a health plan should
focus on those processes and procedures that satisfy the following criteria: Health plans should
focus on those processes and procedures that satisfy the following criteria:

Performance measurement should focus on conditions and clinical procedures that

have a significant impact on mortality or morbidity, member and provider

satisfaction, and cost. Illnesses related to leading causes of death clearly satisfy this
criterion. Conditions that have the potential to create significant changes in patient
functioning are also candidates. Consumer perceptions must also be considered. For
example, women typically worry more about breast cancer than they do about heart
disease, even though heart disease poses a greater risk of death to women than does
breast cancer. Even self-limiting conditions may be appropriate for evaluation if current
treatment patterns are likely to lead to long-term consequences. For example, using
antibiotics to treat common colds has already begun to result in bacterial resistance.
An empirically established link should exist between the processes being measured
and outcomes. For example, the number of patients with inoperable cancer who develop
metastases within six months of diagnosis may be an important outcome measure, but it
is not a performance measure because it is not the direct result of a process of care. On
the other hand, the percentage of patients diagnosed with late-stage breast cancer could
be used as an indicator of the success (or failure) of a health plan's mammography
screening program.
Outcomes should be amenable to improvement based on modifications in the
underlying processes. Even when an outcome is linked to a specific process, a
cause/effect relationship is not always possible to establish. Not all positive results can be
directly attributed to appropriate treatment. Nor do poor outcomes always result from
poor care. A direct connection between given processes and results allows the health plan
to improve outcomes by improving either the services it offers or the way those services
are delivered. In other words, the health plan can improve outcomes by doing the right
things or by doing things right. Reversing the process and showing a connection between
desirable outcomes and specific procedures helps demonstrate that actions are available
to improve outcomes.
Performance measurement should address areas over which the health plan or its
providers have control. In some cases, health outcomes are affected by external factors,
such as age, gender, low income, geographic location, other existing diseases, or
behaviors such as smoking, alcohol/drug use, nutrition, exercise, customer perceptions,
and compliance, which neither the health plan nor the provider can control. Neither the
quality of the services offered to patients nor the quality of a provider's performance can
be measured accurately if outcomes are affected by uncontrollable conditions. These
cases require a balance between the healthcare system's responsibility to provide
intervention and the patient's personal responsibility to accept that intervention and make
Performance measurement should focus on those areas in which current quality
levels are variable or substandard. Focusing on performance areas in which variance
from standards is greatest helps the health plan identify those areas most in need of
improvement and the extent of possible improvement. Priority should be given to those
areas with substantial potential for improvement. Focusing on variable or substandard
performance areas also helps identify measures that consumers and purchasers can use to
differentiate among health plans.

Selecting Performance Measures

Once the health plan has determined the purpose and scope of its performance measurement
program, it can select the measures it will use to evaluate performance. Performance measures
include structure measures, process measures, and outcome measures. Each of these types has
distinct uses and advantages.

Structure Measures
Structure measures evaluate the resources available within the organization-its facilities,
equipment, personnel, policies and procedures, and finances. The earliest, and still the most
widely used, structure measures relate to physician education and training. Reports published in
the early 1900s indicated a correlation between physician education and the quality of patient
care. These reports generated a series of medical education reforms, including the use of
education, licensing, and certification as criteria for "qualifying" physicians and educational
institutions. They also led to the establishment of JCAHO, which produced the first published list
of accreditation standards for hospitals, and to NCQA, which includes accreditation standards
related to physician credentialing and quality improvement programs in its health plan
accreditation program.
The main advantage of structure measures is that they are easy to identify and report. However,
critics argue that structure measures are of limited value. Structure measures indicate whether an
organization is capable of providing quality care, based on expert opinion, but they do not
indicate whether the organization is actually providing quality care. In addition, the links between
structures and healthcare outcomes are often more intuitive than evidence-based.
Process Measures
Process measures evaluate the services provided to or for patients at any of the points in the
healthcare delivery system. Because of the importance of preventive care to health plans and the
public, health plans focus on those processes that relate to services known to be associated with
improved outcomes, such as disease prevention and early intervention. A complete assessment of
healthcare services also considers the care provided to plan members who are sick. To facilitate
the delivery of quality healthcare, health plans measure such processes as providers' adherence to
specified treatment protocols.
Process measures offer certain advantages over structure measures in evaluating performance.
Unlike structures, processes are often linked directly to healthcare outcomes. In such cases,
changes in the process will lead to changes in the outcome. In addition, process measures are
useful in identifying problems that result from inappropriate care. These problems can be
classified into the following three categories:
Three classifications of problems
Underuse of services, which occurs when a provider fails to provide a healthcare service

that would have produced a favorable outcome. Failure to provide necessary childhood
immunizations is an example of underuse of services.
Overuse of services, which involves the provision of unnecessary care or care that
exposes the patient to unnecessary risks or side effects. Examples of overuse include
prescribing antibiotics for viral infections such as colds or performing unnecessary
Inappropriate use of services, which occurs when a patient receives the wrong treatment
or fails to receive the full benefit of treatment because of preventable complications.
Drug interactions or poorly performed surgical procedures are evidence of the misuse of

Process measures are also useful in providing information that will lead to improvements in
medical practice.
However, evidence-based links between processes and outcomes do not exist in all situations. For
example, while there is evidence that regular cholesterol screening benefits younger patients,
there is no clear evidence to support such screening for patients over age 75. In addition, process
measures are designed to address commonly occurring conditions; they are not designed to track
the treatment of patients with rare manifestations of disease. Without sufficient evidence of the
efficacy or effectiveness of treatment, the health plan cannot establish a process measure to assess
the quality of the treatment or the provider's performance.
Outcome Measures
Health plans use outcome measures to evaluate the results of care and the effectiveness of the
organization. Clinical outcomes can be divided into two broad categories: health outcomes and
perceived outcomes. Health outcomes gauge the extent to which healthcare services improve
patients' clinical and functional status.
Health outcomes related to a patient's clinical status are typically assessed through objective data
such as numeric measurements or through provider analysis based on a physical examination.
Health outcomes can be used to evaluate
Specific treatment programs-such as the survival rate of patients who receive coronary

Specific disease states-such as the incidence of wheezing episodes in asthmatics
Specific treatment settings-such as the number of patients contracting infections in the
hospital, the readmission rates for specified diseases, or the number of deaths during or
after elective surgery
Health outcomes related to functional status are typically assessed through subjective data
provided by patients, such as the information reported on health status questionnaires. They are
used to evaluate the patient's ability to perform such tasks as eating, getting around without help,
working, or looking after the household.
Perceived outcomes are a patient's conclusions about his or her own health status and quality of
life. Most often, patients express perceived outcomes by comparing how they feel after treatment
to how they felt before treatment. This emphasis on patient perceptions is a departure from
traditional methods of evaluating performance in which quality was defined by the professionals
who delivered the services. Today, patients are taking greater responsibility for healthcare
decisions, and they are playing an important part in defining quality.
The value of outcome measures comes from their ability to demonstrate improved health status in
given populations over time. For example, health plans often use outcome measures, such as the
functional status of patients following elective surgery, the mortality rate following coronary
artery bypass graft surgery, or improvements in birth weight and gestational age at delivery, to
provide quantifiable evidence of the effectiveness of specific medical programs.
On the other hand, outcome measures are not appropriate for all situations. As we mentioned
earlier, outcomes are valid measures of performance only if they can be linked to structures or

processes and only if they are sensitive to modifications in those structures or processes. Outcome
measures are also not feasible in all situations. The length of time necessary to document
outcomes is often long-as much as 10 to 20 years for the survival rates following diagnosis or
treatment of slow-growing tumors such as prostate cancers and 20 to 30 years for complications
from diabetes. Such delays between process and outcome may be too long to provide meaningful
feedback on care delivery. Figure 3B-4 summarizes the advantages and disadvantages of each of
these types of performance measures.

Criteria for Selecting Performance Measures

Whether a health plan bases performance evaluations on structure measures, process measures, or
outcome measures depends in part on how the organization defines the purpose of its
performance measurement system, the entities it will evaluate, and the performance dimensions it
will address. This choice also depends on the scientific soundness of the measures. Scientific
soundness refers to the likelihood that a performance measure "will produce consistent and

credible results when implemented."1 The following criteria are often used to determine the
scientific soundness of performance measures.
Reliability. Performance measures must gather the same kind of information and lead to the same
conclusions each time they are applied. To achieve this consistency and to allow comparison of
results, measurement systems must standardize data collection and analysis.
Validity. The data collected by the measure should accurately represent the performance being
measured. This is especially important when using outcomes as a measure of performance.
Evaluation of a provider's performance, for example, should be based only on outcomes that can
be traced directly to the provider's actions.
Precision of specifications. The value of performance measures depends on how explicitly the
target population for a procedure is identified and the data collection and analysis methods are
stated. Measures such as those included in the HEDIS 3.0 program are extremely precise. For
example, the HEDIS mammography measure explicitly defines the target population as women
age 52 to 69 who have been continuously enrolled in a health plan for a minimum of two years
and defines published diagnostic and procedural codes as the source of measurement data. These
specifications increase the likelihood that plans applying the measure are addressing the proper
patient base, have had enough time to provide the indicated care, and are using standard
definitions of the procedure. Such precision is necessary to make the results of performance
measures comparable across provider groups and health plans.
Adaptability. Performance measures must be flexible enough to allow for some modification to
account for different patient preferences, clinical indications, care settings, resource bases, and
populations. For example, an indicator for the use of amniocentesis for pregnant women age 35
and older might need to be modified if the number of women in a particular plan who decline the
test because of patient preference is high enough to affect comparisons among health plans.
Including inappropriate factors in performance measures may affect the comparability and
consistency of the results.
Adequacy of risk adjustment. Performance measures that are used for quality comparisons
often require modifications to account for differences in medical risk. Such modifications are
typically made through case mix/severity adjustment. Case mix/severity adjustment, also referred
to as risk adjustment, is the statistical adjustment of outcome measures to account for differences
in the severity of illness or the presence of other medical conditions. Knowing that one PCP's
utilization rates are consistently higher than another PCP's rates is of little value unless it is also
known that the first physician's patients suffer from a number of chronic conditions such as
asthma or diabetes, whereas the second physician has a typically healthy patient base.
Case mix/severity adjustment is especially important in evaluating specialists' performance. A
specialist's patient base is not only fundamentally different than the general population, but his or
her training and expertise may also be different from those of other physicians in the same
specialty. For example, a perinatologist who treats very high-risk patients or performs
complicated surgical procedures is likely to have very different practice patterns and utilization
rates than does a general obstetrician.
Case mix/severity adjustment provides a way of standardizing patient populations so that the
health plan can compare providers to similar providers delivering similar services to similar
patients. Case mix/severity adjustment also reduces the number of outliers within the provider

network. In the context of performance measurement, outliers are those providers who use
medical resources at a much higher or lower rate or in a manner noticeably different than most of
the other providers in the same network and specialty.
One approach health plans can take to equalize patient populations is to remove "unusual" cases.
For example, HEDIS measures frequently attempt to standardize populations by excluding
patients with contraindications to a particular treatment. Another approach health plans can take
is stratification. Stratification eliminates variation within a patient population by dividing the
population into groups that are at a similar level of risk.
Interpretability of results. The amount of information gathered by performance measures
influences the way that information can be reported and used. Measures that gather information
from a large patient base are often useful in identifying statistically significant differences in
performance. Measures taken from small patient bases may be more helpful in uncovering
practical differences. The type of information gathered by performance measures also affects
interpretability. Measures that gather information from a variety of sources such as outcomes
research, medical records, and customer satisfaction surveys typically produce both clinically
detailed and general information. This information can be selectively presented to a variety of
audiences. Measures that produce only one type of information are useful to a much narrower
One approach health plans can take to equalize patient populations is to remove "unusual" cases.
For example, HEDIS measures frequently attempt to standardize populations by excluding
patients with contraindications to a particular treatment. Another approach health plans can take
is stratification. Stratification eliminates variation within a patient population by dividing the
population into groups that are at a similar level of risk.
Financial Data
Most of the financial data used to evaluate performance comes from claims and encounter
reports. Each encounter between a plan member and a provider generates a claim that describes
(1) the condition under investigation, (2) the healthcare professional or facility providing
treatment, and (3) the treatment provided. Because conditions and treatments are coded, using
standard diagnostic and procedural coding systems, claims and encounter reports also provide the
health plan with detailed information about the type and number of services and supplies
associated with a particular procedure and their costs. Health plans can analyze claims data to
produce information about the performance of individual providers, groups of providers, or the
system as a whole.
Another important source of financial data is hospital reports. These reports provide information
about the costs of in-patient services exclusive of physician fees. Hospital reports describe
services in terms of specific diagnoses or procedures and can be designed to provide health plans
and providers with detailed information about resource utilization and practice patterns. A health
plan's administrative records provide additional utilization and cost data.
Clinical data create an in-depth view of the clinical status and functional status outcomes
associated with particular healthcare processes. Measuring health outcomes requires gathering
both disease-specific data and data related to general health and functional status.

Patient medical records are the most widely used source of disease-specific clinical information.
Medical records that are accurate and complete contain a wealth of information about a patient's
medical history, demographic and behavioral characteristics, past and present medical conditions,
treatment history, compliance patterns, and outcomes. Data from individual patient records can be
used to assess a provider's performance during an episode of care or over a continuum of care.
Aggregate data from all of a provider's individual patient records provide the basis for measuring
the provider's performance in treating specific conditions and for assessing the provider's overall
practice patterns.
Unfortunately, not all medical records are complete or legible, and extracting relevant
performance information can be time consuming and expensive. The need to protect patient
privacy and preserve the confidentiality of medical information is an additional burden. Several
developments have led to improvements in medical record keeping. For example, CMS requires
that providers and health plans provide clear, complete documentation for Medicare
reimbursement. Technological advances such as electronic medical records (EMR) and electronic
data interchange (EDI) are also influencing the way providers generate and maintain medical
Additional disease-specific data are available through outcomes research studies sponsored by
academic institutions and professional organizations. These studies provide comprehensive,
detailed information about specific conditions, such as asthma or diabetes, and specific
procedures, such as total hip replacement or coronary artery bypass surgery. The data generated
by research studies can be used as a foundation for developing measurement tools that may
become standards. Their usefulness to particular health plans or individual providers, however, is
limited. Because research study results are based only on study participants, they may not be
comparable to a health plan's patient population or a provider's overall practice patterns.
In order to gather data about functional status, it is necessary to go directly to patients. The
current "gold standards" for collecting data related to general health and functional status are the
SF-36 and the HSQ-39 (Health Status Questionnaire) surveys. These short patient surveys consist
of approximately three dozen questions that measure the patient's perceived health status along a
continuum from physical health to mental health. The core questions in the SF-36 and HSQ-39
surveys are designed to address the following eight measures of a patient's perceived health
status: Eight Measure of patient's perceived health status:
Physical functioning: a measure of the impact of health status on the patient's physical

Role limitations related to physical health problems: a measure of the impact of health

status on the patient's work or daily living activities

Bodily pain: a measure of the amount or intensity of pain the patient experiences
General health: a measure of the patient's perception of current health and future health


Vitality: a measure of the patient's level of energy

Social functioning: a measure of the impact of health status on the patient's social


Role limitations related to mental or emotional health problems: a measure of the

impact of mental or emotional problems on the patient's functional status

Mental health: a measure of the patient's general mental and emotional health

Patients score each measure on a numerical scale.

The eight measures in the SF-36 and HSQ-39 are further divided into three major health
dimensions: (1) general health status; (2) functional health status (including physical functioning,
role limitations, and bodily pain); and (3) well-being (including energy/fatigue and mental
health). Additional questions in the HSQ-39 address perceived changes in the patient's health and
risk of depression. A copy of the SF-36 Health Survey is included in Appendix 3B-1.
Customer Satisfaction Data
Customer satisfaction data describe how a health plan's customers view the way their health plan
delivers services. Although most people equate customer satisfaction with member satisfaction, a
health plan's customers also include providers, payors such as employers or government agencies
who purchase the health plan's services, and insurance carriers who often underwrite those
services. This broad customer base exerts considerable influence over the health plan's policies,
strategies, operations, and investment decisions. Customers even influence the health plan's
product offerings. A 1998 study by KPMG Peat Marwick and Northwestern University reported
that "90 percent of organizations have expanded the number and types of services they offer, due
to consumer preferences."2 It is not surprising, therefore, that customer satisfaction has become a
critical element of performance measurement.
Customer satisfaction data provide information about members' overall satisfaction with their
health plan and their satisfaction with such key factors as access, quality of care and service, and
plan administration
Access. Access typically refers to the ease with which plan members can obtain care. At the plan
level, access is measured by the availability of primary care and specialty care physicians, the
ability to change physicians, access to emergency services, location of doctors' offices, lag times
between appointment scheduling and actual appointments, and level of physician choice. At the
provider level, access is measured by office wait times before seeing a physician, ability to obtain
referrals, availability of after-hours service, and whether the physicians return calls. Access is
affected by the size and composition of the plan network and by the plan's benefit package.
Quality of care and service. Quality of care and service is difficult to assess from a patient
perspective because patients typically lack the technical expertise necessary to evaluate the
quality of particular clinical interventions. Patients can, however, evaluate the quality of their
relationships with health plans and providers. At the plan level, customers evaluate the treatment
they receive from customer service personnel. At the provider level, they evaluate the treatment
they receive from physicians and their office staff. Communicating clearly and openly with
patients, addressing patients' individual needs and concerns, and providing information that is
accurate, understandable, and actionable are critical to building quality relationships.
Plan administration. Plan administration includes core operational and service components such
as claims processing and billing; the availability of information about eligibility, coverage, and
the cost of care; the time spent doing paperwork; and customer service. The importance of each
of these factors depends on the specific type of customer. For example, access to providers is
important to members and payors, but is not applicable to providers. Quality of care and service,
on the other hand, is critical to members and providers but is often less important to payors.

The bulk of customer satisfaction data is gathered from patients through feedback mechanisms,
such as member satisfaction surveys. Surveys can be administered by phone or through the mail
and can be administered at the point of service, at the end of a specified interval following
service, or periodically throughout the year. Surveys can be used to gather performance data
about individual providers or about the health plan as a whole.
Health plans regularly administer customer satisfaction surveys as part of their quality
management programs. Surveys are also administered by third party reporting agencies in an
effort to provide customers with information they can use to evaluate and select health plans. One
of the most widely used third party consumer satisfaction surveys is the Consumer Assessment of
Health Plans Survey (CAHPS), which we described briefly in earlier lessons. CAHPS is designed
to solicit information from consumers about their experiences with health plans. The CAHPS
program provides survey administrators with questionnaires, directions for conducting surveys
and producing reports, and sample formats for reporting survey results. In addition, CAHPS
provides instructions for setting up a computerized system for comparing plans that can be
accessed through the Internet or intranet links.
CAHPS gathers detailed information about access, quality of care, and plan administration from
the general patient population and from specific target populations such as patients with chronic
conditions or disabilities, Medicare and Medicaid beneficiaries, and children. CAHPS reports
compare the costs and benefits of various health plans and display those results in easy-tounderstand formats.
CAHPS surveys can be administered independently or in conjunction with other data collection
instruments. For example, CMS routinely administers CAHPS questionnaires to Medicare and
Medicaid beneficiaries. As noted in the lesson Quality Management, NCQA uses the CAHPS
2.0H survey as part of its health plan acccreditation program. CAHPS results are also published
in NCQA's Quality Compass, which is a database of comparative information on accreditation
status and results on key HEDIS measures.
Customer satisfaction surveys provide health plans with information about which services work
best and which services are most important to their customers. This information is critical to a
health plan's performance improvement efforts. By improving satisfaction scores from "neutral"
or "satisfied" to "very satisfied," the health plan can build customer loyalty and improve
retention. Customer satisfaction, however, is only half of the picture. Health plans must also
gather information about what causes customer dissatisfaction.
Health plans can gather information about customer dissatisfaction by examining customer
complaints. Health plans' tracking systems record each member complaint and assign it to a
category. Complaints generally fall into one of the following categories:
Problems with referrals and authorizations (e.g., the plan takes too long to authorize

service or process referrals)

Problems with doctor/patient relationships (e.g., doctors rush visits, do not provide

adequate explanation of condition/treatment, do not communicate well)

Problems with prescription drug coverage (e.g., prescriptions are difficult to obtain,

certain drugs are not included in the plan formulary)

Problems with emergency department procedures (e.g., patients do not understand what

constitutes an emergency, patients do not understand procedures for obtaining emergency


Problems with member services (e.g., customer service representatives are unresponsive

or poorly trained)
Problems with claims (e.g., services are not covered, the plan denies payment, the plan

pays only part of the expenses incurred)

Complaints can be tracked and reported by category and by individual provider, giving the health
plan a summary of overall problem areas and provider-specific problems.
According to the above list, plan administration has the greatest potential for creating customer
dissatisfaction. Because it is an area over which the health plan has maximum control, plan
administration also has the greatest potential for improving satisfaction and building loyalty. By
increasing the value of its services, the health plan can turn satisfied customers into loyal
customers who will re-enroll in the plan and recommend it to others.
Data Analysis
Analysis of the financial, clinical, and customer satisfaction data that health plans collect during
performance measurement provides a snapshot of the health plan's current level of performance.
By comparing actual performance to standards, health plans can obtain information about the
quality of their performance. A close match between actual and expected levels of performance
indicates quality. Variance between actual and expected levels of performance that falls outside
acceptable limits indicates areas that need improvement.
Reporting Performance Information
The final step in performance measurement is reporting results. Performance reports can take a
variety of forms, depending on the focus of the measurement, the methods used to collect and
analyze data, and the intended users of the information.
Performance reports serve two purposes. Internally, performance reports are used to improve the
quality of healthcare processes and outcomes by pointing out a health plan's strengths and
weaknesses. They are a critical part of the health plan's strategic planning, financial planning,
network and medical management, and quality management efforts. They are also a valuable tool
for encouraging existing providers to focus on quality improvement and for recruiting new
Externally, performance reports are designed to address the issue of accountability. By comparing
one plan, provider group, or delivery system to another, performance reports can identify
differences in performance and areas where changes are necessary. Health plan customers can use
this comparative information to make informed healthcare decisions.
Reporting Performance Information
The emphasis on external accountability has increased dramatically in recent years. Whereas
performance reports were initially distributed to a limited audience of health plan managers and
providers, they are now available to nearly all health plan customers. Written reports are often
mailed directly to consumers and distributed to employer groups, provider groups, and brokers.
Health plans and reporting agencies also report performance information on the Internet. For
example, CMS allows Medicare beneficiaries to access comparative information about plan costs,
premiums, and types of services via an interactive Web site called "Medicare Compare." Several

state-sponsored performance reports are available over the Internet with links to NCQA. The
Pacific Business Group on Health's "Health Scope" site provides detailed online information
about health plan and physician group performance as well as information on how to select
primary care physicians and how to understand and use plan formularies.
Report Cards
Increased demands for performance information have led reporting agencies and health plans to
expand reports to include rankings as well as comparisons of health plans. These ranking systems
are referred to as report cards, which are structured reports designed to provide consumers,
employers, and payors with plan-based and provider-based performance ratings that they can use
to make informed healthcare decisions.
Health Plan Report Cards
Health plan report cards are currently available from a number of sources including major
periodicals (Newsweek, U.S. News & World Report, and Consumer Reports), nonprofit consumer
advocacy groups (Consumer Checkbook), accrediting agencies (NCQA Quality Compass), and
employers. These report cards have a national focus and provide ratings for a variety of health
plans. Other report cards such as the California Cooperative HEDIS Reporting Initiative focus on
specific types of health plans operating within a single state or region. Figure 3B-6 summarizes
five of these major report cards.

Additional report cards are available from America's Health Insurance Plans (AHIP), with links
to NCQA and CMS, and from J. D. Power & Associates. These report card results are reported to
media as well as to employers, making them widely available to the general public. NCQA and
the Foundation for Accountability (FACCT), which is a major source of quality and performance
measures, are also developing report card systems. NCQA's Health Plan Report Card has been

produced on a monthly basis since February 2000. FACCT report cards are expected to be
available by 2002.
To date, health plan report cards have focused primarily on HMOs, even though non-HMO plans
such as PPOs have higher enrollment. This situation is likely to continue until new methods of
collecting, analyzing, and reporting non-HMO performance information are developed.
HMO report cards typically contain three types of information: measures, indices, and ratings.
Measures consist of raw performance data such as member satisfaction scores or rates for
preventive interventions such as mammography screening or childhood immunization. Indices
are composites of several measures into a single descriptor. For example, U.S. News & World
Report combines HEDIS performance measures from NCQA's Quality Compass into four general
categories: prevention, access to care (adults), access to care (children), and physicians'
credentials. Ratings rank plans according to the results of specific measures or indices. Ratings
can be expressed as scores or as normative values such as "excellent," "very good," "good," and
Report cards may also include information such as the plan's accreditation status and
organizational structure (for profit, not-for-profit). This information is not included in plan
ratings. Non-HMO report cards tend to be more limited in scope and content, relying primarily on
customer satisfaction data drawn from internally generated member surveys. Appendix 3B-2 at
the end of this reading includes sample ratings from each of the five major report cards.
Types of performance measurement systems used to assess the quality of health plans' healthcare
and administrative services include the following:

Indicator Measurement System (IMSystem)

Computerized Needs-Oriented Quality Measurement Evaluation System (CONQUEST)
Quality Compass

Data Sources
Most HMO report cards are based on data collected for HEDIS 3.0, a set of approximately 60
performance measures developed by NCQA. HEDIS measures are not applicable to non-HMO
plans. Core HEDIS measures relate to access and availability of care, effectiveness of care, and
customer satisfaction. Effectiveness of care measures include

Adolescent immunization status

Check-ups following delivery
Follow-ups after hospitalization for mental illness
Flu shots for the elderly

Customer satisfaction measures include

Speed of care
Communication with physicians
Ease of finding a personal physician or nurse

Claims processing
Overall experience with the health plan

HEDIS 2000 incorporates five new disease-specific measures-controlling high blood pressure,
appropriate medications for asthma, emergency room visits for asthma, chlamydia screening, and
menopause counseling-not included in HEDIS 3.0. Future measures will address how well plans
help heart attack patients control cholesterol and how well they monitor diabetes patients. The
focus of these new measures is to assess how plans care for their sickest members.
A number of report cards also use performance measures available from FACCT. Unlike NCQA,
FACCT does not currently collect or report performance data; instead, it provides users with
patient-centered outcomes-oriented measures that can be used to collect and evaluate
performance data. FACCT measures take a population-based approach that examines broad
patterns of care rather than individual episodes of care. This approach allows reporting agencies
to measure how the health plan serves all of its members and how it serves people with specific
illnesses. In addition, FACCT measures are multidimensional and assess patient perceptions of
care, functional status, and outcomes as well as clinical performance. FACCT measures also rely
heavily on patient-reported data such as information reported on the SF-36 patient questionnaire.
FACCT measures are developed according to the following criteria:

Prevalence of condition in the population

Cost of providing care
Opportunity for improving care
Ability of condition to engage consumers' interest
Ability of accountable parties to affect outcomes
Likelihood of revealing differences between health plans

Original FACCT measurement sets assessed performance related to treatment of breast cancer,
diabetes, major depressive disorders, and health risks, as well as consumer satisfaction with
health plans. Measurement sets endorsed or under development by FACCT address asthma,
arthritis, heart disease, alcohol use, pediatric care, HIV/AIDS, and care at end of life.
Provider Report Cards
The same pressures that led to the creation of health plan report cards have also led to the
development of provider report cards. The performance measures used to construct these report
cards are very much like those used for health plan report cards. However, the data derived from
those measures are related to physicians and healthcare facilities rather than health plans.
Provider report cards are being produced by a variety of organizations. Some of these report cards
are sponsored by state agencies or advocacy groups. For example, several state health
departments currently report patient death rates for physicians and hospitals on specific types of
surgery as well as patient satisfaction, cost, and outcomes data on specific types of care. These
report cards provide information about the "number of cases handled, rates of complications and
mortality, length of stay, and the average payment for treatment. Hospitals get one to three stars
depending on whether their performance is better, the same, or worse than expected or the
national average." 3

Health plans are also producing provider report cards that evaluate physician groups on the basis
of customer satisfaction and treatment of specific diseases. Customer satisfaction report cards rate
physician groups on quality of care, access to care, and satisfaction with the medical group.
Disease-specific report cards rate groups on quality of care, quality of services, and outcomes.
Report cards rate individual groups' performance as "excellent," "very good," or "good," relative
to others in a region. Insight 3B-2 describes some of the specific measures one health plan uses to
evaluate provider groups. Figure 3B-7 shows a portion of a sample provider report card.

Provider report cards focus on provider groups rather than on physician practices or individual
physicians, and even these have met with some resistance. Physicians often oppose report cards
on the grounds that the information included is incomplete or misleading, especially with regard
to case mix. Health plans often object on the grounds that the cost of establishing information
systems that can collect, analyze, and transmit physician data in standardized format outweighs
their potential benefits. In spite of current skepticism, the future seems to point to more report
cards at more levels. Patients, who are generally more concerned with the quality and
performance of providers than they are with the performance of health plans, are likely to drive
this trend.

Issues and Barriers in Performance Measurement

In theory, performance measurement offers health plans and providers a way of improving
healthcare services by giving them the information they need to do a better job. Performance
measurement also offers health plan customers the information they need to make better
healthcare choices. In practice, performance measurement has not yet lived up to expectations.
This gap between theory and practice can be traced to a number of factors.
Data Collection and Analysis
As we have seen, performance measurement often emphasizes outcomes as a way of quantifying
performance and establishing comparisons. The actual usefulness of outcomes measures,
however, is often limited by such factors as data availability and inconsistency.
Availability of Valid, Reliable Data
Financial outcomes are relatively easy to support because financial and administrative data are
widely available. Data to support clinical outcomes and satisfaction outcomes are more difficult
to find. Historical data is often not available at all.
Part of this difficulty stems from a lack of reliable measures. For example, fluctuations in
mortality rates and length of stay, which are commonly used as indicators of clinical
performance, cannot always be traced to specific actions of health plans or providers.
Availability of Sufficient Data
The amount of information available also affects its value. In order to make an informed decision
about health plans and providers, customers need information about a wide range of options.
Although published performance reports make every effort to supply sufficient data, their efforts
are often negated by lack of plan or provider cooperation. Currently, only HMOs are reporting
performance data. Without comparable information from non-HMO plans and FFS systems, it is
impossible to generate a complete assessment of performance. Moreover, an increasing number
of HMO plans that originally reported data to accrediting programs or other reporting agencies
have either stopped reporting data or refused to allow their data to be published.
Inconsistent Methodology
Developing performance measures that allow customers to compare "apples to apples" requires a
level of standardization in data collection and analysis that does not yet exist. A quick look at
some of the major measurement systems reveals almost as many definitions, time periods,
sampling methods, and reporting formats as there are sponsors. Even geographical location can
affect the quality of measurement systems. Small differences in any of these areas can produce
large differences in results, and plans that receive high ratings from one system may receive low
ratings from another.
Inconsistencies even occur within individual measurement systems. For example, the author of
U.S. News & World Report's 1998 HMO report card admitted that "because this year's
methodology has changed in many ways, scores and ratings cannot be compared with last
year's." 4 Even when changes, such as the inclusion of new HEDIS measures, are the result of
developmental advances, they affect consumers' ability to compare performance over time.

The nature of performance data also creates inconsistencies. Performance is rarely measured on a
single dimension such as clinical health status or customer satisfaction. Instead, it is a composite
of administrative, clinical, financial, and patient data. In order to obtain an accurate picture of
performance, health plans must find the best mix of these data types. Health plans must also find
ways to quantify attributes, such as quality of life, functional status, and satisfaction, that are
primarily subjective.
The value of performance information often depends on the way it is reported and the
organization that reports it. As with data collection and analysis, data reporting is influenced by a
variety of external and internal factors.
The value of performance information to customers depends on its breadth as well as its depth. A
provider's performance during a single episode of care for a single patient, for example, is not as
meaningful to consumers as the provider's performance across a continuum of care or across an
entire patient population. Similarly, a health plan's performance seen in isolation is not as
meaningful to purchasers or plan members as the plan's performance compared to benchmark
performance. For example, given the established link between the use of beta-blockers and deaths
from heart attacks, a 50 percent rate of administering beta-blockers following heart attack would
probably raise some questions about a plan's performance. Information linking the plan's rate with
benchmark rates would most likely provide a much stronger indication of the quality of care
provided by the plan.
In some cases, performance itself is too narrow to provide value to consumers. The use of betablockers in our example is a process measure; survival rates following heart attacks is an outcome
measure. From a plan perspective, the process is an important indicator of quality. The data are
easy to obtain and the correlation between process and outcome is relatively strong. From a
member perspective, the outcome is what is important.
Potential Reporting Bias
Both health plans and provider groups have expressed concerns that performance reports
produced by the media tend to focus on performance shortcomings in order to discredit the
managed healthcare industry. Differences in the samples and survey methods can also introduce
bias. For example, a customer satisfaction survey that offers three positive answer categories and
only one negative category is likely to produce high customer satisfaction ratings.
Misleading Results
Another serious concern that plans and providers express about performance reports is that the
information is misleading. For example, a poor rating on a particular performance dimension may
indicate poor performance or it may simply indicate poor data submission. Poor data submission,
in turn, may indicate a lack of willingness on the part of the health plan or provider group, or it
may indicate a lack of systems capability. Unless the report clearly explains the conditions that
affect study results, consumers are forced to interpret findings on their own.

Protecting Patient Privacy

The confidentiality of medical information is a critical issue for most consumers. As health plans
and reporting agencies continue to drill down for detailed information, the need to protect
individual patients increases.
All attempts to improve performance require investments in time and resources. For example,
developing accurate measures of a plan's clinical performance requires collecting detailed clinical
data. Many health plans' information systems cannot provide the necessary detail without massive
upgrades. Those systems that are capable of collecting detailed information at the plan level must
also be able to link different databases, perform calculations, and analyze results. The more
sophisticated the measures, the higher the cost. Estimates of the cost of collecting and reporting
HEDIS 3.0 data range from $20,000 to $700,000 per measure.5
Overcoming Performance Obstacles
Although the barriers to performance measurement mentioned above are significant, they are by
no means insurmountable. Accrediting agencies have made great strides toward standardizing the
measures and indicators that health plans use to collect and analyze performance data. Research
organizations such as the ones described in Insight 3B-3 have taken similar steps to improve the
availability and consistency of outcomes data. These efforts are evidence of the growing
importance of performance in maintaining and improving the quality of healthcare services.

AHM Medical Management: Quality Improvement

After completing the lesson Quality Improvement , you should be able to:
Identify the major components of the performance improvement cycle
Describe how health plans use benchmarking to guide quality improvement activities
Identify the goals of member education and outreach programs
Describe the techniques health plans use to improve providers' ability to work within the
healthcare system
Describe three tools health plans can use to support provider decision making and
improve clinical performance
In the lesson Quality Assessment, we discussed the relationship between quality and performance
and described some of the approaches health plans can take to assess existing performance levels.
In this lesson, we will describe some of the strategies and tools health plans can use to improve
performance. Because performance has a direct effect on outcomes, these tools also help health
plans improve the quality of their services.
Performance Improvement
Performance improvement is based on making changes to existing structures and processes that
will lead to changes in outcomes. In order to ensure that performance improvement activities
produce desired results, changes to structures and processes must be carefully planned,
communicated, implemented, documented, and evaluated. The components of the performance
improvement cycle are illustrated in Figure 3C-1.

Planning for Change

Change is a complex process that can take a variety of forms. Change that occurs randomly is
referred to as haphazard change. It can be caused by chance or by benign neglect. Because it is
uncontrolled, its results are unpredictable. The dramatic increases in healthcare costs that can
arise when consumers and healthcare organizations fail to recognize the consequences of
unlimited utilization is an example of a haphazard change.
Reactive change occurs when situations become unmanageable and some form of immediate
action is necessary. Reactive change is controlled, but it is rarely planned. It can lead to positive
or negative results; however, these results are usually situational. Reactive change also has a
likelihood of producing unintended results. The introduction of preauthorization as an attempt to
control overuse of services is a form of reactive change.
The changes that performance improvement programs generate are planned changes. Planned
change is deliberate, controlled, collaborative, and proactive. It involves the time and effort of all
members of the organization. In planning performance improvements, health plans must make the
following strategic decisions:
Which of the critical services and processes identified during performance assessment

should be targeted for improvement

What the desired outcomes of proposed changes are and how they will be measured
What actions are most likely to produce desired outcomes

Identifying Targets for Quality Improvement

As we discussed in the lesson Quality Management, health plans offer a wide range of clinical
and administrative services to their customers. Any of these services can serve as targets for
quality improvement. However, because resources are limited, health plans typically direct their

efforts toward those services that are most in need of improvement or that offer the greatest
opportunity for development.
Defining Desired Outcomes
Outcomes guide the activities included in a performance-based QI program and turn random
motion into directed change. It is important to recognize that the outcomes set by improvement
plans are the results the health plan hopes to achieve as a result of changes to existing structures
or processes rather than the results that are expected when a particular procedure is performed.
For example, patients who undergo surgical procedures often experience pain or discomfort
following surgery. Providers manage post-surgical pain by administering pain medication (a
clinical process). The expected outcome of this process is a reduction in the level of pain the
patient experiences. An action plan designed to improve pain management processes might
modify the way medication is delivered by allowing patients to self-administer pain medication.
The desired outcome of this intervention might be to increase patient comfort, reduce recovery
time, or improve efficiency.
Expected outcomes can be anticipated. Health plans must carefully define desired outcomes so
that they are

Specific: each outcome defines a single result

Measurable: outcomes must be expressed in objective, quantifiable terms
Appropriate: outcomes must be directly related to identified critical processes
Realistic: outcomes must be achievable within the context of given patient health states,
treatment options, and resources

Desired outcomes must also be achievable within the time frame established in the plan.
Designing Interventions
Once desired outcomes have been defined, the health plan must decide what actions it will
undertake to achieve those outcomes. Each service a health plan offers consists of its own
structures and processes, and performance improvement efforts can address either or both of these
dimensions. For example, an important goal of a health plan's QI program might be to improve
plan members' access to care. The health plan could change structures related to access by
modifying the size and/or composition of the provider network. The health plan could change
processes by modifying authorization and referral procedures. Both of these approaches are likely
to have an effect on access. The health plan's task is to determine which kinds of changes are
likely to be most effective in producing desired results.
Health plans communicate proposed changes to appropriate individuals or groups in the form of
action statements. A sample action statement appears in Figure 3C-2. The "who" element of the
statement identifies the individual or group responsible for taking action. The "will do" element
identifies the type of change that the proposed action will generate. The change should be
described in terms of results-increase, decrease, maintain, expand-rather than processes-define,
evaluate, design. The "what" element describes the specific target of improvement efforts, and
"when or by how much" establishes the timetable for or desired level of improvement. Actions
can be carried out by individual providers, work groups, or departments.

Extensive planning frequently raises objections. Some organizations argue that because planning
is focused on future activities, it is based on speculation rather than fact. They also argue that they
are too busy dealing with today's activities to devote time and energy to tomorrow. In addition,
planning runs counter to the emphasis among many organizations on getting things done.
These objections are more than offset by the following benefits that result from careful planning:
Planning directs an organization's activities by establishing performance goals
Planning controls and limits an organization's efforts and expenditures by focusing

attention on specific tasks

Planning establishes a system of responsibility and accountability for organizational


Planning provides management with an organized approach to complex problems and

Planning maximizes the effectiveness and efficiency of organizational activities
Planning facilitates collaboration, creativity, and participation across all levels of the

Planning minimizes unintended results

Communicating Change
Communication is the process by which the health plan transfers information and results upward,
downward, and horizontally through the organization to its internal customers and outward to its
external customers. Each of these audiences has its own information needs that define the content
and format of performance communication.
Performance information can be presented verbally or in writing. It can be limited to brief
summaries of important facts and figures or it can include detailed descriptions of program
design, methodology, and outcomes. It can be presented informally in conversations with or
memos to individuals or work groups or formally in performance reports delivered to
management and governing boards.
Performance communication also serves a variety of purposes. Informational performance reports
transfer facts and figures for use in decision making. They are produced for individuals and
groups who need information on a routine basis. The reports that health plans submit to internal
boards and committees, such as the QM committee or the pharmacy and therapeutics committee,
are informational reports. Persuasive communication is intended to generate changes in attitude
that will lead to changes in behavior. This is especially important in communicating performance

information where the goal is to change behavior in order to achieve better outcomes.
Recognition communication, which acknowledges achievements rather than problems or
opportunities, provides motivation for continued growth and development.
Effective communication of performance information benefits all of its users. For patients and
their families, performance information helps define and support healthcare expectations. For
providers, information leads to improved guidelines for medical practice. For purchasers, it
demonstrates health plan value. For health plans, it provides protection against liability.
Implementing Change
In order to turn intention into action and link structures and processes to outcomes, health plans
must implement the programs they plan. Compared to planning, implementation is a relatively
simple process accomplished when responsible parties complete assigned tasks in a specified time
frame. The activities, timetables, and accountabilities associated with performance improvement
plans are embedded in the plans themselves.
Implementation of a performance improvement plan depends on who is accountable for
delivering the service and whether the service is patient-focused, provider-focused, or
administrative. We will describe some of the specific tools that health plans use for performance
improvement later in this lesson.
Patient-Focused Action Plans
Although patient behavior is outside the health plan's control, it is influenced by the health plan's
actions. Patient-focused plans, therefore, are designed to augment the activities of providers and
administrative staff and improve overall service outcomes. Strategies such as member outreach
and patient education programs are designed to improve outcomes by helping plan members
Assume responsibility for their own health
Feel more satisfied with the healthcare services they receive
Obtain better care

Appropriately trained and educated patients can help manage minor problems and keep them
from becoming major problems.
Provider-focused action plans address the performance problems and opportunities of the
providers and staff who deliver healthcare services. Clinical practice guidelines (CPGs), provider
profiles, and peer reviews are examples of tools that health plans can use to guide provider
performance and improve patient outcomes.
Health plan management identifies areas for improvement or development, defines outcomes, and
negotiates incentives. Providers then implement the recommended actions. Outcomes are
reviewed periodically by management or a panel of professionals
Administrative action plans
Administrative action plans are used when performance problems or opportunities are related to
the way the organization itself operates. For example, low rates for cholesterol screening among

patients at risk for coronary artery disease can be caused by a variety of factors. If inadequate
staffing or a lack of equipment are contributing factors, an administrative action plan may be
Administrative action plans allow the health plan to:
Integrate service across all levels of the organization
Coordinate management activities
Improve resource allocation and utilization

It is the responsibility of the health plan to create an environment in which quality improvement
activities can occur.
Documenting Change
A health plan's improvement plan provides evidence of its intent to improve performance in key
areas. Documentation provides evidence that the health plan has translated its intentions into
actions. It also provides evidence of the health plan's progress toward achieving desired
Accrediting agencies and regulatory bodies require a health plan to provide documentation of
three major components of performance improvement: performance assessment, program
planning, and program evaluation. During performance assessment, the health plan collects a
significant amount of information about its customers and its services. This information provides
a written record of the health plan's activities and their impact on each of the organization's
customer groups.
The health plan also documents the methods it uses to collect and analyze performance data.
Documentation of data collection and analysis provides evidence of the health plan's efforts to
measure and monitor performance. It also supports the health plan's performance improvement
efforts by identifying variance and measuring progress.
Documentation of program planning is contained in the health plan's action plans. These plans
provide written evidence of the organization's intent to take action. They document the services
and processes that are of greatest concern, the interventions the health plan intends to implement,
and the individuals or groups responsible for taking action. They also document expected and
desired results.
Program evaluation is documented by additional data collection and analysis designed to measure
the health plan's progress toward its performance goals. This documentation is recorded on
progress reports that describe program status and track changes in that status over time. Prepared
concurrently, progress reports describe how an action plan is progressing; retrospective reports
describe end results.
Evaluating Change
All improvement plans require follow-up evaluation to determine how successful the plans are in
achieving stated goals. Evaluation can be conducted concurrently or retrospectively. Concurrent
evaluation is conducted as the plan is being carried out and allows the health plan to check the
progress of its improvement plans against interim benchmarks. Retrospective evaluation is

conducted after all planned interventions are completed and allows the health plan to measure
Evaluation can also be formative or summative. Formative evaluation focuses on specific
activities and assesses the relative importance of those activities to the plan as a whole.
Summative evaluation focuses on outcomes and assesses how effective actions are in achieving
desired results.
The overall purpose of evaluation is to allow the health plan to make judgments about the value
of its performance improvement program. Value, in this context, refers to the efficiency and
effectiveness of improvement activities. Efficiency is the relationship between what the
organization puts into an improvement plan and what it gets out of the plan. Effectiveness is the
degree to which the health plan is doing the right things and doing them right. In other words, did
the planned improvements work? Effectiveness is measured by reviewing outcomes to determine
(1) the accuracy or appropriateness of improvement strategies, that is, the "fit" between the
problem or opportunity and the strategy used to address it; and (2) the adequacy of resources
allocated to the strategy.
The effectiveness of an action plan is typically measured retrospectively, after planned actions are
completed. Results of this retrospective analysis are then compared to the initial results and target
results for a given indicator to determine the degree of progress or improvement. Evaluation of
plan effectiveness typically produces one of the three following results:
The plan achieved the desired outcomes. This result is achieved when predetermined

problems have been resolved or opportunities have been exploited, and when remeasurement data are comparable to plan goals. Successful interventions are measured
periodically to determine that improvement is maintained.
The plan did not achieve the desired outcomes, but it did make significant progress
toward those outcomes. This result occurs when re-measurement data indicate forward
but incomplete movement toward predefined goals. Management typically responds to
this result by conducting a process review or formative evaluation of the goals, outcomes,
interventions, resources, and timetables outlined in the plan to determine what additional
changes are necessary. Plan elements are then revised as needed.
The plan did not achieve the desired outcomes and is unlikely to do so under current
conditions. In this case, re-measurement data are not significantly different from initial
data and may even indicate regression. This situation requires both summative and
formative evaluation to determine if the health plan can revise its current plan or if it
must abandon the plan and develop a new one.
Data Collection and Analysis
We described the importance of data collection and analysis for quality assessment in the lesson
Quality Assessment. Data collection and analysis are also important in evaluating quality
improvement. The data that are collected and the methods that are used to collect and analyze
data for quality improvement purposes, however, are different than those used for quality
assurance. Figure 3C-3 summarizes these differences.
QA data describe the current state of various structures, processes, and outcomes. By describing
the status of structures, processes, and outcomes before and after a change has been implemented,
QI data describe the progress the health plan has made toward achieving its goals.

Data collection for QA is primarily a reactive process designed to verify that the health plan's
operations meet expectations. Data collection for QI is a proactive process intended to

Verify that programs are proceeding as planned

Identify opportunities for improvement
Provide a rationale for decisions regarding resource allocation
Support the development of reliable performance outcomes
QA data collection focuses on providing sufficient objective data for evaluating current
performance. QI data collection procedures are designed to achieve the following goals:
To provide the health plan with accurate data on which to base future decisions. In the
healthcare setting, where resources are often limited, data accuracy is critical. Poor
decisions can lead to wasted time, misspent funds, poor utilization, and inadequate or
excessive spending. They can also lead to the creation of inappropriate standards.
To avoid using measurement results for punitive purposes. It is important to focus quality
improvement on fixing the problem rather than on fixing blame. Data collection methods

that are "safe" from punitive applications foster organizational cooperation and data
accuracy by eliminating fear of repercussion.
To provide the health plan with a global picture of improvement opportunities by
identifying all of the organizational areas that affect or are affected by key processes and
To confirm desired outcomes. By collecting data before and after an improvement plan
has been implemented, the health plan can determine the degree of improvement its
programs achieve.
To demonstrate sustained improvement. Quality improvement is an ongoing process that
requires collecting data at regular intervals to track and describe trends or variations in

Evaluators analyze quality assessment data in order to determine the degree of variance between
the organization's current performance and established standards. Health plans analyze quality
improvement data in order to determine the cause of variance. Performance variance can be
classified as either common cause variance or special cause variance.
Common cause variance consists of minor variations in performance that occur regardless of
how good a healthcare system or provider is. In some cases, common cause variance is imbedded
in the system and can be linked to specific factors such as employee skill levels or equipment
capabilities. Changes in these factors can create changes in performance that cannot be corrected
by modifying processes.
For example, a health plan's customer service staff might be capable of answering 2,000 calls per
day at a rate of less than 30 seconds per call. If the call volume rises above 2,000, answer time
will also increase. Variance, in this case, is linked to system capabilities rather than service
processes. In other cases, common cause variance may occur entirely by chance. In our earlier
example, variance in the number of calls answered per day would occur by chance if a large
number of staff members were out sick at the same time. Because common cause variance is
often impossible to control, it is generally tolerated.
Special cause variance occurs when systems and processes break down-for example, when
staffing levels are inadequate or when employees make errors or equipment malfunctions. Special
cause variance is generally easier to detect than is common cause variance. It is also easier to
Data analysis for QA focuses on measuring current levels of performance without making
recommendations for action. Because it is used to describe current performance, it provides a
"snapshot" of performance at a particular time. Analysis of QI data is based on judgments about
whether performance after a change in structure or process is better than performance before the
change. In addition, because improvement program evaluation involves repeated measurement
and analysis, it creates a kind of moving picture of the health plan's performance improvement
Strategies and Tools for Improving Quality
Health plans can use a variety of strategies to improve the quality of their services. Strategies can
be designed to improve services or they can be designed to improve the way those services are

delivered. They can be directed toward customers, providers, or the health plan itself. In all cases,
the health plan's efforts are guided by the outcomes it hopes to achieve.
Quality standards such as the ones described in the lesson Quality Assessment offer health plans
and their constituents a valuable method of assessing the quality of the health plan's
administrative and healthcare services. One of the most effective methods of planning and
implementing changes that will lead to quality improvement is benchmarking. The benchmarking
process consists of two parts: (1) describing a benchmark, or highest achieved level of
performance, against which a health plan's performance can be compared; and (2) identifying the
actions the health plan can or should take to arrive at that benchmark.
Fast Definition
Benchmarking is the comparison of a health plan's clinical and operational practices or outcomes
to those of other organizations with the goal of identifying the practices that lead to the best
outcomes and implementing those practices to achieve overall quality improvement.1
Establishing Benchmarks
Benchmarks identify "best of class" performance. They are similar to both standards and goals;
however, unlike standards, which typically define the level of performance a health plan must
achieve, and goals, which express the level of performance the organization hopes to achieve,
benchmarks describe the highest level of performance that has been achieved. To better
understand this relationship, consider the example of board certification as a measure of provider
quality. A health plan might be subject to external standards that require a minimum percentage
of providers to be board certified. As part of its strategic planning process, the health plan might
set a goal for board certification of physicians that is higher than the minimum percentage cited in
the standard. A benchmark percentage for board certification would put both the external standard
and the health plan's internal goal in perspective by describing the best level of performance that
has been achieved by a recognized industry leader.
Identifying Best Practices
Traditionally, benchmarking for managed healthcare organizations has relied on cost-center data
to identify those practices that lead to the lowest overall cost. The process has been fairly simple
to implement because cost-center data is easy to collect from patient billing and budget records.
At the clinical level, benchmarking has focused on utilization data drawn from such sources as
internal physician profiles, diagnosis and treatment reference books, commercial data services,
and professional peer review associations. The usefulness of cost-based benchmarking, however,
has been somewhat limited by the following conditions:
Although cost-based benchmarking identifies which areas of a health plan perform better

or worse than comparable areas in other organizations, it does not reveal how or why
performance levels are different.
Elements assigned to cost centers tend to vary from organization to organization. For
example, some health plans assign costs for such services as utilization review and
quality improvement to clinical cost centers; others assign these costs to administrative

Supply costs are difficult to compare. Some health plans include all supply costs related

to a particular procedure to a single cost center, whereas other health plans divide those
costs among several cost centers. Similarly, supplies may be included in separate
department inventories or in a centralized organizational inventory.
Patient billing records are not always an accurate measure of the cost of a procedure. In
order to be complete and current, procedure costs should include not only the cost of care
but the cost of key supplies such as needles, syringes, or swabs. These supply costs are
not typically charged to patients or itemized on bills.
The emphasis on quality care has shifted the focus of benchmarking from identifying lowest cost
practices to identifying best practices. In the context of medical care, best practices are actual
practices, in use by qualified providers following the latest treatment modalities, that produce the
best measurable results on a given dimension. The premise behind a best practices approach is
that there is no reason for a health plan or a provider to "reinvent the wheel." Best practices can
serve as models of care for others to follow.
A best practices approach to benchmarking benefits all of the members of the health plan system.
Clinicians have traditionally relied on personal experience, role models, and journal articles to
develop practice patterns, and many have resisted changes mandated by financial managers intent
on reducing costs. Best practices allow practitioners to
See how their practice patterns compare to patterns with proven, measurable results
Use proven patterns in their own practices to emulate best results
Obtain information about treatment or practice decisions for illnesses and injuries with

which they may not be familiar

Best practices, therefore, can help patients receive the most appropriate care from the outset and
help health plans operate most efficiently.
At the organization level, best practices provide managers with an incentive to change operations
based on ideas and practices that are proven effective. Insight 3C-1 illustrates how benchmarking
results also help dispel some of the more prevalent misconceptions among healthcare executives.

Sources of Comparative Data

Health plans can obtain comparative performance data from a number of sources. Earlier in this
section, we mentioned some of the sources health plans use to gather comparative data about
physician practices. Health plans can develop an even more precise picture of practice patterns by
analyzing information provided by the current procedural terminology (CPT) coding system,
which is a method developed by the American Medical Association that allows physicians to
accurately describe and bill for treatments and procedures.
CPT codes provide complete lists of supplies used for specific procedures, using descriptors that
are clinically meaningful. As a result, they provide a much more accurate account of procedure
costs than do patient billing records. CPT codes also have advantages over diagnosis-related
groups (DRGs), which are classifications developed originally for Medicare and now used by
commercial health plans to determine payment for inpatient hospital services based on a patient's
principal diagnosis, secondary diagnosis, surgical procedures, age, gender, and presence of
complications. 2 Unlike DRGs, CPT codes describe individual procedures, cover outpatient
procedures and treatments as well as inpatient services, and reflect the physician's perspective.
Because CPT codes are standardized descriptions, they also provide a means of comparing
physician practices across different healthcare organizations. When physicians compare the items
they use for a particular CPT-coded procedure with those used by other physicians for the same
procedure, the need for change can be compelling.

Health plans can also obtain comparative data from government and commercial sources. In
1979, the Department of Health and Human Services (HHS) published its first national agenda
for improving health and preventing disease in the form of Healthy People. In 1990, HHS
published Healthy People 2000, which included 319 objectives organized into 22 priority areas
and focused on increasing years of healthy life, reducing disparities in health among different
population groups, and achieving access to preventive health services.3 To date, 47 states, the
District of Columbia, and Guam have developed their own Healthy People plans. Healthy People
2010 was launched on January 25, 2000, and includes health indicators related to (1) health
determinants and outcomes, (2) life course determinants, and (3) prevention.4
In 1997, NCQA began offering benchmarking information in the form of Quality Compass, a
national database of HEDIS data and accreditation information collected from over 300 health
plans nationwide. Quality Compass allows NCQA to report regional and national averages and to
identify benchmarks. The public disclosure portion of the database provides regional and national
comparisons of plans on eight clinical and preventive measures, including Caesarian-section
rates, breast cancer screening, and beta-blocker treatment.
Purchasers can use these reports to analyze and compare the performance of individual health
plans in order to make value-based decisions about health coverage. They can also use the
information to generate report cards that employees and other consumers can use to assess planspecific performance on key quality issues. Health plans can use the data to compare their own
performance with that of other plans. Industry analysts consider Quality Compass data a major
step toward holding healthcare systems publicly accountable for the quality of their services.
Regulatory boards, professional societies, provider organizations, commercial organizations, and
state and national health departments offer health plans additional sources of benchmarking data.
For example, the U.S. Centers for Disease Control and Prevention maintain the National
Nosocomial Infection Surveillance (NNIS) System, a national database of information reported
voluntarily by nearly 300 U.S. hospitals regarding the incidence of infections acquired in
hospitals. Researchers use the database to develop baseline infection rates that can be used to
compare performance levels among participating hospitals. CMS maintains an equally extensive
database of administrative healthcare information that can be used for quality improvement
Member Education Programs
Traditionally, healthcare services were the exclusive domain of providers. Providers diagnosed
patients' medical conditions, prescribed treatment, defined desired outcomes, and evaluated
patients' progress. Patients, for the most part, simply followed doctors' orders. Today, these roles
are changing. Patients are taking an active part in determining the course and outcome of their
medical care. The increased participation of patients in making healthcare decisions has come
about primarily as a result of member education programs that are designed to improve healthcare
outcomes. These programs provide patients with the information they need to better understand
and manage their health.
Health plans use a variety of methods to deliver educational information to patients and their
families. Providers are a primary source of information. For example, PCPs routinely discuss
preventive measures such as weight loss, exercise, or substance abuse programs, diagnoses, and
treatment programs with their patients during regular office visits. Pharmacists provide

educational information about drug usage and interactions when they fill prescriptions. Hospital
personnel instruct families on how to care for patients following discharge.
Printed materials provide additional information. The format and content of printed materials
depend on their source and intended use. Providers often produce and distribute printed materials
to support verbal instructions. For example, a patient who has a cut sutured in a doctor's office or
hospital emergency department often receives printed instructions on how to clean and bandage
the wound, how to detect adverse reactions, and when to return for follow-up treatment.
Brochures produced by outside sources such as medical associations, research organizations, or
pharmaceutical companies provide information about specific medical conditions. Brochures
typically provide detailed information on the following topics:

Onset and progression of the disease state

Populations at risk for developing the disease
Risk factors associated with the disease
Available treatment options and their expected outcomes
Commonly prescribed medications
Steps patients can take to manage their health status, including nutrition, exercise
programs, and life style/behavioral changes

Evidence shows that member education programs contribute to better outcomes. For example, a
year-long study of health plan members enrolled in a program designed to educate patients on the
benefits of using ACE inhibitors for treating congestive heart failure (CHF) showed a 58 percent
decrease in hospital days, a 60 percent drop in hospital admissions, and a 78 percent reduction in
hospital costs. In addition, patient quality of life improved 15 percent and the mortality rate
dropped 15 percent. Pharmacy costs associated with treatment increased by 68 percent, or
$243,000, but total savings from the program were nearly $9.3 million. 5 Member education
programs such as this one augment provider services by encouraging patient input.

Outreach programs educate plan members about how the health plan works and about health
issues such as preventive care recommendations and techniques for managing chronic disease. By
proactively providing information about issues important to plan members, these programs help
prevent problems and complaints and improve customer satisfaction.
Most outreach programs consist of information packages that are sent out to plan members upon
enrollment in the plan. These packages typically contain

Patient identification cards

A description of plan benefits
An updated provider directory
Directions on how to use the plan, access services, and obtain authorizations
An outline of patient rights and responsibilities

Information packages also describe the plan's system for resolving complaints. A clear
understanding of grievance procedures is becoming increasingly important as the healthcare
industry responds to new state and federal regulations.
Some plans also conduct telephone-based outreach programs. Telephone outreach is particularly
valuable during enrollment surges. Personal contact with new patients entering the system helps

disseminate plan information quickly and reduces confusion that might otherwise lead to
Provider Orientation and Education
Health plans can improve provider performance in two ways: by improving providers' ability to
work within the health plan environment and by improving the way providers make decisions on
behalf of their patients. Health plans typically address health plan performance through provider
orientation and education efforts.
Although provider orientation and education programs are primarily network management tools,
health plans also use them to establish performance expectations. Provider orientation programs
communicate operational aspects of the provider contract to new providers. Orientation typically
occurs before providers begin delivering services to health plan members and covers the
following topics:

Health plan administrative requirements

Member identification and eligibility verification
Plan benefits and member copayment requirements
Referral authorization and other UM processes
Claims processing and reimbursement
Member rights and responsibilities
Provider rights and responsibilities

Orientation programs typically do not cover specific quality and performance guidelines, but they
do describe requirements such as credentialing, scope of services, and peer review that are
directly related to the health plan's quality and performance management programs.
Providers also receive a copy of the health plan's provider manual during orientation. In addition
to reinforcing contractual provisions, the provider manual demonstrates the health plan's
compliance with accrediting agency standards concerning provider performance.
Health plans provide continuing education and support in the following forms:

Regular training sessions for providers and staff

Provider newsletters
Contacts with provider relations staff
Periodic provider meetings
Online information

These tools help reduce confusion about ongoing administrative functions related to patient care.
They also provide a means of addressing problems and questions that providers may have about
the health plan.
Health plans, insurance carriers, and pharmaceutical companies have also begun experimenting
with ways to assist providers with some of the nonclinical aspects of patient care such as patientprovider communication. Evidence shows that improved communication skills contribute to
better outcomes for patients, providers, and health plans. Patients tend to be more satisfied with
providers who communicate effectively. Patient satisfaction, in turn, tends to lead to better

compliance with treatment programs and lifestyle recommendations, lower turnover among both
patients and providers, and fewer lawsuits against health plans.
Provider Profiling
One important tool health plans use to support provider decision making is provider profiling.
Provider profiling involves collecting and analyzing information about the practice patterns of
individual providers. Profiling is used during credentialing and recredentialing to help determine
how well a provider meets health plan standards. It is also an important part of a health plan's
performance measurement and improvement efforts.
Health plans create provider profiles by gathering detailed information related to the following
performance measures:

Quality of care
Patient satisfaction
Resource utilization
Compliance with plan policies and protocols

Claims and encounter reports yield information about the number and type of services delivered
by the provider to plan members. UM and QM reports provide additional information about the
costs and outcomes of those services. Complaints and office surveys provide information about
plan members' satisfaction with providers. Together, these data provide a cumulative picture of a
provider's performance.
Once provider data have been collected, they are analyzed to establish the provider's level of
performance. Results are presented in the form of outcomes and rates or measures of resource use
during a defined period of time for a defined population. For example, a PCP profile might
present information about the average lead time required to schedule a routine physical
examination, the number of referrals the PCP made within and outside the plan network, the
extent of the PCP's compliance with practice guidelines, and the level of member satisfaction
with the PCP. In order for information to be comparable for all providers, results should be
adjusted to reflect differences in risk. The risk adjustment process is described in the lesson,
Quality Assessment.
Results can be used to describe the provider's current level of performance or they can be
compared with profiles of other similar providers or with benchmarks to identify the provider's
strengths and weaknesses. Figure 3C-4 provides an example of a profile developed for a
particular diagnosis. Results are then communicated back to the individual provider by a health
plan medical director.
Because profiles focus on patterns of care rather than on specific clinical decisions, they provide a
valuable measure of the overall quality of a provider's performance. Because they combine
outcome and utilization information, profiles provide a broad measure of a provider's
effectiveness and efficiency. Because individual profiles can be compared to peer profiles or
benchmarks, they are also useful in identifying areas needing improvement or development.

In addition, profiles offer health plans a means of establishing a provider's value to the
organization by identifying outliers and high-value providers. Outliers are those providers who
use medical resources at a much higher or lower rate or in a manner noticeably different than
other similar providers. High-value providers are providers who consistently deliver quality
medical care in a cost-effective manner.
Providers also benefit from profiling. Providers can use profiles to negotiate higher
reimbursement rates. For example, some health plans offer higher capitation rates to PCPs who
can demonstrate exceptional rates for preventive services. Providers can also use profile results to
monitor and improve their practice patterns.
Provider profiles have limitations as well. Although a profile provides insight into the quality and
cost of services that the provider delivers to plan members, that picture does not extend beyond
the plan. It is virtually impossible for the health plan to gauge the provider's total performance.
Profiles can also expose the health plan to legal risks if they are used for purposes other than
education and performance improvement.
Peer Review
In the lesson Quality Assessment, we described the use of outcome measures to evaluate specific
clinical processes. These measures assess both the provider's skill in performing procedures and
the effectiveness of those procedures in achieving desired outcomes. In order to develop a
complete measure of a provider's performance, the health plan also needs to evaluate the
appropriateness of a provider's healthcare decisions. Appropriateness is an indication of the extent
to which the expected benefits of diagnostic or treatment measures exceed expected risks. Health
plans typically obtain information about the appropriateness of patient care through a peer review
process. Peer review discussions are designed to provide confidentiality and, in some states, to
provide freedom from legal discovery.
A health plan can assemble peer review panels from its own network providers, or it can contract
with outside peer review organizations to conduct periodic quality reviews. A peer review
organization (PRO) is a physician-sponsored entity responsible for reviewing the appropriateness
and medical necessity of medical services ordered or furnished by practitioners in order to
maintain quality of care.
During peer review, panel members analyze the healthcare services furnished by a provider to
plan members. Although most peer review is conducted retrospectively, panels can also be

convened to assess the appropriateness of care before it is delivered. Peer review can focus on a
single case or episode of care, or it can be applied to an entire program of care. Most often, peer
review focuses on high-risk, problem-prone, and high-cost services.
Clinical findings from the review are compared to standards to establish a measure of overall
quality. Problems or deficiencies that are discovered by the review commonly serve as a basis for
performance improvement. They also serve as a learning tool for the members of the group.
Peer review is required under the Health Care Quality Improvement Program (HCQIP) for
services furnished to Medicare and Medicaid beneficiaries enrolled in health plans. For services
furnished to commercial plan members, provider participation in the peer review process is
determined by the health plan. In some plans, participation in peer review is required; in others,
participation is voluntary.
In order to encourage voluntary participation in peer review, health plans have taken steps to
support full disclosure and fair evaluation of medical information. One of these steps is to base
peer review programs on well-defined principles and standards. Figure 3C-5 describes some of
these principles. Health plans also follow established procedures for protecting the confidentiality
of any medical information collected and used during the peer review process. In some cases,
protection is mandated by federal law. For example, the Health Care Quality Improvement Act
(HCQIA) mandates protection for participants from suits and from discovery for the documents
generated by the peer review process. Most states have also enacted statutes governing the
production and use of medical information. The protection offered by these statutes ranges from
absolute immunity to some form of qualified immunity for actions taken in good faith.

The guarantees health plans have been able to grant to participants are critical to the success of
the peer review process, where the disclosure of errors in professional judgment may have
significant economic and career consequences for providers. Those guarantees, however, may no
longer be available. In June 1999, the Supreme Court issued a decision allowing individuals to
subpoena peer review records for federal lawsuits6. This decision is likely to have a significant
effect on the strategies that health plans use to measure, monitor, and improve the clinical
performance of their providers.
Clinical Practice Guidelines
As you recall from the lesson Clinical Practice Management, health plans develop clinical
practice guidelines (CPGs) in order to help providers consistently deliver medical services that
will improve the health status of plan members. Although CPGs are an important aspect of a
health plan's clinical practice management policy, they are also valuable tools for improving
provider performance. By following approaches that have been proven to be successful and by
decreasing inappropriate variations in patient care, providers should be able to achieve the best,
most cost-effective patient outcomes possible.
Research seems to support this position. For example, a recent analysis of published studies
related to guideline use showed that "the introduction of clinical guidelines led to measurable
improvement in clinical care processes." 7 Unfortunately, CPGs are not widely accepted by
Providers' willingness to adopt CPGs is affected by a variety of internal and external barriers.
Internal barriers are related to a provider's knowledge, attitudes, and experience and include
such factors as:
Lack of awareness. The number of organizations conducting research into the

effectiveness of specific treatment options for specified medical conditions has increased
dramatically in recent years. The number of guidelines based on results of that research
has also increased. Although some of these guidelines-for example immunization
guidelines and recommendations for infant sleeping positions-are widely recognized by
providers, many more are unknown to a significant number of practitioners.
Lack of familiarity. Knowing that guidelines exist does not guarantee that providers are
familiar with or can correctly apply guideline recommendations as part of their daily
Lack of agreement. Providers have traditionally based their treatment decisions on their
own past experience or on the experiences of other providers with whom they are
familiar. The concept of practice guidelines often runs counter to this decision process.
Because practice guidelines provide a standardized approach to treating typical patients,
they often conflict with provider autonomy and clinical judgment regarding individual
patients as well.
Lack of confidence. In order to initiate and sustain the activities recommended in
practice guidelines, providers must be confident that they can actually perform the
activities and that the activities will lead to positive outcomes. For example, although
most providers agree with guidelines recommending that patients be counseled to stop
smoking, many fail to provide counseling during office visits because they do not believe
their efforts will be successful. Physicians also need to know when not to follow
guidelines; for example, when there are contraindications to a proposed protocol.

Lack of motivation. Established providers often have a long history of practice patterns

associated with particular medical conditions. In order to adopt new patterns, providers
must be willing to expend the energy necessary to overcome the inertia of past behavior
External barriers are created by such factors as:
Patient preferences. Patients can feel strongly about the need for or appropriateness of

particular procedures or treatment options. In some cases, personal preferences can lead
patients to refuse appropriate procedures, especially if they consider those procedures
embarrassing or offensive. In other cases, personal preferences can result in requests for
inappropriate services. Providers often find it difficult to reconcile these patient
preferences with guideline recommendations.
Guideline characteristics. Providers tend to consider guidelines in general as
inconvenient or difficult to use, especially if they require eliminating established
behaviors. This attitude is due, in part, to the fact that guidelines are often based on study
populations that are different from most providers' patient populations. Because
guidelines are designed to be applicable to a wide range of providers and settings, they
are frequently "encyclopedic, equivocal, and not executable at the local level8 ."
Environmental constraints. Even providers who are willing to accept guideline
recommendations may be unable to carry them out because of environmental factors that
are beyond their control. Limited time, inadequate technology or resources, insufficient
staff, increased practice costs, limited referral privileges, lack of tools such as flow sheets
and reminder cards to effectively implement guidelines, and increased liability can all
contribute to a provider's inability to adhere to guidelines.
One of the ways health plans can overcome these obstacles is to focus CPGs on clinical
conditions that providers consider most important, that they encounter most frequently, or for
which there is substantial agreement as to what constitutes appropriate treatment. Health plans
can accomplish this task by gathering information from resources that providers know and
respect; working with other health plans in the region, state, or locality to develop guidelines that
are consistent across health plans and relevant to the needs of member populations; and recruiting
opinion leaders that providers trust to assist with disseminating guidelines.
Health plans can also improve provider acceptance of CPGs by including providers in guideline
development. Flexibility and autonomy are important issues for most providers. Health plans can
support flexibility by allowing providers some freedom to customize guidelines according to the
needs of their patients and the medical practice conventions in their areas. Keeping guidelines
current with medical literature can provide additional support. Health plans can support provider
autonomy by presenting CPGs as decision support tools rather than as requirements. This
approach allows physicians to vary from guidelines as long as they can document a sound clinical
reason for the variance.
A third step health plans can take to improve adoption of CPGs is to simplify program
implementation. For example, health plans can divide complex or lengthy guidelines into
interrelated modules to facilitate understanding and usage. Health plans can introduce CPGs
gradually into the provider community and allow providers to experiment with recommended
innovations on a trial basis. Health plans can make CPGs available in an interactive computerized
format that automatically adjusts to specific clinical circumstances and providing preprinted
orders that are consistent with CPGs for common health problems. Health plans can provide

physicians with a method for identifying the patients to which guidelines apply. In addition,
health plans can provide guidelines for patient as well as provider use. All of these efforts are
likely to make the process more "user friendly."
Because demonstrated success is often the best incentive to change provider behavior, health
plans should also measure and report improvements in outcomes that result from the use of CPGs.
In recent years, health plans, accrediting agencies, governments, and purchasers have dedicated
time and resources to developing programs to measure, evaluate, and improve the quality of
healthcare services within the health plan environment. The goal of these programs has been to
make useful information about quality available to purchasers and consumers.
Quality management programs such as those described in this lesson have made a significant
contribution to health plans' efforts to balance the quality and cost of healthcare services. The
process, however, is still evolving. As more and better information becomes available, the
importance of quality management is certain to increase.
1. Academy for Healthcare Management, Managed Healthcare: An Introduction, 2nd
edition (Washington, DC: Academy for Healthcare Management, 1999), 8-17.
2. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 3-16.
3. "Healthy People 2010 Fact Sheet,"
4. Leading Health Indicators for Healthy People 2010: Final Report, ed. Carole A. Chrvala
and Roger J. Bulger (Washington, DC: National Academy Press, 1999),
http://www.nap.edu/html/healthy3/(1 June 2000).
5. "Burrows v. Redbud," 1998 U.S. District Court (187 F.R.D. 606), LEXIS 22728; 1998
U.S. District Court (187 F.R.D. 606), LEXIS 22541; 1998 U.S. Appeals Court, LEXIS
6. Stanley Goldfarb, M.D., "The Utility of Decision Support, Clinical Guidelines, and
Financial Incentives as Tools to Achieve Improved Clinical Performance," Healthcare
Leadership Review (June 1999): 7.
7. Susan D. Horn, "Clinical Practice Improvement: A Data-Driven Methodology for
Improving Patient Care," Journal of Clinical Outcomes Management 6, 3 (March 1999):

AHM Medical Management: Preventive Care Programs

After completing the lesson Preventive Care Programs, you should be able to:
Identify the three levels of preventive care
Explain the role of health risk assessment (HRA) for preventive care
Describe some strategies that health plans may use to enhance member participation in

preventive care programs

The improvement of the overall health of health plan members is central to the philosophy of
health plans. In fact, from a historical perspective, health maintenance organizations (HMOs)
were so named because of their coverage and promotion of preventive care services, most of
which were not covered by traditional indemnity insurers.
A health plan's preventive care initiatives can be divided into three main categories: primary
prevention, secondary prevention, and tertiary prevention. Primary prevention refers to activities
designed to prevent the occurrence of illness or injury. Secondary prevention includes activities
designed to detect a medical condition in its early stages and to manage the condition so that
disease progression and complications are prevented or at least delayed. Tertiary prevention
includes activities designed to prevent exacerbation of or complications from an established
medical condition. 1
In this lesson, we focus on primary and secondary preventive care. Tertiary prevention, which is
an important aspect of disease management, will be discussed in the lesson Disease Management.
We begin the lesson with a discussion of the role of preventive care in medical management. We
then describe some of the strategies health plans commonly use to develop and implement
preventive care programs.
Importance of Preventive Care to Medical Management
Preventive care programs impact medical management in a number of areas. One of the most
important of these areas is risk management. In recent years, healthcare professionals and
researchers have recognized that a significant proportion of diseases and injuries can be
prevented. In fact, recent studies indicate that as much as 70 percent of healthcare treatment costs
are the result of preventable diseases and injuries.2 Further, the severity of many illnesses can be
greatly reduced if the conditions are detected and treated early in the disease progression. By
offering programs that help members stay healthy and reduce the need for diagnostic and
therapeutic services, health plans can decrease members' exposure to the risks of complications
often associated with those services.
Preventive care programs are also an important part of a health plan's quality management efforts.
Accrediting agencies typically include prevention programs in their evaluation of the quality of a
health plan, and NCQA, JCAHO, and URAC all have standards that address the health plan's role
in preventive care. 3

For example, NCQA and JCAHO both require health plans to base their clinical practice
guidelines (CPGs) for preventive care on evidence from current, scientifically sound medical
research. NCQA also stipulates that health plans distribute preventive healthcare
recommendations to members on an annual basis. HEDIS has measures related to prevention and
health promotion.
The desire to improve member satisfaction also motivates health plans to establish preventive
care programs. An increasing number of members are becoming health-conscious and want
access to a variety of preventive healthcare services. These members believe that by taking
proactive measures to improve their health, they can avoid the financial costs, inconvenience,
anxiety, and discomfort typically associated with the diagnosis and treatment of illnesses and
injuries. Members' perceptions of a health plan's efforts toward improving health status have an
impact on the health plan's overall satisfaction ratings, which, in turn, affect that plan's scores on
accreditation evaluations, HEDIS, and report cards. Programs for health improvement also
enhance a plan's public image and make it more attractive to purchasers.
Medical management staff at health plans have realized that, in general, proactive measures that
prevent or at least limit the severity of disease and injury are more cost-effective than reactive
healthcare services that address illnesses and injuries only after they occur. Purchasers also
recognize the value of prevention programs. Many purchasers believe that preventive care keeps
members healthier and more productive, so they prefer that health plans offer a variety of
preventive care initiatives.
Preventive Healthcare Programs
The primary and secondary prevention programs available to members vary from one health plan
to another. When selecting specific preventive care initiatives to offer to its members, a health
plan considers several factors including
The expected effectiveness of the initiative in improving health, based on evidence in the

medical literature
The projected cost-effectiveness of the initiative
The expected effect of the initiative on member satisfaction
Applicable federal, state, and regulatory agency mandates for preventive care
Applicable accrediting agency standards for preventive care and health promotion
Applicable HEDIS measures for preventive care
The preferences of members and purchasers and the specific needs of the population

A health plan in a highly competitive market may choose to offer a broad range of preventive
services as a means of differentiating itself from its competitors and appealing to purchasers. 4
Not every health plan member, however, needs every type of preventive care service. Health
plans, therefore, try to target their prevention programs to the healthcare needs of their members.
They typically do this by assessing their members' health risks.
Health Risk Assessment
Health risk assessment (HRA), also known as health risk appraisal, is a process by which a
health plan or other entity projects a plan member's likelihood of experiencing specific illnesses

or injuries, based on the member's current health status, health history, family health history, and
health-related behaviors. The objective of HRA is to improve health outcomes by identifying
members who are at risk of developing specific health problems and determining the appropriate
action to reduce those risks. In many instances, the appropriate action is to direct the member to
preventive care programs or disease management programs. In addition to improving clinical
outcomes, HRA can also reduce costs by reducing the need for complex or long-term care.
Collecting, analyzing, storing, and reporting information about health risks is a complex task that
often requires sophisticated information technology. Although some health plans perform their
own HRA, many health plans delegate some or all components of HRA to external entities that
specialize in managing information about health risks. Keep in mind that a delegate (rather than
the health plan) may perform some or all of the HRA activities described below.
Gathering Health Risk Data
Each health plan determines which types of health risks to evaluate in its HRA, depending on its
population and the issues that the plan hopes to address with the HRA. Health risk assessment
generally evaluates risks associated with members' demographic characteristics, behaviors, or
lifestyle choices and, in many cases, includes a provider's clinical assessment of current and past
health problems. Figure 4A-1 provides more details on the types of risk data that health plans
may evaluate through HRA.
Health plans can obtain information for HRA from one or more of the following sources:
When a health plan obtains HRA information, it is important for the health plan to compare
information from all available sources to get a complete, up-to-date risk profile for a member. For
example, does a member with high blood pressure also have a record of high cholesterol or
smoking? When was the last time the member was screened for high cholesterol?

Member enrollment records. Demographic data on the age, gender, and occupation of a

member can provide insight into health risks. For example, a woman who has reached the
age of 40 is at greater risk for breast cancer than a younger woman. A member whose job
includes physical labor has an increased risk of back injury5.

Claims and encounter reports. Claims and encounter reports typically include

diagnostic and procedural codes that may help a health plan identify members with
symptoms or minor conditions that may develop into serious illnesses unless preventive
measures are taken. An analysis of claims and encounter data can also produce a list of
members whose medical histories include preventable illnesses or injuries.
Pharmacy claims and drug utilization reports. Pharmacy claims and drug utilization
reports provide information about both existing and potential conditions. For example,
pharmacy claims for blood pressure medication or cholesterol-lowering medication may
be an indication of members who are at increased risk for serious illnesses such as
coronary artery disease (CAD).
Reports on laboratory tests. Like claims and encounter reports, laboratory reports
include diagnostic and procedural information that may help a health plan identify
conditions that can benefit from preventive measures.
HRA surveys. These surveys can yield information on virtually any type of health risk
factor, depending on the design of the questionnaire. In addition to collecting information
about clinical health status and health behaviors, surveys also allow health plans to
explore members' beliefs about the value of preventive care and attitudes toward
changing health-related behavior.
Comprehensive claims, encounter report, pharmacy, and laboratory data can be very useful for
HRA, but this information is not always available to a health plan. If a health plan has only
recently contracted with a purchaser or if a plan experienced a large influx of new members
during the last open enrollment, information about members' past medical problems and
treatments may be very limited. In addition, the use of pharmacy and lab data to identify health
risks is somewhat controversial. Consumers and privacy advocates may view a health plan's
examination of such information as an invasion of privacy if the health plan does not obtain
members' consent to access this data.
HRA surveys have become a standard approach for gathering data about health risks, and many
health plan and healthcare personnel use the term health risk assessment to refer to this type of
data-collection tool as well as to the entire risk evaluation process. However, a health plan that
uses a survey to gather health risk information must consider the following issues about the
content of the questionnaire:
Which types of health risks (e.g., lifestyle, current health, past medical problems, mental

health) should be addressed? Should the questionnaire address sensitive issues such as
domestic violence and drug abuse and, if so, how?
How specific and detailed should the survey be?
Will a single survey address the risks of the entire member population or are multiple
surveys tailored to different population segments needed? (However, if the health plan
wishes to compile meaningful aggregate information, the plan must use the same HRA
survey for a large number of members.)
In addition to content issues, the health plan must also determine how the survey will be
administered. Many HRA surveys are self-administered; that is, plan members read and answer a
series of questions on paper or on a computerized questionnaire. Alternatively, health plans may
interview members about health risks by telephone or in person. Some health plans use an
interactive voice response (IVR) system to administer surveys over the telephone. With an IVR
system, a computer asks questions and members enter their responses on a touch-tone keypad.
Providers often play a role in administering the HRA survey when the survey includes any type of

clinical assessment of health status. In many instances, the HRA survey is completed through
some combination of self-administration and administration by the health plan and/or providers.
A health plan may develop its own HRA survey or administer a standardized questionnaire. By
using a standardized, publicly available tool, a health plan can compare its results to those from
other health plans. One example of a standardized questionnaire is the Behavioral Risk Factor
Surveillance System (BRFSS) developed by the Centers for Disease Control and Prevention
(CDC). The BRFSS monitors the prevalence of the major behavioral risks associated with illness
and injury among adults. The BRFSS consists of a series of core questions plus optional question
modules that may be added to tailor the survey according to the population of a particular state or
region.6 Figure 4A-2 lists the core sections and optional modules included in the CDC's BRFSS
questionnaire for the year 2000.

Each state may also add additional questions to address special interests. Figure 4A-3
(http://www.educode.com/Images/ahm540_4A_13pA.pdf) shows the table of contents from the
2004 BRFSS questionnaire. Although the BRFSS was not designed specifically for use by health
plans, a health plan may use or adapt this system for its HRA program. Health plans that serve a
Medicare population typically use a questionnaire designed to address the needs of senior
A health plan may also opt to work with a vendor who specializes in health risk surveys to
develop a customized data-collection tool. When obtaining a survey from a vendor, the health
plan should check the vendor's reputation for medical knowledge and valid, scientifically sound
surveys. The health plan may choose to develop its own survey according to the nature of its
member population; however, this approach is typically more time-consuming and may not be
feasible if the health plan wishes to implement the survey quickly.

Health plans vary in terms of how often they conduct HRA and the proportion of members who
undergo HRA. Ideally, a health plan conducts an HRA for every member soon after members
enroll in the plan and periodically thereafter to monitor any changes in health status. In reality,
however, many health plans do not have the financial or human resources to establish or maintain
such a comprehensive assessment program. Another obstacle for HRA data collection is the fact
that not all members wish to participate in HRA surveys. Reasons for lack of member
participation include

The perception of HRA as an invasion of privacy

Lack of understanding about the value of the process
The time required to complete the HRA survey
Concern about employers or other parties learning the results
Concern that the information might be used to exclude the member from future health
plan coverage or to increase plan premiums

As a result of limited resources and lack of member participation, health plans typically focus
their HRA efforts on newly enrolled members.
A health plan may be able to increase member participation in HRA by educating members,
purchasers, and providers about the purpose of HRA. Members who view HRA as an initial step
toward improved health status and who believe that the health plan will treat HRA information in
a confidential manner are more likely to participate than members who have little knowledge
about the program. For example, the health plan can present studies that show the effect of
preventive care on health outcomes. The health plan should also assure members that purchasers
will receive only aggregate HRA results and that information about individuals will not be
released to employers or other parties.
Education about the value of HRA may also increase the willingness of purchasers and providers
to encourage members to complete the HRA process. In some cases, employers allow employees
to complete a self-administered HRA survey during work hours. The employer may even make
the survey available on computers in the workplace.
The health plan can make the HRA survey process more convenient by offering members several
ways to complete it. For example, members might have a choice between a paper questionnaire, a
computerized questionnaire at the workplace, or a computerized questionnaire available on the
health plan's Internet website. Some health plans and employers offer incentives to members who
participate in HRA surveys, especially if the HRA process is lengthy. For example, a member
who completes the survey might receive a T-shirt, mug, gift certificate to a local store, or even a
small discount off their health plan premium.
Analysis of Health Risk Data
Because HRA often integrates many different measures of risk from a variety of sources, health
plans typically use computer software specifically designed for HRA. In addition to determining
the risks for each individual member, a health plan usually tabulates the data for its population as
a whole and for certain segments of the population to gain a better understanding of the
preventive programs that are needed. For example, a health plan may analyze the data according
to purchaser, occupation, age, gender, income level, race, ethnic group, or some combination of
these characteristics. The HRA information management system may also allow the health plan to
stratify risk data according to other variables, such as the level of risk for individual members.

For example, in addition to identifying members at risk for developing coronary artery disease
(CAD), the information management system may divide the list of members with any CAD risk
factors-smoking, obesity, high blood pressure, high cholesterol, family history of the disease,
fatty diet, sedentary lifestyle-into subgroups according to the number and type of risk factors
present. The health plan can then make a plan of action based on the level of risk represented by
each subgroup.7
Another type of analysis that may be useful is stratification according to knowledge about health
risks and willingness to change health-related behaviors in order to improve health status.
Application of HRA Results
The results of a health risk assessment for an individual member may be stated as the
approximate number of years of life remaining, the member's age in terms of health risk, or a
score on a numerical scale. Along with the numerical results, each member typically receives
written recommendations on how to reduce the level of risk. For example, the health plan may
encourage the member to join a smoking cessation program or to make an appointment to be
screened for prostate cancer. The health plan may provide a copy of the results and
recommendations to the member's primary care provider (PCP) to ensure that the provider has the
necessary information to coordinate the member's care. 8
Based on the health risks identified for the population as a whole or for segments of the
population, the health plan can develop and promote appropriate primary, secondary, and tertiary
prevention initiatives. For instance, do the employees of a particular purchaser have a high
incidence of repetitive motion injury? Do the female members of the plan have unmet preventive
or self-care needs? What health issues should be addressed for adolescents? Is a certain
preventable condition prevalent among members of an ethnic group?
A health plan that stratifies members according to the level of risk represented can tailor its
approaches to preventive care according to the urgency of the need. For example, the health plan
can offer educational literature on health improvement and access to wellness programs to
members with low-to-moderate risk. The health plan can direct members who are at high risk to
more intensive and focused preventive care programs. 9
Suppose that a member is at high risk for developing diabetes. The health plan might provide that
member with educational material about diabetes and the symptoms of the disease, a description
of the complications associated with that disease, and recommendations for reducing the risks that
can lead to diabetes. The health plan may also contact the member frequently to offer reminders
about healthy behaviors, encourage screening at appropriate intervals, and check for any
problems that may have developed. By targeting needs more specifically, the health plan can
address those needs more effectively and use its preventive care resources more efficiently than if
it offers the same services to all members regardless of risk level.
Stratification of members according to knowledge about health risks and willingness to take
proactive measures to reduce those risks also helps health plans direct members to appropriate
preventive care programs. For example, a member who is not even aware of the health risks
caused by a sedentary lifestyle will probably not be receptive to a recommendation to join a
fitness program.

In addition to evaluating risks for illness and injury that may occur in the future, HRA often
identifies members who already have chronic conditions. If the current management of the
condition is not optimal, the health plan can refer the member to the appropriate disease
management program (if one exists) or to a provider who specializes in the condition. Complex
cases, such as members with multiple medical problems or those who are at high risk for
experiencing serious complications, may be directed to the health plan's case management
Health plans must exercise caution when interpreting and applying the results of health risk
assessment. Because the calculations of risk are based on probabilities derived from experience
with large numbers of medical cases, the results for individual members are generally less
accurate than the aggregate results. In addition, HRA is subject to sampling bias, which occurs
when errors in data collection change the end results so that the results do not accurately depict
the characteristics of the population under study. For example, the members who participate in
HRA may not be representative of the entire member population. In general, members who worry
about their health even though they are relatively healthy are more likely to complete the
assessment than the population as a whole. Older members who tend to have more health
problems than younger members are also likely to participate in HRA. Unfortunately, some
members who have significant risk factors, such as obesity or heavy alcohol use, may be reluctant
to complete the survey because they perceive these risk factors as embarrassing or personal.
Embarrassment about health-related behaviors or the desire to please may lead members to give
false answers. For instance, members may tend to exaggerate their levels of exercise because they
think they should be more active and do not want to disappoint their providers.
Although the information is not intended for utilization planning purposes, some health plans also
use aggregate results from HRA to predict medical resource utilization. HRA information is
typically not a reliable predictor of utilization because of sampling bias issues as described above.
However, HRA can enhance the effectiveness of both primary and secondary prevention
A health plan must also consider the cost of the HRA process and the effects of HRA on clinical,
financial, and member satisfaction outcomes. Further, a health plan needs the appropriate disease
management and case management programs to address the risks identified by the HRA.
Otherwise, the costs of HRA may exceed the benefits realized by the health plan.
Once a health plan has identified the health risks present in its member population, it can design
primary and secondary preventive initiatives to address those risks.
Primary Prevention
The initiatives most often employed by health plans to prevent or at least delay the onset of health
problems are immunization programs and health promotion programs. An immunization
program is an initiative that monitors and promotes the administration of a vaccine, that is, a
medication to prevent members from contracting a particular illness. A health promotion
program, also known as a wellness program or health education program, is an initiative that
educates and motivates members to prevent illness and injury through their lifestyle choices.
Members typically receive primary preventive care services from PCPs or directly from the
health plan.

Historically, the practice of medicine has been mainly curative rather than preventive, so many
providers and members still view healthcare as services to treat existing illnesses and injuries.
Medical education and training, particularly for physicians, have tended to emphasize diagnosis
and treatment, with less attention paid to primary prevention. One significant challenge for health
plans is to educate both providers and members about the health benefits of primary prevention
and to motivate them to take a more proactive approach to healthcare.
Immunizations effectively prevent many diseases for both children and adults, so immunization
programs are one of a health plan's most direct means of improving health status and reducing
member's needs for healthcare services. Figure 4A-4 contains a list of diseases for which
vaccinations are most commonly used. In addition to keeping members healthier, immunizations
are typically cost-effective as well.
Although members and providers often think of immunization as a children's issue, many of the
vaccine-preventable illnesses typically associated with childhood, such as measles or chicken
pox, can result in serious illness or even death for adults. Adults can benefit from other
immunizations as well. For example, influenza is a respiratory illness that, at best, is inconvenient
and uncomfortable and, at worst, can cause severe complications that result in hospitalization or
even death, especially for older members or those with chronic health conditions.10

Influenza shots have been shown to significantly reduce the incidence of flu cases among
immunized adults.
Despite the obvious benefits of immunization, many health plans have experienced difficulty in
achieving optimal immunization rates for their members. Health plans often focus on one or more
of the following areas to improve these rates:

Member participation
Provider participation
Reporting systems

The following sections describe some strategies for improvement.

Member Participation. In many instances, members' failure to obtain appropriate immunizations
is due to lack of knowledge. They may not be aware of all the vaccinations that exist or the
schedules for administration of those vaccines. Some members view measles, mumps, and
chicken pox as a normal part of childhood and do not realize the dangers of these vaccinepreventable diseases and the benefits of having their children immunized. Members may also fear
adverse effects from the vaccination, such as having an allergic reaction or even contracting the
disease itself. Ethnic and cultural backgrounds may have a great influence on members'
knowledge about and attitudes toward immunizations. When attempting to educate members
about the benefits and risks of immunization, health plans must also recognize and address
members' common fears.
In addition to including information about immunization in member newsletters, there are several
other ways that a health plan can reach and educate its members, such as informational articles in
the health section of newspapers and magazines or brochures placed in the plan's pharmacies.
Local retail stores may be willing to place educational material about immunization near their
childcare products or over-the-counter medications. Members may need to see information about
immunization several times before they completely understand it and remember to get the
Some health plans (or their providers) remind individual members about immunizations that are
due via post cards or telephone calls. Insight 4A-1 describes one health plan's strategy for
improving member cooperation with immunizations for children.
Another way that health plans can encourage members to receive immunizations is to make
vaccinations available at low or no cost. The out-of-pocket cost may be a significant barrier for
members who are in a health plan with a deductible or coinsurance requirement in its cost-sharing
structure, especially for low-income members. Members also want to be able to get
immunizations at a convenient time and location. Health plans may offer immunizations at sites
such as local malls, hospitals, or community centers during day and evening hours to make it
easier for members and their children to receive the vaccines.
Insight 4A-1
Blue Care Network of Michigan Makes Member Education Foundation of New Program to
Increase Adolescent Immunization Rates
Blue Care Network of Michigan (BCN) has launched a series of member-centered initiatives as
part of its new program to increase immunization rates among the plan's more than 11,000
adolescent members.
The program, named Blue Champs, reaches out through newsletters and financial-based provider
incentives to a network of the 3,000 primary care physicians and pediatricians who largely treat
the targeted 12- and 13-year-old adolescent population. The Physician Performance Recognition
program, started in 2000, offers physicians a financial incentive, in addition to their negotiated

fees, for reaching a targeted goal on a variety of health quality indicators, including adolescent
immunization, explains Cynthia McDonald, Manager of Quality Management for Blue Care
Network of Michigan. BCN then sends the physician a peer analysis indicating how his or her
adolescent immunization rates compare to those of other physicians across the state, she says.
However, the thrust of the Blue Champs program is to increase the number of adolescents
immunized against measles, mumps, rubella (MMR), hepatitis B (HepB), and varicella, or
chickenpox, by focusing educational outreach efforts primarily on young members and their
parents, according to Ms. McDonald.
The goal, says Ms. McDonald, is for both the physician and member-focused initiatives to work
together simultaneously to achieve the overarching goal of increasing adolescent vaccination
levels of plan members. However, she explains, the plan is utilizing more member touch
initiatives to make the plan-patient relationship more personal and the initiatives more effective.
The first initiative implemented as part of Blue Champs, started in June 2004, uses reminder calls
and cards to inform parents of gaps in their child's immunization history and encourage them to
take him or her to the physician's office by the end of the year to get any needed vaccinations.
The goal is to make a call in spring or early summer on an annual basis when the kids are out of
school when they have more flexibility in their schedules to be taken to physician offices for
appointments, explains Ms. McDonald. BCN-contracted vendors have made reminder calls to
more than 7,000 households to date, she adds.
The newest feature to the program also uses scheduled reminder calls to urge parents to update
their child's immunization records. However, in this case, BCN nurses who are Quality
Management Coordinators make the requests.
This is another way to let parents know we are trying to help them and ensure that their
adolescents are up to par with their immunizations, says Ms. McDonald, adding that this effort is
a more personalized way to build a rapport with the parents.
Member newsletters and the Internet also have been effective tools in educating adolescents and
their parents about the health benefits of immunizations and notifying them about vaccination
schedule updates. Ms. McDonald says the biannual member newsletters include articles on child
and adolescent immunization and preventive health guidelines with recent recommendations from
the Centers for Disease Control and Prevention. BCN posts similar information on its web site,
www.bcbsm.com/bcn, she adds.
BCN also actively participates in the Michigan Department of Community Health's Alliance for
Immunization in Michigan (AIM) Coalition, which offers practitioners and their staff toolkits
containing up-to-date information on vaccine administration, data on the Michigan Childhood
Immunization Registry (MCIR), and other important information on immunizations. These
toolkits, which are distributed to the offices of network physicians by the Quality Management
Coordinators, include resources for young patients and their parents as well.
Another innovative initiative, named Health e-Blue, provides primary care physicians, including
pediatricians, with patient-specific information on members who are not up to date with their
immunizations, adds Ms. McDonald. Again, the emphasis is on engaging the member in the
immunization process. The [initiative] is another prompt for [physicians] to contact the parents
of the member and let them know their child is due for an immunization, she says.

While the Blue Champs program remains in the early stages of development, BCN is confident
that the combination of initiatives that make up the program will successfully improve adolescent
immunization rates, which for 2004 stand at 65 percent for Combination 1 (MMR, HepB) vaccine
and 49 percent for Combination 2 (MMR, HepB, Varicella) vaccine.
Provider Cooperation. Health plans should also seek ways to increase provider participation in
immunization programs. Provider-side issues that may result in low immunization rates include
Confusion about which vaccinations are due because of changes in recommendations for

childhood vaccination schedules and new combination vaccines that have been developed
in recent years
Lack of awareness that their patients are not receiving immunizations
Overlooked opportunities to administer vaccinations when the member is in the office for
another reason (e.g., sick child)
Tendency of many providers to place less emphasis on preventive care than on
diagnosing and treating existing problems
Health plans can alleviate provider confusion about vaccination schedules by giving providers upto-date information about immunizations. For example, a health plan can send providers posters
with immunization guidelines for display in their offices. Health plans can also help providers
devise manual or computerized information systems to monitor immunization needs so that when
a member contacts or visits the provider for any reason, the provider is alerted to immunizations
that are due.
Providers may also need information about the health and cost-effectiveness advantages of
immunization to encourage them to make immunization part of their standard approach to care.
Regular monitoring and feedback on each provider's rates for immunization helps providers
determine areas where improvement is needed.
Some health plans also consider immunization rates when determining financial incentives for
providers. Insight 4A-2 describes how one health plan worked with its providers to improve
immunization rates.

Improvements to Reporting Systems. Low immunization rates may be due, at least in part, to
inaccurate information in a health plan's records. Consumers frequently change from one health
plan to another, so health plans often lack complete medical records about their members' medical
histories. Another factor that complicates immunization tracking is the availability of
vaccinations from multiple sources. For example, children may receive some or all of their
immunizations at a local health department. Adult influenza (flu) vaccinations are often available
in public sites such as drug stores and malls. A health plan usually has no way of knowing when a
member receives an immunization from a source outside the provider network unless the member
happens to report this information to the plan.
In some communities, health plans and public health agencies work together to create and
maintain a central registry for immunizations. This registry helps a health plan target the
members who are in need of immunization for reminders and educational information. Providers
and members may also benefit from this information. For example, a provider who is unsure
about the immunization status of a new patient can consult the registry. Members who need a
child's entire record of immunization for school or camp can obtain a copy from the registry.

Health Promotion Programs

Many of the common medical problems experienced by health plan members are avoidable
because these conditions are primarily due to health-related behaviors. However, members are
often unaware of their risks, or they lack the knowledge and confidence to make the needed
changes. Health plans often direct members to health promotion programs to help them recognize
and modify the behaviors that pose health risks. Health promotion programs reduce the risks of
specific physical health problems such as obesity, high blood pressure, high cholesterol, and
weakened bones. In addition, for many members, these initiatives also result in better overall
health as characterized by increased energy levels and positive attitudes.
Meeting the health education needs of a member population can be a complicated task. When
choosing health promotion programs for its members, a health plan should consider the following

Types of behavior to address

Educational approach of the program
Methods of delivering the information
Expected cost and outcomes
Member participation
Provider cooperation

We describe considerations for each of these factors in the following sections.

Types of Behaviors to Address. Variations in the topics of health promotion programs available
to members are countless. The problems most often addressed by health promotion programs
include lack of physical activity, smoking, poor nutrition, abuse of alcohol and drugs, depression,
and anxiety. Figure 4A-5 provides more details on different types of behaviors that are commonly
addressed through health promotion programs.
In many instances, one type of health promotion program can benefit several different aspects of
a member's health. For example, a stress management program that includes relaxation
techniques and coping skills can reduce anxiety levels. Lower anxiety levels can reduce blood
pressure, the incidence of headaches, the use of tobacco, alcohol, and drugs, and the likelihood of
accidental injuries.

Health plans that conduct HRA can use the aggregate results to determine the types of programs
that their members need. Before a health plan develops a new health promotion program, the
company should assess the health education options that are already available from sources such
as employers, hospitals, provider organizations, community service agencies, and companies that
specialize in health education programs. For instance, smoking cessation programs may be
available through the American Cancer Society, the American Lung Association, or the American
Heart Association. Hospitals and provider groups often sponsor educational classes on common
issues such as nutrition and weight management. Programs on prenatal care, well-baby care, and
smoking cessation are often available from commercial vendors. If an appropriate program
already exists, the health plan may choose to refer its members to that program and devote its
own resources to developing programs that focus on unmet needs. In some cases, the educational

services and materials from other entities are available free of charge to a health plan's members;
in other situations, the health plan or the member must purchase or at least share the costs of the
services and materials.
Educational Approach of the Program. Determining the appropriate behaviors to address
through health education is only the first step toward achieving effective health promotion
programs. Health plans must recognize that members who have similar health-related behaviors
vary greatly in terms of their readiness to participate in wellness activities. In a health plan
context, readiness refers to a members' level of knowledge about existing health risks and
problems and the member's ability and willingness to adopt new health-related behaviors.
A health promotion program is more likely to be effective if its content, presentation, and
approach to motivation reflect a member's readiness for health education than if the program is a
"one size fits all" approach. For example, a smoker who has never really thought about the risks
of smoking tobacco will probably not be receptive to a recommendation to join a smoking
cessation program. Likewise, a member who has already sought counseling for alcohol abuse
stands to benefit little from basic education about the risks of alcohol use. Readiness is an
important consideration for self-care and decision support as well as for preventive care.
Health plans often refer individuals to specific health promotion programs based on the data from
their HRAs. An HRA that includes data on readiness enhances the health plan's ability to match a
member with appropriate health promotion programs. In general, low readiness indicates the need
to build awareness of the risks involved and understanding of the need to change behaviors.
Members with moderate readiness have already been contemplating their risks and the needed
changes and are ready to initiate the new behaviors. Reminders about healthy behaviors,
encouragement, and support are essential aspects of programs designed for members with
moderate readiness because those in the early stages of change often have lapses in which they
revert to their former risky behaviors. Members with high readiness have already made
significant progress toward modifying their behaviors, but may need periodic reminders and
positive feedback before the new behaviors become routine for them.
In addition to member readiness, a health plan should also consider other characteristics of the
targeted population when determining the educational approach of a health promotion program.
By tailoring the program according to the language, literacy level, and cultural sensitivities of
members, the health plan can enhance members' understanding and acceptance of the
information. For example, if a significant proportion of the population is Spanish-speaking, the
health plan might provide health promotion literature in Spanish as well as in English. In
addition, different cultures and religions often encompass alternative views of disease and healing
processes. Some ethnic groups believe in treatments and health-related behaviors that are not
recognized by medical science. Members of certain ethnic backgrounds may resist discussing
healthcare issues with a person of the opposite sex. In order to serve these populations, health
plans must be sensitive to and, within the limits of safety, accommodate their health-related
beliefs and behaviors.
Methods of Delivering Educational Information. Health plans can choose from a wide variety
of ways to deliver educational information to members. The options include printed literature,
live instruction (either one-on-one, in small groups, or in large groups), counseling by healthcare
providers during office visits, videotapes, audiotapes, recorded messages that can be accessed by
telephone, interactive computer programs, and Internet websites. No single method of conveying
health education information is best in every situation. In some instances, the health promotion

program may combine delivery methods such as a live instructor who distributes printed material
and plays a videotape for a small group.
Any or all of the following factors may influence the choice of delivery method:
Preferences of members, including cultural influences
Amount and complexity of information. In general, as the amount or complexity of the

information increases, members have a greater need for printed material for future
Literacy level of the population
Need for illustrations or active demonstrations
Members' access to and ability to use information technology, such as video cassette
recorders, computers, or the Internet
Sensitivity of the information. Sensitive issues, such as sexual behavior or mental health,
are often inappropriate for group settings
Costs of the different delivery methods

Regardless of the delivery method, whenever possible, members should have access to a live
person who can answer questions and provide further resources. Insight 4A-3 describes two
different approaches to delivering wellness information to members.
Expected Costs and Outcomes. A health plan must also consider the cost of a particular health
education program and how that cost compares to the likely benefits. Health education is
typically a long-term investment for a health plan. A health plan incurs substantial costs as soon
as the program is implemented, but improvements in members' health and reductions in overall
healthcare service utilization are not generally evident for many years. In many instances,
consumers have changed to another health plan by the time that the benefits of health education
are realized. One notable exception to the typical cost/benefit pattern for health education is
tobacco cessation. Programs that encourage and enable consumers to stop smoking often yield
significant financial and clinical benefits within two years.

Member Participation. To encourage members to participate in health promotion programs, a

health plan must raise members' awareness of their risks and inform them about the plan's
initiatives to reduce those risks. Articles in member newsletters, direct mail notices or telephone
calls to members who may be at risk, and posters in providers' offices and network pharmacies
are some of the ways that health plans can convey messages about programs to reduce health
Convenience is another important consideration for member participation in health promotion
programs. For example, can the member access the program at the workplace or in a location near
the home, such as a community center, hospital, or shopping mall? Lunchtime educational
sessions at the workplace are a popular option for members with hectic schedules.
Many purchasers and members view wellness programs as valuable, but some members require
additional encouragement before they will initiate or even contemplate changes in health-related
behaviors. Members who lack motivation may be more responsive to one-on-one or small group
counseling, particularly if the counselor is a healthcare professional. As another form of
motivation, some health plans offer prizes such as T-shirts, caps, or mugs as incentives for
participation in health promotion activities.
Provider Cooperation. Through education on the effectiveness of counseling, health plans can
encourage providers to contribute to health promotion efforts. The health plan may work with
providers to develop a system in which the PCP assesses a member's needs and then either
counsels the member or directs the member to other resources for instruction. Individual
instruction is time-consuming and typically does not require physician-level training, so
nonphysician clinicians-such as nurses, nurse practitioners, and dieticians-often provide the health
promotion instruction recommended by a member's PCP.
A health plan may target certain risky behaviors as priorities for improvement and then structure
its provider profiling and quality-based incentives to reflect those priorities.
Secondary Prevention
The first step in secondary prevention is screening. Screening involves conducting a medical test
on a member to determine if a health problem is present even though the member has not
experienced any symptoms of that problem. Screening asymptomatic members may lead to
detection of an illness in its early stages. Screening activities may involve specialty care providers
as well as PCPs and the health plan.
Although secondary prevention often results in more utilization immediately following the
screening (as conditions are identified), this type of preventive care typically yields better
outcomes and long-term savings for the plan because of early intervention. For example, the use
of mammograms increases the number of breast biopsies and the number of members treated for
cancer. However, the use of mammograms generally results in earlier detection of breast cancer.
Overall, clinical outcomes for breast cancer detected in Stages I or II are better than outcomes for
Stages III and IV, and breast cancer detected in the later stages typically requires more extensive,
more costly treatment.
Screening can detect a wide variety of physical and mental illnesses in their early stages.
However, health plans and their providers should use screening judiciously because unnecessary
tests waste medical resources as well as the time of the provider and the member. In addition,

many screening tests are uncomfortable for the member. Testing for many diseases is not
appropriate unless a member has risk factors specific to the disease, such as age, gender, overall
health, lifestyle, or a family history of the disease.
The types of screening most commonly performed are

Blood pressure measurement

Assessment of body mass index (based on height and weight)
Cholesterol level
Fecal occult blood test (to detect colorectal cancer)
Pap smear (for women)
Mammogram (for women)

Studies have shown these tests to be both effective in improving outcomes and cost-effective for
the general adult population.16 For adult men, prostate specific antigen (PSA) testing to detect
prostate cancer is also common. However, some controversy exists over the clinical
appropriateness and cost-effectiveness of this test for the general male population.15
Health plans that conduct HRA can use the HRA results to determine which members need
screening beyond the basic tests listed above. Some health plans have clinical practice guidelines
(CPGs) that describe the population that should be screened for a particular disease, the tests that
are appropriate for screening, and the recommended frequency for screening. Recommended
frequencies for screening often depend on the member's age, gender, and health status. For
example, adult men under the age of 45 with risk factors for coronary artery disease (CAD) may
need a cholesterol test every year. For adult men under the age of 45 without CAD risk factors,
less frequent cholesterol testing (e.g., every five years) may be sufficient.
Member Participation
Many of the methods that health plans use to encourage members to participate in screening are
similar to those for improving participation in primary prevention:
Creating awareness of possible health problems and the benefits of early screenings
Making screening convenient (e.g., sponsoring blood pressure and cholesterol screening

at the workplace or mammograms in a mobile mammogram unit that visits local malls or
community centers)
Sending out reminders to at-risk members
Rewarding those who participate in screening with give-aways
Insight 4A-4 describes an incentive program that includes rewards for both primary and
secondary prevention.

Member Participation
Another option for encouraging members to undergo screening is for the health plan to waive any
copayment, deductible, or coinsurance requirements that would normally apply to a healthcare
service so that the member does not incur any out-of-pocket costs. For members who are at risk
for a particular illness, a health plan may offer direct access to screening tests, such as
mammograms or bone density tests to detect osteoporosis, that are performed by specialty care
providers. Under a direct access approach, the member does not need to visit a PCP to obtain a
In this lesson, we have examined how health plans use preventive care programs to decrease the
incidence of avoidable illness and injury, to facilitate early detection and treatment of medical
conditions, and to achieve better health for their plan members. In the next lesson, we describe
how health plans use self-care and decision support programs to improve members' abilities to
assess and manage health problems that do occur.
1. Roberta L. Carefoote, "Preventive Medical Management Techniques," Medical
Management Signature Series, Health Plan Resources, Inc. 1997,
http://www.mcres.com/mcrmm09.htm (15 January 1998).
2. Wendy Tercero, "Health Plan in the Age of Accountability," Journal of AHIMA (April
1999): 22.
3. National Committee for Quality Assurance (NCQA), Accreditation '99 (Washington, DC:
National Committee for Quality Assurance, 1998), 13, 97-99.
4. Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 1998-2000
Standards for Health Care Networks (Oakbrook Terrace, IL: Joint Commission on
Accreditation of Healthcare Organizations, 1998), 103-104.
5. American Accreditation HealthCare Commission/URAC (URAC), Health Network and
Utilization Management Accreditation Standards Interpretive Guide, (Washington, DC:
American Accreditation HealthCare Commission/URAC, 1998), 74

6. Glen P. Mays, Paul K. Halverson, and Arnold D. Kaluzny, "Health Promotion and
Disease Prevention in Health Plan: Examining Strategies for Coverage, Delivery, and
Use," Compensation & Benefits Management (Summer 1999): 38.
7. Craig S. Russell, "Targeting Approaches Affect Health Care Consumer Behavior and
Cost Savings," Managing Employee Health Benefits (Winter 1999): 54-55.
8. "About the BRFSS," Behavioral Risk Factor Surveillance System (4 November 1999),
http://www.cdc.gov/nccdphp/brfss/about.htm (14 January 2000).
9. Craig S. Russell, "Targeting Approaches Affect Health Care Consumer Behavior and
Cost Savings," Managing Employee Health Benefits (Winter 1999), 54.
10. Roberta L. Carefoote, "Preventive Medical Management Techniques," Medical
Management Signature Series, Health Plan Resources, Inc. 1997,
http://www.mcres.com/mcrmm09.htm (15 January 1998).
11. Walter S. Elias, "Choosing and Using a Health Risk Appraisal Instrument," in Best
Practices in Medical Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher,
M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 30-31.
12. Kristin L. Nichol, M.D., et al., "The Effectiveness of Vaccination Against Influenza in
Healthy, Working Adults," New England Journal of Medicine 333, no. 14 (1995): 891.
13. Therese M. Droste, "It Pays to Immunize Adults," Business & Health Special Report:
Adult Immunization (September 1998): 8.
14. Ed Rabinowitz and Diane Targovnik, "The Silent Disease," Managed Healthcare News
(June 1999): 21.
15. Jill Wechsler, "Health Plan Firms Are Kicking Butts!" Managed Healthcare (April 1998):
16. Mari McQueen, "The New Medical Exam," Money (September 1999): 121-122.
17. Thomas M. Vogt, M.D., et al., "The Medical Care System and Prevention: The Need for
a New Paradigm," HMO Practice 12 (March 1998): 7.

18. Sandy Moretz, "Improving Your HEDIS Results Through Breast Cancer
Screening," Managed Healthcare (October 1998): 34-35.

AHM Medical Management: Self-Care and Decision Support Programs

After completing the lesson Self-Care and Decision Support Programs, you should be able to:
Describe the use of telephone triage services in self-care and decision support programs
Identify some general methods that health plans can use to evaluate the effectiveness of
their preventive care, self-care, and decision support programs
Discuss the use of integration and partnerships to improve preventive care, self-care, and
decision support programs
In the lesson Preventive Care Programs, we described how health plans use preventive care
programs to achieve better overall health for health plan members. In this lesson, we describe the
use of self-care and decision support programs. Self-care programs focus on providing members
with the knowledge and confidence to perform certain aspects of healthcare for themselves.
Decision support programs enable members to (1) decide when and how to seek medical care
from healthcare professionals and (2) participate with providers in decisions about the course of
care. At the end of the lesson, we explore some general strategies that health plans may apply to
all of these programs, including considerations for program evaluation.
Self-Care Programs
Most health plan members experience some type of healthcare problem on a regular, even daily,
basis. In many instances, these medical problems are minor ones-headaches, indigestion, cuts,
scrapes, colds, and muscle aches, for example-that members generally treat without the assistance
of healthcare professionals. However, without appropriate treatment, these conditions may cause
pain or worsen to the point where professional care is necessary. For example, a small cut that is
not kept clean may become infected and require treatment with antibiotics or even surgery. Many
health plans offer self-care education and training to enable members to assess healthcare
problems and, when appropriate, take care of the condition on their own.
Types of Self-Care Programs
Self-care programs typically address common symptoms, illnesses, and injuries that can usually
be safely and effectively treated with readily available methods such as rest, changes in diet,
over-the-counter medications, or applications of heat or cold. Self-care education also helps
members differentiate between minor problems and serious conditions that require treatment by
healthcare professionals. Insight 4B-1 provides an example of self-care instruction that might be
distributed to members. Some self-care initiatives teach members to conduct breast or testicular
self-examinations, skin cancer checks, blood pressure monitoring, and other screening tests.
Health plans often combine self-care programs with preventive care and telephone triage
Some health plans also have self-care programs for members with chronic conditions that require
regular management in order to prevent pain, complications, or hastening of the disease process.
Severe arthritis and diabetes are two examples of common illnesses that need proper daily care by

members in addition to services from providers. This type of self-care is often included in a
health plan's disease management programs.

Another application of self-care education is for members who need ongoing care because they
are recovering from acute illnesses or injuries. Proper self-care for these members can speed
recovery and reduce the likelihood of complications. For example, a member's progress in
recovering from a heart attack depends in great part on how well the member complies with
provider recommendations on medications, diet, and exercise. A self-care program that focuses
on cardiac rehabilitation can enhance the member's understanding of the instructions and
confidence in performing self-care.
Methods of Delivering Self-Care Information
Health plans use a variety of approaches to convey self-care education and training to members.
Common methods include member newsletters, self-care pamphlets and books, recorded

messages that are accessible by telephone, videotapes, information on the health plan's Internet
website, references to other relevant websites, and interactive computer programs.
The criteria for selecting an appropriate medium for conveying self-care information are similar
to those described for health promotion programs. Since the information provides advice on
medical care, all material must be clinically sound according to current standards to promote
proper treatment and to protect the health plan from charges of negligent care. In addition, the
presentation of the material should be understandable by the average layperson.
While health plans often distribute some self-care information to all members, they may wish to
target some members for additional education. The health plan can check claims and encounter
reports to identify members with records of inappropriate utilization of medical care.
Demographic information may also be useful in identifying members with high potential for
experiencing illness or injury and creating programs to address their needs. For example, families
with young children tend to visit providers frequently, many times for health problems that could
be treated by parents if they knew the proper approach. Health plans can send them self-care
information about common children's illnesses and injuries and refer them to telephone triage
lines or Internet websites for additional information. Health plans may also design self-care
information for women, men, teenagers, senior citizens, or other demographic groups. 1
Member Participation
When designing and promoting their self-care programs, health plan medical management
personnel must realize that members vary greatly in terms of their perceptions of need for
healthcare services from providers and their readiness to adopt self-care. Members who visit
providers for seemingly minor problems because they lack the knowledge or self-confidence to
perform self-care are often receptive to self-care instruction. Other members would rather see a
provider because they consider self-care too much trouble or they enjoy the attention they receive
from providers and their staffs. These members may need extensive education and motivation
before they will attempt self-care, and in many cases, the results may not justify the expenditure
of health plan resources.
Decision Support Programs
Decision support services are another approach that health plans use to give members more
control over their own health. Members often seek care that is unlikely to improve their health
because they lack the knowledge to choose the healthcare services that are the most appropriate
for their situations. Health plans can improve member's abilities to make appropriate care
decisions through educational material and advice from healthcare professionals about specific
medical problems. Telephone triage and shared decision making are the most common types of
decision support programs used by health plans.
Telephone Triage Programs
When medical problems occur, many consumers have difficulty judging (1) whether to seek
professional healthcare services and (2) what type of services they should seek. For example, a
member may wonder if a child's sore throat is really a symptom of something more serious, such
as a streptococcus infection (strep throat). When members experience troubling symptoms,
telephone triage programs can help them determine the most appropriate approach to care.

Telephone triage programs are phone-based services with clinical staff who provide information
to sick or injured members to help the members decide if they need to seek care immediately at
an emergency department or urgent care center, call a provider for an appointment, or treat the
condition themselves. When a situation is urgent, the staff can alert the local emergency
department or urgent care center of the member's needs and impending arrival. If self-care is
indicated, the clinician can instruct the member on self-care treatments to relieve symptoms and
hasten recovery. The staff may also be able to authorize referrals for specialty care and expedite
appointments with specialists if the condition warrants specialty care. Figure 4B-1 provides an
example of the health problems that most frequently caused the members of one health plan to
call the plan's telephone triage line.

Telephone triage service is generally available at a toll-free number during hours well beyond
typical PCP office hours. In many cases, telephone triage service is offered 24 hours a day, 7 days
a week, 365 days a year. Plans that have telephone triage in addition to self-care or health
promotion programs may integrate some or all of these services at a central call center.
The clinical staff at telephone triage services are typically nurses or physician's assistants who
have been trained specifically for this type of healthcare service. A physician with relevant
clinical experience and training in managing phone triage lines generally oversees the
development and implementation of the program. The clinical staff are often assisted by

nonclinical personnel who answer calls, obtain nonmedical data (such as health plan membership
information), and route the calls to the clinical staff.
When a member calls with a medical problem, the clinical staff person listens to the caller's
explanation of the problem and then asks a series of questions about the situation to help the
caller determine the seriousness of the problem and the most appropriate course of action. For
risk management purposes, telephone triage clinical staff should not attempt to diagnose or give
medical advice. Training for staff should emphasize that their role is to elicit information about
symptoms and other aspects of the situation and then promptly refer emergencies to an
emergency department or explain treatment options for nonemergency needs.
Clinical staff members use clinical decision support tools to guide them in their questions and
responses to members. These decision support tools range from manual systems with different
patterns of questions based on a member's responses to interactive computer programs that
provide the clinical staff with information and questions suited to the situation. Regardless of the
level of technology used, clinical decision support tools should be evidence-based guidelines that
are developed in a manner similar to that for clinical practice guidelines (CPGs). The use of
scientifically sound decision support tools increases the likelihood of good clinical outcomes and
protects a health plan against charges of negligent care. Even though there may not be a physician
or pharmacist on location, the clinical staff should be able to contact these healthcare personnel
immediately if the decision support tool gives this direction or if a staff member feels that
additional input is indicated. For example, a clinical staff member who suspects that a member's
problem is due to drug interactions may wish to contact a pharmacist.
The clinical staff member documents all information received from and given to the caller,
including the type of care the caller plans to utilize and follow-up activities that the staff should
perform. Typical follow-up actions include
Expediting referrals and appointments with specialists
Relaying relevant information about the call to a member's PCP
Contacting the member and/or the provider from whom the member sought care to gather

outcomes information

Checking back periodically to reassess the situation when a member has decided that

self-care is the appropriate approach

Accurate, complete documentation of calls is critical for quality management. QM activities for
telephone triage typically focus on both the quality of clinical information provided and the
quality of service. For example, how did the information given affect the ultimate outcome of the
medical problem? Was the caller able to speak with a clinical staff member promptly?
Monitoring the reasons for calls to telephone triage services can also be useful to the health plan's
development of health promotion or self-care programs. Suppose that the telephone triage service
receives many calls regarding children with fevers. The health plan may decide to send self-care
information describing the treatment of fever in children and indications for seeking professional
care to members with children.
The full documentation of calls is also necessary for the protection of the health plan in case it is
faced with a legal suit that involves information given out by its telephone triage service.

URAC has an accreditation program specifically for telephone triage and health information
services. This accreditation program's standards address staffing, policies, and procedures for
handling calls, including the use of clinical decision support tools, documentation of calls, followup activities, and quality management.2
Even if a health plan does not seek accreditation from this agency, URAC's standards may be
useful quality guidelines for establishing and operating this type of program.
Delegation of Telephone Triage Services
Health plans often delegate telephone triage activities. Contracting with a delegate typically
allows a health plan to implement telephone triage more quickly than developing its own
program. Since this program is conducted by phone, the delegate does not need to be in the same
geographic area as a plan's members, so many telephone triage companies operate on a regional
basis and serve multiple health plans. As a result, health plans have many potential delegates to
choose from.
When a health plan delegates telephone triage, the health plan must confirm that the delegate
Understands the health plan's medical policy and is prepared to provide triage

information consistent with this policy

Employs qualified, well-trained clinical personnel

Uses evidence-based clinical decision support tools
Has an effective system for rapid feedback to PCPs and the health plan on a case-by-case

basis for emergencies

Benefits of Telephone Triage Programs
Telephone triage programs offer benefits for plan members, providers, and the health plan itself.
Members typically view telephone triage as a convenient, no-cost way to obtain healthcare
information. Receiving information from a healthcare professional can relieve anxiety for
members who have a condition that is beyond their knowledge or confidence level. Members who
choose to perform self-care not only obtain treatment immediately, they also avoid the cost and
inconvenience of a visit to a provider. In actual emergencies, the triage staff can calm callers and
help them take appropriate actions until they can access care from a provider.
Providers may appreciate the fact that telephone triage services address members' health concerns
immediately and help them determine the appropriate level of care. Triage services also save
providers after-hours time that would otherwise be spent taking calls from members who are
uncertain about a medical problem.
Telephone triage programs may be quite effective in reducing unnecessary utilization of medical
resources, especially costly emergency services.3 However, a health plan must structure its
telephone triage program so that quality and continuity of care and member satisfaction are not
compromised for the sake of more appropriate utilization.
Shared Decision Making
Consumers' access to healthcare information has increased markedly over the past two decades.
As a result, consumers have become more knowledgeable about medical issues and more

interested in participating in decisions about their own care than in the past. To accommodate
members' wishes to be involved in healthcare decisions, many health plans offer programs that
facilitate shared decision making. In a shared decision-making program, a provider and a
member discuss care options and the provider's recommendations, but the ultimate decision about
care is up to the member. By educating members about their care options and encouraging them
to participate in decisions when possible, health plans hope to improve members' satisfaction with
clinical outcomes and with the health plan as a whole.
Shared decision making is not applicable to all medical situations. For many illnesses and
injuries, one approach to care is clearly superior in terms of safety and effectiveness. A shared
decision-making approach is appropriate when there are multiple approaches that are generally
accepted as valid by the medical community and none of the approaches is best for every
situation. For example, in many cases of breast cancer, lumpectomy and mastectomy are both
viable options and the choice of the surgical approach depends on the member's preferences.
Other conditions that may be appropriate for shared decision making include low back pain,
benign prostatic hypertrophy, prostate cancer, infertility, and menopausal and post-menopausal
When informed about their options and given the opportunity to weigh the risks and benefits,
many members select a relatively conservative approach to care. For example, they may elect to
wait and see how their symptoms change rather than undergoing a diagnostic test immediately, or
opt for a medical treatment rather than surgery. In many instances, the interventions that members
choose are less costly for the health plan than are the other care options that providers might have
Health plans should exercise caution with shared decision-making programs to support the quality
of care and avoid the perception that they are simply trying to steer members toward less
expensive approaches to care. A shared decision-making program must present a full range of
treatment options (including no treatment) and the likely outcomes associated with those
treatments in an unbiased manner.
NCQA, URAC, and JCAHO all have standards in support of members' rights to participate in
healthcare decisions. 4
JCAHO standards outline a variety of elements that should be explained to members, such as the
right to be involved in all aspects of care including decisions about life-sustaining treatments or
participation in clinical trials or investigational studies.5
Approaches to Education for Shared Decision Making
By checking HRA results, claims, and encounter reports, a health plan can identify members
whose conditions and associated care options are suited to shared decision making. In order to
participate in healthcare decisions, members need complete, current information about their
conditions, their options for diagnosis and treatment, and the likely outcomes of the different
approaches. Education for shared decision making may come in one or more of the following
Printed material
Personal or group counseling from providers or other healthcare educators
Support groups, either local or on the Internet

Audiotapes or phone-accessible audio recordings
Internet websites
Interactive computer programs

Videotapes and interactive computer programs are particularly useful for explaining how a test or
treatment is performed. The approach to education for shared decision making should always
include access to healthcare personnel who can answer questions and address specific concerns.
Some programs for shared decision-making education include an assessment of a member's
knowledge to ensure that the member has a good understanding of the relevant issues.
Verification of member knowledge about care options also protects providers and health plans
against charges of malpractice.
When deciding which specific shared decision-making programs to offer, a health plan may
examine claims and encounter reports and then focus its resources on diagnostic and therapeutic
procedures that appear to be overused, based on current CPGs. For example, suppose that the
frequency of surgery for low back pain is significantly higher than national or regional rates for
that procedure and diagnosis. The reason may be that members are not aware of other treatment
options and the possible advantages of the other options over surgery. Information about many
conditions and care options is already available from providers, medical professional
associations, and community agencies such as the American Cancer Society. Before developing
new programs for education about care options, health plans should evaluate existing resources
and use its own resources to meet needs that are not already addressed.
Another way that a health plan can help a member understand care options is to provide a
checklist of questions as a guide for talking to providers or conducting other research. Figure 4B2 lists questions to help a member understand and choose among different treatment options.

Member Participation
The approach to education for shared decision making should reflect the same considerations that
we presented for health promotion programs. Readiness to participate in care decisions is a
critical issue. Although many members welcome the opportunity for more control over their own
health, others are extremely uncomfortable about making healthcare decisions and prefer to
follow provider recommendations. Members may become frightened or angry if pushed beyond
their level of confidence about healthcare, so health plans must be careful to let members
determine how involved they want to be in care decisions.
Provider Cooperation
Many providers are accustomed to making decisions about healthcare with limited input from
members, so they may be unfamiliar with or even resistant to the shared decision-making process.
By showing evidence that many members want more control over their own health and involving
providers in the development of shared decision-making programs, the health plan can encourage
provider cooperation.
Evaluation of Preventive Care, Self-Care, and Decision Support Programs
The evaluation of a preventive care, self-care, or decision support program is a complex process
that considers many different variables. One important basis for program evaluation is progress
toward specific goals. For each type of program, health plans typically identify areas for
improvement and establish goals that reflect the nature of the proposed improvement, the amount
of change projected, and the timeframe for the change. Program goals often specify a subset of
the member population. For example, a health plan's goals for a 12-month period might include
the following objectives:
10 percent increase in the proportion of members over the age of 65 who have received

influenza vaccinations

8 percent increase in participation in fitness programs by members who are at least 20

percent overweight
10 percent decrease in inappropriate utilization of emergency services
7 percent increase in the proportion of women over the age of 50 who receive a

However, progress toward goals is not a sufficient basis for determining the overall worth of a
program. Health plans also consider other effects of the program such as changes in

Clinical outcomes
Member and purchaser satisfaction
Results on accreditation evaluations, HEDIS scores, and report card ratings
Relationships with providers
Appropriate and inappropriate utilization
Financial outcomes (i.e., the cost of the program compared to cost savings from the

Ideally, these types of programs will improve clinical outcomes, member and purchaser
satisfaction, quality ratings from external bodies, and relationships with providers. Providers
often play a critical role in the success of a health plan's preventive care, self-care, and decision

support programs. A provider's recommendation that a member participate in one of these

programs greatly increases the likelihood that the member will actually do so. Additionally, input
from providers helps to maintain the scientific soundness, timeliness, and suitability of these
programs' educational materials, CPGs, clinical decision support tools, and self-care information.
On the other hand, a health plan must avoid the perception that it is infringing on providers'
autonomy or interfering in their relationships with members. For example, if a telephone triage
program refers a member directly to a specialist without informing the member's PCP in a timely
manner, the PCP may feel that the health plan is interfering with the care of that member.
While these programs should decrease the incidence of members' seeking inappropriate levels of
care, the health plan should not be surprised at increases in utilization of lower-intensity services,
such as more members receiving immunizations and screening or members making appointments
to see a PCP rather than seeking care in the emergency department.
When considering the costs and benefits associated with preventive care, self-care, and decision
support programs, the health plan must take into account both current and future costs and
benefits. In many instances, health plans have difficulty relating cost savings and health benefits
to a particular program, especially if the health plan has all three types of programs for a
particular medical condition. Another obstacle to demonstrating medical effectiveness and costeffectiveness is that, for many of these programs, the results may not be apparent for at least a
year and often longer. In addition, other factors may influence the results of an initiative. For
example, a local hospital's program to encourage women to obtain mammograms may inflate the
results reported by a health plan's mammogram awareness program.
Role of Information Management in Program Evaluation
Effective information management is necessary for a health plan to measure the benefits and costs
of a preventive care, self-care, or decision support program. A health plan's information systems
must be able to accurately collect, analyze, and report data on

The costs of providing the program to the health plan's members

Clinical research evidence supporting widespread implementation of the intervention
The level of member participation in the program
Changes in the utilization of other services because of the program
Short-term and long-term cost savings that result from the program
Clinical outcomes and member satisfaction ratings for the program
Provider satisfaction ratings
Quality management initiatives and periodic measurements for the program

In addition, the information system must link the different measures in order for the health plan to
determine the overall value of a program. For example, does increased participation in a self-care
program decrease inappropriate utilization of providers' services? How much money is saved for
each dollar invested in an immunization program? Do cost savings come at the expense of
clinical outcomes or member satisfaction?
Additional Strategies for Preventive Care, Self-Care, and Decision Support Programs
The final section of this lesson provides more detail on two of the strategic approaches that health
plans may use when developing and implementing preventive care, self-care, and decision

support programs. These strategies are (1) integration of the programs and (2) partnerships with
other entities.
Integration of Programs
While some health plans have separate programs for preventive care, self-care, and decision
support, other health plans have coordinated and integrated their initiatives for a particular health
issue to create a care continuum that encompasses a wide variety of activities. Such a continuum
may also be linked to a health plan's disease management programs. In many cases, the
development and delivery of integrated programs are driven by member needs identified through
HRA. An integrated approach may be targeted to a specific medical condition, such as CAD, or
to a broader concern, such as health issues for a particular demographic group. Insight 4B-2
provides an example of an integrated program of prevention, self-care, and decision support
activities for peri-menopausal and menopausal women.

Partnerships with Other Entities

Health plans should also explore the possibility of partnering with other entities that have a stake
in health plan member health, such as employers, hospitals and other providers, state and local
health departments, health-oriented community service organizations, and other health plans, for
preventive care, self-care, and decision support programs. Insight 4B-3 describes a cooperative
effort for prevention between a health plan and the American Lung Association. Other less
obvious choices for partners are businesses that provide goods or services that may contribute to
healthy lifestyles (e.g., food manufacturers, restaurants, fitness centers), media that are interested
in public service opportunities, and churches whose members have unmet health-related needs.
Such partnerships often result in more effective programs with a greater level of participation
than a health plan could achieve on its own. Partnering also allows a health plan to share the
financial costs of a program.

Suppose that a health plan decides to partner with an employer on a fitness program. The health
plan and the employer can pool their knowledge to select the type of program and the manner of
presentation that will best address unmet employee health needs. The health plan typically
develops the program according to the risks and other characteristics of the employees, and the
employer can post notices and distribute reminders about the program. In some instances, the
employer may provide a convenient location for the fitness activities, encourage employee
participation through incentives, or subsidize the cost of the program. Increased participation in
the program may improve the overall health of the employees, and healthy employees are more
productive and miss less time away from work due to illness than employees who are less
healthy. Employer sponsorship of preventive care programs also conveys the message that the
employer cares about the well-being of its employees.
Provider partners can be invaluable for the development and implementation of preventive care,
self-care, and decision support programs. As hands-on caregivers, providers may be in the best
position to know the healthcare needs of individual members and the population as a whole.
Further, providers often have the opportunity to address preventive issues when a member visits
for another reason. For example, when a teenager comes in for a pre-camp or pre-sports physical,
a PCP can conduct an HRA that looks at issues such as sexual activity, drug and alcohol use, seat
belt use, and depression.7

Hospitals are likely partners for these programs because many of them already have experience
with preventive care, self-care, and decision support. Hospitals have traditionally been involved
in primary and secondary prevention programs, and some hospitals manage their own telephone
triage services or conduct self-care classes such as first aid.8
In addition, members are often receptive to hospital-sponsored programs because they typically
know and respect the hospitals in their communities.
A health plan may also decide to share its preventive care, self-care, or decision support
experience with other health plans for the benefit of an entire population. Programs such as the
America's Health Insurance Plans (AHIP) Innovations in Health Plans identify and publicize
health plans' best practices for medical management. In some locations, health plans are
collaborating on preventive care programs to (1) help providers and members understand and
remember prevention guidelines and (2) improve the health of the community for the benefit of
all health plans.
By enhancing the care that health plan members give to themselves, health plans can improve the
overall quality of care their plan members receive and decrease unnecessary utilization of care
from healthcare professionals. Self-care and decision support programs can also improve member
and provider satisfaction. Fewer visits to providers mean more time and money saved by
members and more control over their own healthcare. Providers are generally supportive of selfcare programs as well. Improved patient education not only contributes to better health outcomes,
it also leads to fewer visits for minor problems. Providers can focus on more serious health
problems and improve the quality of care they deliver to their patients.
1. Craig S. Russell, "Targeting Approaches Affect Health Care Consumer Behavior and
Cost Savings," Managing Employee Health Benefits (Winter 1999): 54-55.
2. American Accreditation HealthCare Commission/URAC (URAC), Health Call Center
Standards (Washington, DC: American Accreditation HealthCare Commission/URAC,
3. Robert Mayo, "Education Can Increase Loyalty and Decrease Costs," Managed
Healthcare (August 1999): 28.
4. National Committee for Quality Assurance (NCQA), Accreditation '99 (Washington, DC:
National Committee for Quality Assurance, 1998), 85.
5. American Accreditation HealthCare Commission/URAC (URAC), Health Network and
Utilization Management Accreditation Standards Interpretive Guide, (Washington, DC:
American Accreditation HealthCare Commission/URAC, 1998), 72.
6. Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 1998-2000
Standards for Health Care Networks (Oakbrook Terrace, IL: Joint Commission on
Accreditation of Healthcare Organizations, 1998), 72-73, 76-77, 94-95.

7. "Best Practices in Women's Health: Hormone Replacement and Mid-Life Issues,"

Healthplan (May/June 1999): 56-60.
8. Ibid., 336.

AHM Medical Management: Utilization Review

After completing the lesson Utilization Review, you should be able to:
Discuss some of the key issues health plans must address to develop and maintain
effective utilization review programs
Explain the importance of medical necessity, medical appropriateness, and utilization
Describe the role of authorizations and member appeals in the utilization review process
Identify some of the ways that health plans evaluate the results of utilization review
Few Americans have unlimited access to healthcare-primarily because of the high cost-yet when
they need it, consumers want the very best care that money can buy. In addition, members and
providers often equate the "best" with the "most" or "the most expensive," even though studies
have shown that such an approach does not always lead to appropriate or even safe care.
One way that health plans seek to offer more affordable coverage is by excluding services and
supplies that are not medically necessary and appropriate. When making coverage decisions
based on the appropriate use of medical resources, health plans are sometimes confronted by the
demanding and conflicting expectations of members, employers, providers, legislators, regulators,
the courts, consumer advocates, and the media. Broadly speaking, health plans make these
decisions by performing utilization review (UR).
In this lesson, we begin with a discussion of the purpose and function of utilization review, the
process, and the types of services included in UR. Then we take a closer look at the criteria health
plans use to determine medical necessity and appropriateness, as well as the role of authorization
systems in UR. Next, we examine how the appeals process provides members with a means to
dispute UR decisions. We also address the influence of accreditation requirements and
government regulations. We end the lesson with a look at several strategic issues associated with
UR. Although our discussion addresses UR in terms of a health plan's activities, keep in mind that
some health plans delegate some or all UR activities to external organizations, such as utilization
review organizations (UROs) or provider organizations.
The Purpose of Utilization Review
Since the 1970s, when Dartmouth Medical School professor John E. Wennberg and his
colleagues began conducting studies to monitor healthcare delivery costs, researchers have
uncovered significant variations in the practice of medicine. Practice variations have been
observed between different regions of the country, different locations within a region, and even
different physicians practicing in the same area.
For example, in a 1995 Harvard Medical School study of Medicare heart-attack patients, the
likelihood of undergoing coronary angiography was 50 percent higher for hospitalized patients in
Texas than for a comparable group in New York, while the New York patients were more likely
to receive beta-blocker therapy. Over the following two-year period, a greater number of the

Texas patients suffered from angina or died. The researchers suggested that these outcomes may
have been related to the combination of invasive, possibly dangerous angiograms and the absence
of life-extending beta-blocker therapy for the Texas patients. 1
A primary reason for practice variations is the lack of scientific evidence that would give
healthcare practitioners the information they need to determine optimum treatments. According to
Wennberg, differences often arise when there is a choice between an aggressive surgical
intervention and a more conservative medical approach. Wennberg goes on to say that
"controversies arise because the natural history of the untreated or conservatively treated case is
poorly understood and well-designed clinical trials are notably absent."2
The utilization review process provides a way for health plans to determine whether care
recommendations made by providers are (1) covered under the benefit plan and (2) medically
necessary and appropriate. It is important to note, however, that UR does not actually recommend
A primary goal of utilization review is to address practice variations by applying uniform
standards and guidelines, supported by evidence-based medicine, when available, or by
community standards of practice in the absence of evidence-based medicine. Another important
goal of UR is to support cost-effective care, based on the health plan's medical policy, the
contract with the purchaser, and the member's medical needs.
Health plans also maintain UR programs to comply with regulatory requirements. Early
regulations often directed HMOs to implement procedures for compiling, evaluating, and
reporting utilization of healthcare services. These requirements, which usually subjected a health
plan's UR procedures to review and approval by the state insurance and/or health department,
continue to apply today. In addition, with the rise of managed healthcare, UR regulations now
include features intended to protect consumers from UR practices that might inappropriately limit
access to medical care. Insight 5A-1 provides a brief history of the development of utilization
review in the United States.

The Utilization Review process

When determining if benefits are payable, health plans perform two basic types of reviews:
administrative and medical. An administrative review addresses nonclinical aspects of coverage
by comparing the applicable contract provision to the proposed medical care. For example, the
service in question might be specifically excluded or might not appear in the contract's list of
covered services and supplies. This type of review can be conducted by a staff member who is not
a medical professional.
A medical review, on the other hand, is one that requires an evaluation based on medical need.
For example, to determine if a therapeutic procedure meets the contract's requirement that
services be medically necessary and appropriate, a healthcare professional must review the
proposed course of treatment and determine if it is consistent with the health plan's medical
policy and utilization guidelines.

A health plans decisions regarding coverage and medical appropriateness are typically
incorporated into utilization guidelines, which indicate standard approaches to care for many
common, uncomplicated healthcare services. Utilization guidelines often take the form of
computer-based screening tools or criteria sets that are structured as a series of questions arranged
in a decision-tree format. A UR nurse proceeds through a set of questions to determine if a
proposed course of care is similar to what a healthcare professional would normally expect under
the given circumstances. Utilization guidelines also indicate when the nurse should refer a
decision to a medical director or other physician reviewer due to unique circumstances.
UR can be performed prospectively, concurrently, or retrospectively. A prospective review
evaluates a proposed plan for medical care before care is delivered, a concurrent review occurs
while the care is in progress, and a retrospective review takes place after the care has been
completed. When payment for a course of medical care is approved, the care is said to be
authorized or, in the case of prospective review, preauthorized or precertified.
Generally, health plans prefer to perform UR on a prospective basis, when feasible, so that the
various parties-the member, provider, and health plan-can reach an understanding about the
treatment for a given medical condition before it begins. To illustrate, let's consider a proposed
inpatient hospital admission. By requiring advance notice of the admission, the health plan can
consider a full range of healthcare service alternatives for the member, beginning with a
determination as to whether the hospital is the most appropriate setting. Using established
standards of care for specific medical conditions, a prospective review might lead to the
determination that the proposed care could be performed in an ambulatory surgical center or in a
physician's office. If an inpatient admission is appropriate, UR staff can use established standards
of care to determine a maximum length of stay and can begin the process of discharge planning.
In some health plans, UR is also used to identify as early as possible those members who are
likely to benefit from other medical management initiatives, such as case management or disease
management. For instance, as a result of a request for precertification of a total hip replacement, a
health plan might assign a case manager who would suggest a care plan that includes preoperative
physical therapy and postoperative rehabilitation. We discuss case management in greater detail
in the lesson Case Management.
After the hospital admission, the health plan's UR activities switch from prospective to concurrent
review, which entails: (1) gathering information about the member's progress, (2) tracking the
length of stay, and (3) continuing the discharge planning process. A UR nurse performs these
activities by working with the physician, hospital staff, the member, and the member's family;
visiting the hospital; and/or communicating by telephone or other forms of telecommunication as
needed. At some point during concurrent review, it may be determined that acute inpatient care is
no longer required. In this case, the member might be moved to a skilled nursing unit within the
hospital, transferred to a skilled nursing facility, or discharged from the hospital to receive
outpatient follow-up care.
In most cases, the UR nurse documents the clinical details of the patient's condition and care to
provide a case history, which can be used in consultations with physician reviewers or possibly in
appeals or retrospective utilization review.
Under retrospective review, decisions on the authorization of payment for services are made after
the services have been rendered. This approach limits the number of options available to plan
members because the plan cannot direct the plan member to a more appropriate setting or type of

care. An even greater problem arises when retrospective review results in the denial of payment
because the completed services fail to meet coverage requirements.
One way that health plans reduce the number of retrospective denials of payment is by
performing retrospective reviews on a large number of cases, collecting data on these cases, then
identifying and addressing questionable utilization and outcome patterns. For example, a
retrospective review of hospital admissions might reveal that certain surgeons unnecessarily
admit patients the day before scheduled surgery for preoperative care that, in many cases, could
have been provided on an outpatient basis or in the hospital on the day of the surgery. By
identifying these surgeons and discussing utilization criteria with them, the health plan can
prevent inappropriate early admissions.
The Focus of Utilization Review
Because it would be an overwhelming task to review every course of care for every member in or
out of the hospital, many health plans concentrate on healthcare services that produce the best
return on their UR investment. For example, UR programs often consider services that are

Utilized differently by different providers
Not well-supported by scientific evidence
Known to produce variable outcomes
New or investigational
Known to pose potential medical risks for members
Often performed for cosmetic reasons

Figure 5A-1 shows some healthcare services that health plans might identify for review using the
above criteria. Lists like the one in Figure 5A-1 continually evolve as medical procedures,
technologies, and medications are developed or gain popularity.
Ultimately, for UR to be effective, each health plan must carefully assess its own situation and
then determine which types of UR activities would be most effective. For example, a health plan
whose providers rarely propose unnecessary hospital admissions might determine that
precertifying every hospital admission is no longer necessary. This health plan might choose to
focus more of its UR resources on drug utilization review or on outpatient services such as
diagnostic tests.

A health plan might also choose to replace or supplement traditional UR methods with other
initiatives for managing the appropriateness and costs of medical care. Insight 5A-2 describes
how one health plan reduced its use of precertification. Other health plans have reported that they
also have greatly reduced the number of services for which they require precertification of
medical necessity. 4

Appropriate Treatment and Use of Healthcare Resources

Recognizing that some services are more expensive, are less effective, or pose unnecessary health
risks, health plans use appropriateness standards in utilization guidelines to help determine what
should be covered. Recall from The Role of Medical Management in a Health Plan that medically
appropriate services are diagnostic or treatment measures for which the expected health benefits
exceed the expected drawbacks and risks by a margin wide enough to justify the measures.
Utilization guidelines typically indicate standard approaches to care for many common,
uncomplicated healthcare services and often take the form of computer-based screening tools or

criteria sets that are structured as a series of questions arranged in a decision-tree format. A UR
nurse proceeds through a set of questions to determine if a proposed course of care is similar to
what a healthcare professional would normally expect under the given circumstances. Utilization
guidelines also indicate when the nurse should refer a decision to a medical director or other
physician reviewer due to unique circumstances.
In addition to evaluating the appropriateness of particular medical treatments, utilization review
evaluates the appropriateness of resources used in conjunction with those treatments. This aspect
of utilization review focuses on determining the appropriateness of the
Level of care needed to treat the condition
Clinical setting in which care is provided
Services and supplies used to treat the condition

Although health plans emphasize primary care, some conditions require referral to medical
A specialty referral is a decision to divide a patient's care among one or more medical specialties.
Typically, a specialty referral is made by a primary care provider (PCP) or by another specialist
who determines the need for additional diagnostic or therapeutic services. Later in this lesson, we
look at different approaches that health plans use to handle specialty referrals.
When making decisions about the appropriate clinical setting, UR personnel rely upon utilization
guidelines as well as the member's unique medical needs and personal circumstances, such as the
ability of family and friends to provide support. For example, the most appropriate clinical setting
for a low-birth-weight infant might begin with a neonatal intensive care unit (NICU). As the
infant's condition improves, the setting might switch to a neonatal transitional care unit and
eventually home healthcare.
A resource some health plans use to review surgery and certain nonsurgical interventions is a site
appropriateness listing, which indicates the most appropriate settings for common procedures.
After reviewing this listing, a UR nurse might be able to point out to a surgeon that network
physicians have performed a proposed surgical procedure more than 90 percent of the time on an
outpatient basis. The surgeon might respond by providing additional information that justifies
inpatient surgery or may decide that the surgery can, in fact, be performed safely and effectively
in an outpatient setting. 5
As we have seen, health plans rely on evidence-based medicine and community standards of
practice to develop utilization guidelines that help determine the healthcare services and supplies
that are necessary and appropriate. By reviewing medical outcomes data, health plans can
determine if a particular service most often produces the best results. However, because clinical
studies have not been performed for many conditions and procedures, health plans balance
evidence-based criteria with experience-based criteria. Experience-based criteria recognize
community standards of practice and the overall experience of medical directors, UR nurses,
physician reviewers, and the provider's first-hand experience and knowledge of the patient to
identify the most effective treatment.

Developing and Maintaining Utilization Guidelines

A health plan's utilization guidelines are developed and maintained by licensed physicians and
other healthcare professionals who are employees of the health plan. Also, UR programs often
use "off-the-shelf" guidelines developed by nationally recognized vendors such as InterQual,
Value Health Systems, and Milliman & Robertson, Inc. (M & R Healthcare Management
Health plans collect and analyze internal data-such as approvals and denials of payment, and
complaints related to specific services-which could indicate a need to update utilization
guidelines. In addition, as we saw in The Role of Medical Management in a Health Plan, health
plans rely on committees to track trends in medical practice. These committees consult a variety
of sources such as peer advisors, network providers, and online services that monitor and review
medical literature. Usually, when the need for evaluation is identified, a health plan medical
management committee reviews and, if necessary, updates the health plan's medical policy. Then
the departments responsible for maintaining the health plan's contract, claims administration
systems, and utilization guidelines make the applicable adjustments to reflect the company's
Clinical Practice Guidelines and Utilization Guidelines
As we noted in the lesson Clinical Practice Management, clinical practice guidelines (CPGs) are
intended to aid providers in making decisions about the most appropriate course of care for
individual patients. Many health plans make available CPGs that were developed by the provider
community; other health plans distribute CPGs that they themselves have developed. Although it
is important for CPGs to be aligned with conditions for coverage in the contract, CPGs are not
benefit payment standards.
CPGs are used primarily as an educational tool for providers, but they can also help a health plan
meet utilization goals. For example, consider a health plan that has identified a particular elective
surgical procedure prone to overutilization. The health plan could send network providers the
CPGs for the medical condition being treated by the overutilized procedure, then reinforce this
information through the UR process. Some health plans have found that a combination of
education and UR can lead to more appropriate utilization of services.
Authorization Systems
To see that utilization guidelines are consistently applied, UR programs rely on authorization
systems. An authorization system can be described as a set of policies and procedures that gives
specified individuals the authority to make certain choices or decisions about benefit payments.
When we speak of authorization here, we generally refer to the authority to make a payment
decision prior to or at the time care is rendered, rather than after the fact. In the case of medical
emergencies, however, the authorization process by necessity occurs within a reasonable time
after treatment in an emergency department.
For some types of care, authorization of payment is not needed. For example, a member can
initiate a visit to a PCP without contacting the health plan first. Also, some health plans allow
PCPs to authorize payment for certain types of care, such as a specialist visit or a hospital
admission, without the need for health plan approval. In addition, as we saw earlier, some health

plans have redesigned their authorization systems so that physicians are able to approve most
types of care without health plan approval
A health plan's approach to authorization is largely determined by its philosophy concerning the
appropriate degree of health plan control of utilization. Several other factors also influence a
health plan's approach to authorizations. For example, if a health plan contracts with a large
medical group on a capitated basis, then the health plan may be comfortable delegating to the
medical group most of the responsibility for developing and implementing authorization
Health plans develop authorization protocols to clarify responsibilities and effectively monitor
and manage utilization of healthcare. Invariably, UR nurses may issue approvals based on
medical necessity criteria, but must refer potential nonauthorization decisions to physician
reviewers; only physicians can make nonauthorization decisions based on medical necessity.
Under certain circumstances, the authority to make coverage decisions can reside with an internal
In the past, most health plan authorizations were handled through the mail or over the telephone.
Today, however, competitive pressures and consumer demand have prompted many health plans
to modify their authorization processes. In order to make access to care more convenient for
members, some health plans have

Streamlined authorization processes

Implemented special referral protocols for unique situations
Given PCPs the authority to authorize referrals and/or certain healthcare services
Designed products that permit self-referrals by members6

Streamlined Authorization Processes

Besides traditional paper authorizations, health plans now offer many more options, such as
automated telephone voice response systems, fax, computer-based software packages, and
Internet-based programs in which the provider visits the health plan's home page and enters an
identification code and password to transmit requests for authorization. Some computer-based
authorization programs contain built-in decision criteria that can be used to authorize common
procedures without the need for a UR staff person to review the request.
Unique Specialty Referral Protocols
Some health plans have determined that for certain types of medical conditions, a specialist,
rather than a general practitioner, is in a better position to coordinate care for the member. Under
these circumstances, the health plan allows the specialist to act as the PCP. For example, in the
case of a member suffering from a serious heart ailment, a cardiologist, rather than a family
physician, might coordinate care. Similarly, a health plan might determine that a certain type of
specialist, such as an OB/GYN, can also function effectively in the role of PCP. These plans
allow female members direct access to both a general practitioner and an OB/GYN. Some states
have mandated unique specialty referral protocols such as those described in this paragraph
PCP Authorization
Generally, when health plans allow PCPs to authorize coverage, they develop strategies to
improve provider communications and education to help manage utilization. A health plan that is

confident in the ability of its providers to recommend appropriate care is more likely to
implement physician authorizations and reduce or eliminate health plan review.
Increasingly, health plans are offering products that allow members to self-refer to a specialist for
any medical condition that the specialist is qualified to treat. A direct access product requires the
member to select a PCP, but the member can visit any provider in the network without a referral
from the PCP or the health plan. Similarly, an open access product allows the member to visit
any network specialist without a referral from a PCP or the health plan; however, unlike direct
access, an open access product does not require the member to select a PCP. Some health plans
have designed products that charge a higher copayment for self-referrals than for referrals
authorized by a PCP or the health plan. Several states require health plans to allow direct access
to certain types of providers, such as chiropractors, dermatologists, and podiatrists.
There are many reasons why a health plan might not authorize payment for a particular healthcare
service. In some instances, the determination is straightforward; in others, the decision can
become quite involved. For example, a request for surgery to straighten nose cartilage might at
first glance appear to be cosmetic surgery, an excluded service in virtually all contracts. However,
the surgeon may respond to the health plan's nonauthorization decision by providing additional
information stating that the primary purpose for the surgery is to correct a condition that makes it
difficult for the member, an asthmatic, to breathe. Typically, the cosmetic surgery exclusion does
not apply when the surgery is to treat a condition that impairs a bodily function. In this situation,
the UR staff would carefully examine the proposed procedure to determine if, in fact, the surgery
is medically necessary to treat the member's respiratory condition or if the primary purpose is to
change the person's appearance.
As the preceding example illustrates, a health plan might initially determine not to authorize
payment for a procedure but later revise its decision when the provider communicates additional
information. Figure 5A-2 lists several examples of why a health plan might determine not to
authorize payment for a hospital inpatient stay.
Decisions not to authorize payment of benefits are communicated to the patient and provider
along with information about the right to appeal. Such decisions can result in several types of
liability for health plans. For example, a plan member can file a lawsuit claiming that the contract
or a marketing piece, such as a member newsletter, requires the health plan to pay benefits for the
services in question. To reduce the risk of this type of lawsuit, called breach of contract, a health
plan must develop language that accurately conveys the plan's provisions for paying benefits.
A member might also file a lawsuit claiming that the health plan exhibited negligence in the
design of its utilization review program that resulted in a decision that was not in the best interest
of the plan member. To reduce the risk of this type of lawsuit, a health plan must maintain and
follow medical policy and UR/appeals processes that are based on recognized outcomes data and
community standards of practice. A health plan must also see that all authorization decisions are
made by personnel who have appropriate training and experience. 8
Although health plans must do everything reasonably possible to limit the risk of liability that
might result from authorization decisions, they must also be careful not to allow a fear of lawsuits

to lead to defensive practice of utilization review. In other words, just as healthcare professionals
can become overly conservative in the practice of medicine to avoid malpractice lawsuits, health
plans can become overly conservative in the design and administration of their UR programs to
avoid lawsuits.
Member Appeals
Regardless of how well designed the UR program is, there are times when certain decisions lead
to disputes. To address disagreements that result from utilization review, as well as other types of
complaints, health plans develop and administer complaint resolution procedures for their
providers and members. The term complaint resolution procedures (CRPs) refers to the entire
process available to members and providers for resolving disputes with the health plan and
includes informal complaints as well as formal appeals. In Network Management in Health Plans,
we discuss CRPs available to providers; these procedures address, among other things,
complaints about the health plan's UR decisions. In the following paragraphs, we discuss CRPs
available to members.
Health plans maintain complaint resolution procedures for a number of reasons, including
statutory requirements. In addition, the CRP process

Helps build trust with members

Reduces the likelihood of errors in decision making
Reduces the likelihood of costly lawsuits
Reduces the likelihood of negative publicity
Provides information to analyze trends and improve processes

Members are encouraged to first attempt to resolve a problem by means of an informal

complaint through a telephone call or letter to the health plan. An informal complaint can pertain
to virtually anything concerning the delivery, financing, or administration of healthcare. For
instance, a member might complain about long wait times in a provider's office, the care provided
by a network physician, a bill from a provider that the member believes the health plan is
obligated to pay, a confusing explanation of benefits, or problems obtaining an identification
If the informal complaint is not resolved to the member's satisfaction, the member has the right to
file a formal appeal. A formal appeal allows a member to have a dispute resolved by someone in
the health plan other than the person who made the decision or performed the service that led to
the complaint. Formal appeals follow an established process that typically allows for at least two
levels of appeal within specified timeframes. The process steps are described in the member's
certificate of coverage or are referenced in the certificate of coverage and described in a separate
document available to members upon request. As we saw in Healthcare Managment: An
Introduction, many health plans also issue to their members a philosophy of care, code of
conduct, or statement of member rights and responsibilities that often includes a statement about
the member's right to file an appeal.
States often enumerate specific appeals standards that apply to health plans. For example, some
states require that appeals of nonauthorizations be reviewed by a specialist in the same or similar
field of medicine as typically treats the condition being reviewed. At a minimum, most states
require health plans to

Obtain state insurance and/or health department approval of appeals processes

Disclose to members their right to appeal
Maintain and make available to the state all records regarding the number and nature of

member appeals

Adhere to specific timeframes for reviewing and responding to appeals

An appeal of a decision that results from administrative review is sometimes called an

administrative appeal, and an appeal that addresses medical issues is sometimes called a medical
appeal. Some health plans distinguish between administrative and medical appeals, assigning
each type of appeal to a different process flow involving different personnel.
The Formal Appeals Process
The formal appeals process can be viewed as an extension of the authorization process, requiring
the health plan to further review its initial decision not to authorize payment of benefits. It is
important for the health plan to closely monitor the appeals process to see that it is consistently
administered and that accurate records are kept. Figure 5A-3 shows a diagram of typical
complaint resolution procedures, beginning with the initial UR decision, proceeding through
internal review (informal complaint and formal appeals), and ending with an independent external
review. It is important to note, however, that most complaints are resolved without proceeding
through the entire process.

Formal Appeal: Level One

A Level One appeal often goes to one of the health plan's medical directors, assuming that the
medical director was not the person who made the initial decision. Members may write a letter or
request a meeting in person to present their case. Members also have the right to name someone
else to represent them in their appeal, provided that they document their agreement that another
person will be acting on their behalf. Such documentation is not required if the representative
accompanies the member in person to an appeal meeting.
Health plans have a specified number of working days to respond to appeals, as stated by
company policy or applicable regulatory requirements. This timeframe typically falls between 20
and 60 days, but is accelerated for certain types of appeals, called expedited appeals, which
require a prompt decision because of the nature of the medical condition. The review period
begins when the appeal arrives at the health plan. Some states give the health plan an additional
number of days (e.g., 10) if the appeal arrives without all the information needed to make a
decision; in this case, the health plan must send notification of the delay to the member.
Typically, the health plan sends a letter communicating its decision to the member and/or
provider involved. If the Level One appeal overturns the original decision, then the health plan
informs the member that it will pay for the service in question. If the Level One appeal upholds
the original decision, then the health plan sends a letter that states the reason for the

nonauthorization, quotes the applicable contract provision that supports the nonauthorization, and
informs the member of additional rights to appeal.
It is important for the health plan to prepare clear, accurate, and consistent communications of its
decisions at all levels of the appeals process. For example, if a decision not to cover a particular
surgical procedure has been upheld on appeal because of the cosmetic surgery exclusion, all
letters upholding similar nonauthorizations should cite the same exclusion. Otherwise, a health
plan's decisions could be viewed in court as inconsistent and perhaps faulty.
Formal Appeal: Level Two
If the Level One appeal upholds the original decision not to authorize, then the member has the
right to appeal to the next level, which is often handled by an appeals committee at the local,
regional, or corporate level, depending on the health plan's organizational structure.
Typically, an appeals committee consists of representatives from various areas within the health
plan who meet regularly to consider most appeals and who also meet as needed to consider
expedited appeals. An appeals committee that handles medical reviews always includes a
physician. To avoid conflict of interest, if the committee's physician member was involved in a
decision that is being appealed, then the physician is replaced by another physician within the
organization. An appeals committee might also include a nurse, an attorney, and representatives
from areas such as customer services and health plan operations. Some appeals committees also
include health plan members.
Prior to the date of the appeals meeting, the committee members receive the files for each appeal.
An appeals file contains information such as the applicable contract provisions; correspondence
from the member, customer services, UR staff, and the provider involved; and any internal
documentation, case history notes, or information such as the health plan's medical policy or the
utilization guidelines that pertain to the care under review. During the deliberation process, the
committee might contact the member or provider for clarification or might consult with a
Under certain circumstances a health plan may allow for an alternative level of appeal in lieu of
the Level Two appeal. For instance, a request to precertify treatment for a life-threatening
condition might go directly to the senior medical director rather than the local or regional appeals
Health plans maintain records of all appeals and track information such as turn-around time for
decisions and the percentage of decisions that overturn the initial determination. An important use
of appeals data is to identify opportunities to improve utilization, such as those listed below:
If the appeals process reveals a large number of emergency department visits for routine

care, the health plan might decide to develop or redistribute a member brochure that
explains the authorization process for emergency department visits.
If the appeals process reveals that a particular provider consistently performs or
recommends a service excluded from the benefit plan, the health plan can supply this
provider with additional training on plan provisions.
If the appeals process reveals that a UR staff member consistently fails to authorize
payment for a particular course of treatment that typically should be covered, the health
plan can give the staff member training.

Independent External Review

An independent external review is a review conducted by a third party that is not affiliated with
the health plan or with a providers' association, is free of conflict of interest, and has no financial
stake in the outcome of the authorization decision. Typically, this step in the appeals process is
made available to members after the completion of the internal appeals process. Health plans
should seek to establish an external review system that is easy for members to use, considers
appeals quickly, and produces fair decisions based on expert medical evaluation and current
medical evidence.
Accrediting agencies, Medicare, and many states have specific requirements and standards
pertaining to independent external reviews, although the standards vary. For instance, in some
states, health plans may be required to offer external reviews for all determinations of medical
necessity, while in other states, health plans may be required to offer external reviews only for
experimental or investigational procedures.
According to a study by the Kaiser Family Foundation, most cases submitted for external review
involve nonauthorizations based on questions of medical necessity and coverage limitations, and
a large number involve disputes over mental health coverage, substance abuse, oncology
treatment, and pain management. This study also reports that about half of the decisions made by
health plans have been upheld by external reviewers. 9
External appeals are often handled by independent review organizations (IROs), companies that
specialize in reviewing healthcare disputes. These companies typically offer a number of different
services to health plans. For example, they can
Offer advisory opinions or consultation services to health plans on utilization review
Mediate disputes between health plans and members and/or physicians
Render binding decisions as the final step in the formal appeals process

When considering an appeal, an IRO receives a file similar to the one described earlier in our
discussion of the appeals committee and might seek clarification or additional information as
needed from the health plan, the member, and/or the provider involved. IROs often employ multidisciplinary review teams capable of handling a broad variety of both administrative and medical
issues. The IRO provides the basis for its decision in a communication it sends to all parties
involved in the dispute.
Accrediting Agencies
Utilization review activities are influenced by regulatory authorities and, if applicable, healthcare
accrediting agencies.
Two prominent accrediting agencies in the area of utilization review are the American
Accreditation HealthCare Commission/URAC (URAC) and the National Committee for Quality
Assurance (NCQA). In general, URAC and NCQA take a similar approach to UR by requiring
health plans to
Use care criteria developed with input from actively practicing providers who are

knowledgeable in the field for which the criteria are being developed

Base criteria on sound, nationally recognized clinical evidence

Evaluate criteria at specified intervals, updating as necessary

See that UR personnel have appropriate qualifications for the specific activities they


Maintain and follow specific policies and procedures for conducting UR activities

Figure 5A-4 provides examples of the types of specific issues addressed by accrediting agencies.

Regulatory Requirements
Most states that regulate UR require the entity performing UR to establish its standards with input
from peer advisors. Some states require UR standards to be objective, clinically valid, and
compatible with established principles of healthcare, yet adaptable enough to permit variations
from the normal course of treatment when justified.
A growing number of states have enacted laws requiring health plans and UROs to disclose their
utilization guidelines. In some states, utilization guidelines must be disclosed to participating

providers on demand. In other states, the information must be provided to state regulators, and
depending on the state, the information may be made public. In still other states, if the health plan
makes a determination not to authorize payment for a particular service, the health plan must
disclose to the provider and patient the specific criteria upon which the decision was based.10
Some states require entities that perform UR to disclose the clinical education of their reviewers
and to document training programs. Most states with UR requirements stipulate that the education
of any reviewer who has the authority to decline payment for a course of treatment must have
some correlation to the condition being reviewed. Procedural issues addressed by state UR
regulations include standards for telephone accessibility, confidentiality of patient and provider
information, and time limits for authorization and nonauthorization decisions.12
In some states, entities that perform UR must (1) be accredited by a nationally recognized
organization such as URAC or NCQA and (2) comply with all applicable statutory requirements.
In other states, the UR statutes specify that national accreditation is deemed to satisfy the state's
UR requirements. In still other states, the UR statutes give regulators the authority to accept
national accreditation in lieu of compliance with the requirements specified in the statutes. 13
Health plans that operate in more than one jurisdiction must identify all applicable requirements
on a state-by-state basis and implement appropriate compliance procedures. Variations in these
requirements make implementation of UR a challenge. Health plans have also expressed concern
that the variety of regulatory requirements might force them to inconsistently apply utilization
standards that, in the absence of such laws, would be applied uniformly in all states. These
variations and inconsistencies are eliminated to the extent that health plans are permitted to use
national accreditation to satisfy state requirements.
Benefit mandates can also impact a health plan's utilization review standards. For example, the
federal government and several states mandate a minimum length of stay (LOS) for maternity
care. If the required LOS exceeds the time that the health plan's UR staff would have considered
appropriate for a particular case, the health plan must cover the additional hospital stay, even
though the health plan otherwise would have considered the additional stay not medically
Does UR Constitute the Practice of Medicine?
A controversial legal issue surrounding utilization review is whether UR decisions constitute the
practice of medicine. This question is critical to health plans because if legislatures, regulators, or
the courts determine that a health plan's UR activities constitute the practice of medicine, then
such activities and the medical directors who perform them would be under the jurisdiction of
state medical boards. In addition, health plans and medical directors would be subject to medical
malpractice lawsuits.
Some people maintain that UR decisions are medical judgments, not benefit decisions, since
many patients cannot afford to proceed with care unless payment is authorized. In other words, no
matter how it is defined, nonauthorization often results in treatment being withheld. Others point
out that state laws typically define the practice of medicine as the direct treatment of patients or
the direct advisement of patients concerning healthcare decisions. These people note that when
health plans perform UR, they evaluate the member's medical records, not the member, and then
make a benefit payment decision, but do not offer medical care or advice. 14

To date, only two states have enacted legislation that considers UR to be the practice of medicine.
Although this issue has been the subject of state medical board positions, court decisions, and
attorney general opinions, a clear consensus has yet to emerge. For example, a North Carolina
attorney general opinion states that "denial of third party payment may have a direct impact upon
a patient's decision of whether to undergo the treatment. However, such denial does not prohibit
the patient from seeking treatment without third party benefits, and it does not prohibit the
attending physician from providing the treatment.15" On the other hand, a Louisiana attorney
general opinion states that "the act of determining medical necessity or appropriateness of
proposed medical care so as to effect the diagnosis or treatment of a patient in Louisiana is the
practice of medicine and must be made by a physician licensed to practice medicine." 16
Health plans can take some or all of the following steps to reduce the risks associated with UR
and the practice of medicine:
Monitoring the legal and regulatory environment in each state where the health plan does

business and revising UR protocols as needed

Developing UR training programs and protocols that emphasize the need to avoid giving

the appearance of making medical recommendations

Maintaining appropriate liability insurance for both the health plan and its physician

Strategic Issues
In this section, we examine several key strategic issues associated with UR programs: member
and provider perspectives, information management, staffing and training, coordination with
other health plan functions, and evaluating UR results.
Members and Providers
When designing and implementing UR programs, health plans must objectively and
diplomatically address the unique perspectives of members and providers. The need to control
healthcare costs is not uppermost in the minds of members when their own or a loved one's
course of treatment is under review. In addition, members frequently object to the "bureaucratic
red tape" of UR procedures, and they complain about referral or authorization delays,
complicated rules, and network providers who are not familiar with the UR processes of the plans
they represent.
From the provider's perspective, the administrative demands of UR programs are often considered
time away from the practice of medicine. Further, some healthcare practitioners view UR efforts
as a negative judgment on their professional competence. Health plans must consider the impact
UR programs have on the way providers interact with members and on the likelihood that
providers will want to continue working with the health plan.
In developing a UR strategy, health plans should strive for a collaborative rather than an
adversarial relationship with members and providers. A health plan can foster such a relationship
Sensible and consistent UR procedures
A timely UR process
A convenient UR process (i.e., one that is easy for the patient and the provider to use)

UR protocols that rely on evidence-based medicine and, when appropriate, are

customized to local practices

An unbiased process that is based on reliable data and presented in a manner that does not

judge physicians

Procedures that foster clear communication among all parties

Access to information that supports appropriate use of healthcare resources and sound

decision making

Procedures that are developed with input from providers, members, and purchasers

To specifically address the needs of members, health plans must simplify UR procedures and
design education programs that help members better understand coverage provisions. Health
plans must also focus on clearly communicating all available information about a proposed
course of treatment, as well as the reasons for decisions not to authorize benefit payments.
To work effectively with network providers, health plans must implement procedures and
education/communication programs that make it easier for providers to adhere to authorization
protocols. For example, a health plan might measure, by provider, the percentage of
precertification requests that are ultimately approved. If a provider always proposes services that
are approved, the health plan might eliminate the authorization requirement for this provider. On
the other hand, if a provider consistently proposes courses of care that are not authorized, the
health plan might arrange additional education on the plan's medical policies and/or benefit
administration policies for this provider.
Recognizing the importance of addressing the types of issues discussed above, some health plans
are merging UR programs and case management programs, which typically involve increased
communication and involvement with members and providers.
Information Management
Information technology plays an increasingly important role in utilization review. Some health
plans use electronic medical records (EMRs) and health information networks (HINs) to collect
and analyze medical outcomes data from the general population as well as their member
populations. In addition, advances in information technology enable providers to access plan
information. Providers are much more likely to comply with a health plan's utilization guidelines
when they have online access to eligibility and coverage information, authorization systems,
formulary lists, and so on.
The increasing use of eCommerce facilitates concurrent review by enabling medical directors,
nurse reviewers, and providers to communicate clinical information between provider sites and
the health plan on a real-time basis. The UR nurse can meet with the hospitalized member and the
treating physician and then enter data directly into the health plan's information system. In this
way the nurse can provide up-to-the-minute clinical information about the member's condition
and obtain immediate access to the applicable UR standards and expertise available in the health
plan's information systems.
Staffing and Training
Utilization review cannot be successful unless a health plan has qualified employees in sufficient
numbers to effectively administer the program. Many health plans have UR staff (such as nurses
and medical directors) available during regular business hours, with procedures in place for after-

hours or expedited requests. Some plans provide availability of UR staff 24 hours a day, every
day of the year. Health plans must also see that authorizations and appeals decisions are
conducted by healthcare practitioners licensed in the same or similar medical specialty as the case
they are reviewing, and that appropriately qualified physician reviewers are available as needed.
Health plans often evaluate staffing levels by looking at the ratio of UR staff to the average
number of members or the average number of reviews performed. Staffing ratios also vary
depending on factors such as the severity of the medical conditions generally treated and whether
UR is conducted on site or off site.
Health plans maintain training programs so that UR personnel can properly perform their duties.
Training addresses issues such as application of clinical protocols, procedures for appeals,
regulatory requirements, and protection of patients' rights, including confidentiality.
Coordination with Other Health Plan Functions
Utilization review is one of two functions that health plans perform to make benefit payment
decisions; the other is claims administration. As we saw earlier in this lesson, utilization review
focuses on whether a service is a covered benefit and meets the health plan's guidelines for
medical necessity and appropriateness. As described in lesson 1, claims administration is the
process of receiving, reviewing, adjudicating, and processing claims for either payment or denial
of payment.
Claims administration examines all of the provisions of the contract to determine whether
benefits should be paid. For example, does the person meet the definition of an eligible employee
or dependent? Were the services performed while the person was eligible for coverage under the
plan? Were the services properly authorized? Are the services included in the list of covered
services? If the services are covered, should they be paid as a network or out-of-network benefit?
Is there a copayment or coinsurance? Were the services medically necessary and appropriate? Do
other exclusions apply?
A health plan's claims administration and UR departments must maintain a positive working
relationship to function effectively. UR can assist claims administration in a number of ways. For
instance, the UR department might specify certain types of cases that always require medical
review prior to claims determination and other types of cases that can be processed by claims
administration personnel according to written guidelines. Also, the UR department might provide
information on prospective and concurrent reviews so that the claims administration department
can prepare for these cases and better manage the claims workload.
In most health plans, the claims administration department maintains a comprehensive database
of information needed for processing claims. The database includes information on benefit plan
provisions, coverage standards, compensation arrangements, member information, and provider
utilization. Other departments in the health plan, including the UR department, contribute to this
database and rely upon it for certain functions. For example, the UR department uses the claims
administration database to identify utilization patterns through retrospective review.
The UR department must also maintain a positive working relationship with other departments
within the health plan such as provider relations, member services, the legal department, sales and
marketing, product development, or any other areas that communicate benefit payment
determinations or provisions to members or providers.

Evaluating UR Results
One way that health plans evaluate the results of UR is by determining whether UR results in
reduced medical costs and/or greater consistency and quality of care and if so, how these benefits
compare to the costs of maintaining the UR function? In other words, does a financial cost/benefit
analysis justify the activity? Do the improved outcomes and reduced medical expenses outweigh
implementation costs and the potential for dissatisfied members and providers who resent
nonauthorizations and the inconvenience of the process?
Health plans often monitor utilization rates to determine the effectiveness of their UR programs.
Utilization rates typically measure the number of services provided per 1,000 members per year
to indicate how frequently a particular service is provided. For example, a health plan may
monitor the number of inpatient hospital days or the number of referrals to specialists per 1,000
members per year. These utilization rates are then examined and used to help determine overall
planning, budgeting, quality management, and medical expense management.17 If a health plan
notices an increase in hospital days, it may decide to precertify all or a greater number of
inpatient hospital admissions. If a health plan notices that its specialty referral rate has been
steadily increasing since contracting with a new PCP medical group, it may improve the
education programs or UR procedures it uses with this group.
In addition to utilization rates, there are a number of other indicators that health plans may
consider to evaluate the effectiveness of their UR programs, such as
Changes in the total amount of medical expenses or claim dollars paid for particular


Outcomes and other quality measures

Number of appeals
Number of complaints overturned by the formal appeals process and/or by external


Member and provider responses to satisfaction survey questions pertaining to the UR

Health plans also evaluate UR programs to adjust their medical management strategies and
activities. After studying UR results, a health plan may decide to shift its focus from inpatient to
outpatient reviews or to tighten authorization procedures for one course of treatment and loosen
procedures for another. UR results may also affect other medical management programs. For
example, a UR manager might review a summary report-showing items such as diagnosis and
type of care-and identify an increase in hospital admissions for complications of pregnancy,
which in turn might lead the health plan to institute a disease management program related to
prenatal care or a case management program targeted at high-risk pregnancies. 18
Although utilization review is a common component of health plan medical management
programs, individual health plans vary greatly in the extent to which they use UR and the specific
UR processes that they implement. In addition, the overall use of UR in the health plan industry
has fluctuated in recent years. Some health plans are beginning to turn UR responsibility over to
provider groups; others are experimenting with more aggressive healthcare resource evaluation
techniques. As the healthcare industry changes to meet new member, provider, purchaser, and
environmental demands, utilization review is likely to change as well.

1. Walter A. Zelman and Robert A. Berenson, The Health Plan Blues and How to Cure
Them (Washington, DC: Georgetown University Press, 1998), 41-42.
2. John E. Wennberg, "Variations in Medical Practice and Hospital Costs," in Quality in
Healthcare: Theory, Application, and Evolution, ed. Nancy O. Graham (Gaithersburg,
MD: Aspen Publishers, Inc., 1995), 52.
3. Scott Falk and Kip Betz, with Martha Kessler, "United HealthCare Replacing Obsolete
Preauthorization with Provider Profiling," BNA's Health Plan Reporter 5, no. 45: 1087.
4. Ibid., 1087
5. Raymond J. Fabius, M.D., A Physician Executive's Guide to Patient Management for the
'90s and Beyond (Tampa: FL: American College of Physician Executives, 1995), 2, 17.
6. Faulkner & Gray's Healthcare Information Center, "Policymakers Grapple with
Foundations of Process for Coverage Decision, Appeals," Medicine and Health
Perspectives, ed. Robert Cunningham (3 May 1999): 3.
7. Eleanor Mayfield, "Streamlining Referrals," Healthplan (May/June 1997): 17.
8. Academy for Healthcare Management, Health Plans: Governance and Regulation
(Washington, DC: Academy for Healthcare Management, 1999), 12-4-12-5.
9. Jill Wechsler, "External Appeals Please Patients at a Low Cost," Managed Healthcare
(January 1999): 8.
10. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,
ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,
1996), 3-29-3-30.
11. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,
ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,
1996), 3-22-3-23, 3-30-3-33.
12. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,
ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,
1996), 3-14-3-15.
13. Ibid., 3-14--3-15
14. Ibid., 3-17
15. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,
ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown & Company,
1996), 3-17.
16. LA Att'y Gen. Op. No. 98-491, 1998.
17. Marianne F. Fazen, St. Anthony's Health Plan Desk Reference, 1996-97 ed. (Reston, VA:
St. Anthony Publishing, Inc., 1996), 300.
18. Catherine M. Mullahy, The Case Manager's Handbook, (Gaithersburg, MD: Aspen
Publishers, Inc. 1995), 194.

AHM Medical Management: Case Management

After completing the lesson Case Management, you should be able to:
Describe a variety of case management activities
Explain the steps of the case management process
Identify several strategic issues that may affect the development and improvement of case

management programs
Discuss the impact of legal issues, regulations, and accrediting agencies on case management
Although most of the medical management issues discussed so far in this text relate to patient
populations, medical management can also be used to maintain the quality and cost-effectiveness
of care delivered to individual plan members. This is especially true in case management
programs. Case management is used for two basic reasons. First, in almost any population, a
small number of individuals will incur the most serious health problems as well as a
disproportionately large percentage of total healthcare expenses. Second, for individuals with
certain types of conditions, evidence increasingly points to the effectiveness and value of
coordinated, multidisciplinary care. Case management seeks to identify individuals with these
conditions and dedicate resources to managing their care.
In this lesson we examine the purpose and role of case management, and then we describe the
case management process. We discuss case management strategies and how case management
programs are evaluated. We conclude with a discussion of regulatory and accreditation issues.
As we saw in the lesson The Role of Medical Management in a health plan, "case management is
a collaborative process that assesses, plans, implements, coordinates, monitors and evaluates
options and services to meet an individual's health needs through communication and available
resources to promote quality, cost-effective outcomes." 1 Health plans may use case management

Improve overall health status for members who receive case management services
Prevent complications and deterioration of condition for members
Optimize use of limited healthcare resources
Improve cost management
Improve member compliance with provider recommendations for care

The case management process is directed by a case manager whose goal is to oversee the timely
coordination of healthcare services in a cost-effective manner and in a way that meets the
healthcare and quality of life needs of the individual member. The case manager facilitates
communications and activities among all participants in the case management process and
reduces the fragmentation of care that often results when individuals obtain services from several
different providers. Serving as a liaison between the member, the member's family, the health
plan, healthcare providers, purchasers, and community-based resources, the case manager
addresses the member's ongoing needs by providing continuity across a continuum of care. A key
element of case management is that it fosters individualized interventions with a focus on

objectively informing and educating members, families, and providers about the case
management process, healthcare options, healthcare coverage, cost factors, community resources,
and all relevant issues that might help participants make informed decisions.
Although case managers play a central role in care coordination and often make important
recommendations regarding care, the physician in charge of the patient must approve all care
decisions. Other providers involved in the patient's care, the health plan's medical director, and a
social worker may also be part of the case management team.
Over the years, the individuals conducting case management have been nurses, social workers,
occupational therapists, rehabilitation counselors, participants in self-managed multidisciplinary
teams, physicians, and specialists in fields such as behavioral healthcare, pharmacy, and health
education. Insight 6A-1 provides a brief history of the development of case management in the
United States.

The Case Management Landscape

A health plan can conduct its own case management or obtain case management services from
one or more of the following outside sources:

Other health plans

Third party administrators
Companies that specialize in case management in conjunction with other medical
management services, such as utilization review
Independent case managers
Many healthcare providers such as hospitals, rehabilitation facilities, home healthcare agencies,
and infusion care companies use case management to improve outcomes and more effectively
manage medical resources. Some healthcare facilities have their own case management

departments with which a health plan's case managers interact. These departments are influential
in assisting physicians in discharge planning and implementation.
The Scope of Case Management
Case management incorporates aspects of various medical management programs, such as quality
improvement, utilization review, preventive care, self-care, member decision support systems,
and disease management. It also incorporates activities that may not be a responsibility of the
health plan, but that clearly influence a member's situation and response to care. These activities

Assessing a member's financial situation

Providing or arranging for motivational support for members and their families
Providing or arranging for vocational counseling
Negotiating the timing and circumstances of a member's return to work
Arranging for community and social services

By offering these value-added services, which might exceed the member's usual expectations of a
health plan company, case management has the potential to increase customer satisfaction.
Case management and utilization review are similar in some respects, and in recent years, the
boundary between the two activities has become less distinct. However, case management
generally requires a more comprehensive and complex approach to a course of care than does
UR. For example, UR is used primarily to determine medical necessity, and UR often applies
preestablished criteria to evaluate medical necessity against a norm. Case management, on the
other hand, consists of additional activities, such as advising members about how to optimize
their healthcare benefit program, contacting members to make sure they follow the prescribed
course of care, arranging for psychological counseling for members or their families, and so on.
Because case management typically requires more coordinating, arranging, facilitating, and
negotiating of care, the case manager is in a better position to uncover medical issues that
otherwise might have gone unnoticed. For instance, if a member is taking medications prescribed
by two or more providers or if the case manager is aware of an over-the-counter medication that
the member is taking in addition to a prescription drug, the case manager would point out the
potential for an adverse drug interaction.
For patients with chronic conditions, case management also includes a disease management
component. A health plan's disease management program may identify members who are
appropriate for case management, such as members who have other medical problems in addition
to a chronic condition.
In the past, case management was concerned primarily with individuals whose medical conditions
were categorized as catastrophic-in terms of health and/or cost. Invariably, these cases involved
hospital inpatient confinements. Over time, however, case management has been applied to other
types of medical conditions, such as chronic conditions that are not necessarily catastrophic, but
that might benefit from the customized nature of case management. For instance, if a member is
not adhering to the treatment plan or would benefit from an increased focus on support and
education, then case management might be justified. In addition, case management is more
frequently used for individuals who suffer from multiple medical conditions. When case
management is used in these situations, hospitalizations may be avoided and patient care may be
better managed over the long term. As a result, case management has evolved to become an

increasingly collaborative process designed to meet a variety of healthcare needs across all care
settings, not just high-cost conditions that require inpatient hospital stays.
Case management seeks to manage a complete episode of care from the initial encounter with a
provider through specialty care, hospital inpatient stays, and follow-up care in step-down units,
skilled nursing facilities, or the member's home. Risk assessments are conducted to identify
potential problems and begin case management before hospitalization is necessary and major
expenses are incurred. For example, health plans use case management for elderly members and
for members who are suffering from chronic conditions (such as back pain) or degenerative
neuromuscular diseases (such as multiple sclerosis).
The Needs of Members and Their Families
Case management seeks to address a variety of member needs across the continuum of care and
to actively involve the member and the member's family in the case management process by
providing recommendations, information, and resources in any of four different areas: medical,
financial, psychosocial, and vocational.
Medical Needs
A case manager spends a substantial portion of time on activities associated with obtaining the
most effective and appropriate medical care for the member. Typically, a case manager contacts
the member and the treating physician to learn about the medical condition, then suggests
alternative care options, if applicable. When appropriate, the case manager also recommends
additional services that may result in better overall clinical or financial outcomes. The case
manager's primary goal is to find the most appropriate medical resources for providing optimal
care and promoting the best possible outcome for the patient. For example, a case manager might
Identify care options and communicate them to members, family, and the medical team
Refer members to appropriate healthcare providers when necessary, such as a center of

excellence for a patient in need of a transplant

Work with members to make sure they understand and adhere to the courses of care

prescribed by their physicians

Monitor home care by re-evaluating equipment and making sure supplies are replenished
Provide health education for members and/or family
Inform members about community-based health education programs or programs

sponsored by the health plan

Financial Needs
Case managers match healthcare needs with benefits available under the plan. They explain
authorization procedures, examine the proposed course of care, determine the member's out-ofpocket costs, and discuss alternatives that might lower costs and/or improve quality. For example,
a case manager might suggest that a member move from an inpatient setting to the home. Such a
move often reduces the total healthcare bill, while obtaining clinical and psychosocial benefits,
such as reduced risk of hospital-acquired infection and a greater comfort level for the member.
If the covered benefits do not match the member's needs, the case manager conducts a
preliminary review of the member's financial situation, considering both financial obligations
(e.g., housing, utility, and food bills, and out-of-pocket medical expenses) and sources of income

(e.g., salary, sick pay, short- and long-term disability coverage, and government benefits). Based
on this review, the case manager might refer the member to his or her employer's human
resources department or might locate appropriate community-based resources or government
If the member requires assistance with healthcare expenses, the case manager typically plays a
more active role. The case manager serves as a liaison between the member, the health plan, and
providers, facilitating plan administration and addressing problems that may arise.
Case managers also look outside the health plan to pursue methods of payment or ways to obtain
needed equipment or services at a lower cost. Case managers may negotiate discounts from
healthcare suppliers or find community resources that will provide the needed items or services at
low or no cost. For example, the case manager may arrange for the delivery of meals to a disabled
Psychosocial Needs
Case managers work with members and families to develop realistic expectations about the
progression of medical conditions and the expected outcomes of treatment plans, and to establish
effective coping strategies. It is common for a patient with a serious illness or injury to be anxious
about the uncertainty of the ultimate prognosis or despondent about the impact that the medical
condition is having on daily living. Case managers must distinguish between clinical depressionwhich may require psychotherapy and/or medication-and common mood symptoms often
associated with illness or injury. In many cases, patients will benefit from referrals to resources
outside the health plan such as self-help groups, disease-specific community-based organizations,
or local clergy. In addressing the member's psychosocial needs, case managers
Refer members to healthcare professionals to help them manage depression or other

negative feelings associated with the illness or injury

Arrange counseling in areas of marital discord, role reversal, dependency, and sexual
problems that might arise because of the medical condition
Help the family better cope with their emotions about their loved one's medical condition
and more effectively provide support6
Vocational Needs
As we discuss in later lessons, a member's vocational needs are an integral part of workers'
compensation plans, and workers' compensation case managers spend considerable amounts of
time on vocational rehabilitation and training. If a member's medical condition results from an
accident or illness that is not work related, then the case manager in a non-workers' compensation
plan is also likely to conduct at least a preliminary review of a member's vocational needs as part
of the case management process. For example, the case manager might refer the member to
community-based counseling or job rehabilitation services.
In most instances, case managers do not focus on vocational needs because job-training activities
are not covered under most commercial health plans. However, some health plans offer products
that combine features of health plans and disability plans. Coordinated by case managers, these
combination plans emphasize returning employees to work. Also, some self-funded employers
are willing to invest additional case management resources in rehabilitation services to return
their employees to work as soon as possible.

The Case Management Process

The case management process follows five basic steps: (1) case identification, (2) assessment, (3)
planning, (4) implementation/monitoring, and (5) evaluation. In reality, these steps frequently
overlap. For instance, when health plans identify a member for case management, they may also
begin assessing risk factors and planning a course of care. Or as case managers implement and
monitor plans, they also begin evaluating the results. In addition, case management is an iterative
process. The case manager is constantly assessing, planning, implementing, monitoring, and
evaluating the member's condition and the course of care as circumstances change. Figure 6A-1
summarizes the basic steps in the case management process and the activities performed at each

Case Identification
Case identification is a process that determines which members may be appropriate candidates
for case management. To identify members for referral to case management, health plans
examine a combination of factors, such as medical condition or diagnosis, type of treatment being
given, level of resource utilization, and cost of healthcare. The utilization review process
produces the greatest number of case management referrals. However, health plans also rely upon
a number of other referral sources, such as network providers, institutional discharge planners,
employers, member services staff, disease management staff, and plan members. Additional data
about potential candidates for case management comes from pharmacy and laboratory reports,
claims reports and computer-based risk assessment models.
To screen large member populations and determine individuals whose outcomes might be
positively influenced by case management, health plans conduct health status assessments by
mail or telephone. Health plans also inform network providers about the services and advantages
of the case management program and encourage these providers to recommend case management
when appropriate. Some health plans review claims reports or conduct claims system queries to
identify patients whose diagnoses or use of prescription medications indicate a potential need for
case management. Claims system queries can also determine when members reach specified
trigger points such as a certain length of hospital stay or total claims dollars incurred within a
given period of time.
Health plans also use computer-based health status assessment models designed to screen their
member populations for individuals who may be candidates for case management. A health plan
can collect encounter-based diagnoses from office visits, urgent care, emergency room visits, and
inpatient hospital stays, and classify diagnoses according to (1) clinical attributes such as cause
and severity of the condition and (2) the most likely course of care. With this information, the
health plan can predict with some degree of certainty which diagnoses have a relatively high
expense risk compared to others and which are likely to have better outcomes with case
In addition, disease management programs may stratify patients according to the severity of their
conditions. Members who meet specified clinical criteria are assigned a case manager. The
purpose of proactively identifying the need for case management is to begin treatment at an early
enough stage in the disease to halt or slow disease progression and thus reduce the need for major
medical interventions.
Because the largest referral source for case management is the utilization review process, the
interaction between UR and case management is critical. In some health plans, utilization review
nurses and case managers routinely review case histories and collaborate to identify members
who might benefit from case management. In other health plans, UR nurses simply refer members
to case management. Sometimes, case managers review UR files to identify appropriate
candidates for case management, consulting with UR staff to obtain additional information as
Nurse reviewers often identify case management candidates based on diagnostic codes, type of
treatment being provided, other existing health problems, utilization data, or total medical
expenses incurred. Indicators such as those listed below may help identify members who would
benefit from case management:

Catastrophic illness or injury such as premature birth, AIDS, stroke, head or spinal cord

injury, severe burns

Multiple hospital admissions in a short period of time, e.g., three or more admissions

within a six-month period

Extensive utilization of services

A member who has incurred a specified amount of medical expenses within a given

period of time

A variety of practitioners consulted on a seemingly straightforward case

Extension of a course of care or early release from a seemingly appropriate level of care

However, objective indicators like the ones listed above do not always lead to case management.
Consider two members who have incurred high amounts of healthcare expenses. A closer look
might reveal that the first member obtained successful major surgery with no post-operative
complications and an excellent prognosis. The second member may have incurred the same
amount of expenses through a variety of healthcare encounters that when examined together
indicate a serious underlying problem that is likely to result in a catastrophic illness. Even though
comparable claim amounts have been paid, the latter member would probably be selected for case
management, while the former would not.
Also, a seemingly straightforward diagnosis-which might not at first seem to justify case
management in terms of severity, complexity, or cost-sometimes leads to case management
because of a combination of factors. For example, a diagnosis of cellulitis, an inflammation of
connective tissue, might not raise any red flags. However, upon closer examination, the nurse
reviewer might discover that this member has had diabetes mellitus for 15 years, is a heavy
smoker, and underwent coronary artery bypass graft surgery three years earlier. Because of these
additional factors, the member might be at high risk of amputation and therefore be referred to
case management, even though the initial diagnosis would not have led to this decision.
Case assessment refers to the collection and evaluation of medical, financial, social, and
psychosocial information about a member's situation. After case identification, the case manager
contacts the member and the member's family, the treating physician, and, if applicable, the
healthcare facility where the member is confined. The initial contact, often made by telephone, is
to explain the case management process and to begin the initial needs assessment. An initial
needs assessment is an information gathering and reporting activity conducted by the case
manager to provide an understanding of the patient's condition.
Among other things, the initial needs assessment indicates whether or not a member would
benefit from case management or perhaps from a less comprehensive medical management
initiative, such as healthcare education. Invariably, the case identification process identifies some
cases that are not appropriate for case management. For example, after an initial needs
assessment, a heart-attack patient, identified as high risk based on his age and history of coronary
artery disease, might be found to be without symptoms, fully informed of his condition,
practicing recommended preventive and self-care, and regularly visiting his physician. A
comprehensive case management plan would not add much value for this member, who would
probably benefit as much from a simple referral to a cardiac exercise program.7
Before beginning the initial needs assessment, the case manager obtains consent to proceed with
the case management process from the member or, if the member's condition prevents this, from

the appropriate relative. When the initial needs assessment confirms the potential value of case
management, the case manager proceeds with a thorough assessment of the member's situation,
obtaining information from a variety of sources, such as the member, the member's family,
healthcare practitioners, health plan reference material, and general resources. The case manager
gathers information about the medical diagnosis, prognosis, past and present treatment, proposed
course of care, short- and long-term goals, and available provider options.
The case manager also assesses the member's medical history, background, skills, attitude,
support network, home environment, and so forth to determine the need to resolve potential
problems or to leverage favorable circumstances. The following examples illustrate some of the
factors considered by the case manager:
If the member has been receiving treatment for several years for a condition that has

shown no significant signs of improvement, the case manager, in conjunction with the
physician, would investigate the reasons.
If the member is not compliant with the planned course of care, the case manager would
try to determine the cause.
The case manager notes the level of interest displayed by the member's family in
providing assistance and support.
If home care is being considered, the case manager helps determine whether medical
treatment can be provided effectively and safely and whether the patient is cognitively
ready for such a move; also, the case manager makes sure that a physical assessment of
the home is completed to address architectural barriers.
The case management plan establishes goals for the member's short-term, intermediate, longterm, and ongoing needs. These goals focus on obtaining optimal medical outcomes, appropriate
utilization of resources, and quality-of-life improvements. For each goal, the case management
plan identifies accountable individuals and describes how needed services and supplies will be
procured and coordinated. In addition, where appropriate, the plan identifies potential barriers to
attainment of the stated goals and ways to overcome them. 8
Typically, the case manager works with the treating physician(s) to explain to the member and the
family all available healthcare options. An important aspect of case management is to empower
members, enabling them to be active participants in the decision-making process. Another
important function is to determine if any other healthcare professionals might add value to the
member's care. For instance, the case manager or physician might consult a pharmacist who has
experience with a particular condition to obtain recommendations for possible pharmaceutical
alternatives to an invasive and costly surgical procedure. 9
Once the case manager, physician(s), member, and family agree upon the plan, the case manager
prepares an initial report to describe it. This report also incorporates information gathered during
the case identification and assessment steps. The case management plan also includes the case
manager's assessment of whether needed services are covered benefits and the value of both
covered and noncovered services listed in the plan. We describe case management reporting in
more detail later in this lesson.

Once there is agreement on the proposed course of care, the case manager is ready to begin
implementing the plan. The main features of implementation are coordination and monitoring. By
coordinating and monitoring activities, the case manager can facilitate timely care in the most
appropriate setting, while avoiding unnecessary or duplicative services. Monitoring activities may
include concurrent UR if a member is an inpatient at a hospital or other healthcare facility.
The case manager notifies the involved healthcare providers, healthcare resources, and
community-based resources, as well as the member and the member's family to initiate the case
management plan. For example, if the member is scheduled to receive home healthcare after
being discharged from the hospital, the case manager informs the member and the member's
family and makes the appropriate arrangements with the hospital and the home healthcare agency
in advance. As the discharge date approaches, the case manager follows up with all involved
parties to make sure the care is available when the member arrives home. In this way the case
manager facilitates referrals and the transfer of care among various providers.
Throughout the course of treatment, the case manager monitors and documents the member's
progress to determine if the stated goals are being achieved and to confirm that the original goals
remain appropriate. The case manager maintains rapport and communication with the member
and providers to address plateaus, improvements, relapses, and depressions. Unexpected events
are immediately addressed. As the patient's condition evolves, new measures of care may be
needed and the care plan may require adjustments or even redevelopment. Consequently, the case
manager periodically reexamines the advantages, disadvantages, and costs of different options.
The case manager should also investigate any new treatments that might prove beneficial to a
member's condition.
To help determine when and what types of modifications may be necessary, the case manager
asks questions such as

How well is the treatment working?

Does the member's disease course align with the expected course for this disease?
What, if any, complications have developed?
How is the family coping? Does the caregiver need a rest?

How frequently the case manager reviews the course of care and the member's progress depends
on the medical condition.
As a case progresses, the case manager follows up to make sure the member is adhering to the
course of care prescribed by the physician and that there are no unintended consequences. If the
outcome is uncertain or the member's condition seriously deteriorates, the case manager increases
attention to the psychological and emotional needs of the member and immediate family.
Ultimately, the case management team determines when to release the member from case
management, by evaluating whether
The desired treatment goals have been met
Case management services would no longer have an appreciable impact on outcomes

Obviously, the services provided by the case manager to the member and family also end if the
patient dies or is no longer eligible for case management coverage. Regardless of the reason, after
case management ends, the case manager performs a final evaluation of the overall effectiveness
of the case management services that were provided. The evaluation of case management for a
particular member focuses primarily on the effect of the case management services on quality
issues (such as healthcare quality, member and family satisfaction, and continuity of care) and
costs. The evaluation report usually includes the following elements:

A brief summary of the reason for case management of the member

A summary of the case management and medical services rendered
Actual charges incurred for the care and the case management services
Cost savings that resulted from the case management (e.g., reduced utilization of
services, products, equipment, and facilities during the episode of care, and negotiated
discounts with healthcare providers)
Reason for release of the patient from case management (e.g., improved medical
condition, case management no longer adds value to care, death of patient)
The evaluation report may also include cost savings that are expected to result from the avoidance
of potential charges in the future. For example, suppose that the case management plan provided
disease management education for a patient with a chronic condition. If the education enables the
patient to better manage the condition, the patient will be less likely to require emergency care or
hospitalization for the condition in the future. However, future cost savings are difficult to
accurately predict, and some health plans may not consider these savings in their evaluation of
case management.
Aside from the cost/benefit analysis, the evaluation of case management services might also
consider the extent to which the goals developed during the planning step were met during
implementation. Another area of evaluation may be to determine how closely the treatment plan
adhered to clinical practice guidelines (CPGs).
Case Management Reports
An essential aspect of case management is the documentation of pertinent information and
preparation of reports, starting with the case identification step and continuing through
assessment, planning, implementation/monitoring, and final evaluation, which concludes with a
final report. For example, a report prepared after the initial assessment step would contain basic
information such as the member's name, the date of occurrence, and the name of the treating
physician, as well as detailed information about the member's condition and current course of
care. After the planning step, the case manager would add information about the recommended
course of care and would specify the goals of the case management plan.
Depending on the circumstances, a case manager might be called upon to prepare a variety of
reports for different audiences. Reports might be used to keep the treating physician, health plan,
and purchaser apprised of activities coordinated by the case manager. Because of the varied
interests and backgrounds of each of these parties, the reports would likely vary. For instance, a
report intended for a physician would contain much more clinical detail than a report intended for
a purchaser. A report intended for a health plan or purchaser would focus on the value added by
the case management services. In other words, what difference did case management make in
terms of clinical outcomes, member satisfaction, coordination of care, or cost savings?

Strategies for Successful Case Management

To operate a successful case management program, a health plan must address several important
strategic issues, which we examine in this section.
In-House Case Management versus Delegation
Some health plans have the knowledge, experience, and resources to develop and administer their
own case management programs. Others obtain case management services from external entities,
either as a stand-alone product or as part of a package of medical management components (e.g.,
case management plus utilization review and disease management). In some instances, external
case management companies offer specialized programs such as care for high-risk pregnancies,
cancer, Alzheimer's disease, stroke, AIDS, severe burns, mental illness, or substance abuse.
Health plans may determine that it is quicker, easier, or more effective to delegate case
management functions than to develop and maintain such capabilities on their own.
Integrating Case Management with Other Health Plan Functions
Case management improves considerably when integrated with other functions in the health plan.
We have already seen how utilization review is used to identify candidates for case management.
Member services and disease management programs can play a similar role. In addition, the
provider relations area can help obtain the cooperation of providers. By communicating details of
treatment plans to the claims administration department, case management can support the
prompt, accurate handling of a member's claims payments. For example, communication between
the case management function and the claims administration department can see that any
negotiated savings are properly recorded and applied during claims processing. Health plans seek
to establish procedures and lines of communication that take full advantage of these types of
opportunities. 10
Staffing and Training
The scope and complexity of case management is challenging, to say the least. To perform
effectively, a case manager must be knowledgeable in a number of different domains. For
example, a case manager must be familiar with:
Medical conditions and interventions to be able to evaluate treatment plans and make

informed and creative recommendations

Psychosocial, benefit funding, vocational, and community resource issues
Benefit plans and how benefits are paid to providers or members
Legal, regulatory, and ethical issues associated with case management
Utilization review processes and techniques

Further, a case manager must possess numerous skills such as

Research and analytical skills to obtain information from a variety of sources and to

identify optimum courses of care

Interpersonal and verbal communication skills to collaborate with and gain the trust of

patients, families, healthcare providers, medical suppliers, payors, purchasers, and

community resources

Project management skills to expedite delivery of a variety of services and to identify and

resolve treatment gaps that may arise

Writing skills to provide clear and complete documentation of all pertinent information
Computer skills to facilitate case identification, assessment analysis, and documentation

Many health plans hire nurses as case managers because of the obvious advantages of a medical
background for monitoring medical conditions, providing health education and instruction, and
planning care with treating physicians. Often, health plans look for nurses with a background in
coordinating rather than administering care. To supplement a nurse's clinical background, these
organizations provide additional training and job experiences that help develop essential
nonclinical capabilities, such as benefit plan knowledge and familiarity with community-based
Some health plans hire social workers as case managers, particularly if the people who rely upon
their services tend to have socially or economically complex situations that would benefit from
psychosocial care and access to community-based support. These organizations then provide their
case managers with training and job experiences that help develop the medical and benefit plan
knowledge essential to effective case management. 11
A team approach to case management can incorporate the skills of a nurse with the skills of a
social worker, physicians, and other providers. Through periodic conferences, the case
management team can share their experience and ideas.
To support the quality of case management, a growing number of health plans rely upon case
management certification-a process similar to, though not as formalized as, the credentialing
process for network providers-in which health plans obtain, review, and verify the credentials of
prospective case managers. Health plans establish specific criteria with regard to certification,
educational background, training, experience, and other qualifications and then use these criteria
as the standard for case management hiring decisions. Figure 6A-2 lists the certification standards
developed by the Case Management Society of America (CMSA), a non-profit society of case
management professionals.

CMSA supports the individual and collective professional development of case management.
CMSA's Standards of Practice for Case Management provides formal, nationally recognized
standards and guidelines for the practice of case management. For example, CMSA defines the
case manager's responsibilities in the roles of assessor, planner, facilitator, and patient advocate.

A division of CMSA, the Center for Case Management Accountability, establishes evidencebased standards of practice through the measurement, evaluation, and reporting of medical
outcomes. CMSA also maintains a peer-reviewed Ethics Statement on Case Management from
which case managers can apply ethical principles to the practice of case management.
Similar to other types of medical management functions, the appropriate level of staffing for case
management depends on the members and the nature of their medical conditions. For example,
compared to commercial groups, Medicare and Medicaid populations usually require a higher
ratio of case managers to members.
Another way to look at health plan staffing levels is by workload per case manager. For example,
an entity whose cases tend to be extremely complex might consider an optimum workload to be
significantly lower than other entities that provide case management services.
Other factors that determine staffing levels include
Scope of the case management services that are provided
Amount of case management services rendered by hospitals, or other providers
Expectations of the purchaser

Telephonic versus On-site Case Management

Health plans must determine whether and under what circumstances case management will be
conducted off site. Often, due to logistics, time constraints, and cost considerations, health plans
choose to conduct case management without traveling to meet face-to-face with the patient and
provider. This off-site process, commonly called telephonic case management, relies upon
effective use of telecommunications and information management technology, such as
telephones, fax machines, electronic mail, and computers.
Telephonic case management can be particularly effective for monitoring wellness, preventive, or
follow-up care. For example, if a member is in critical condition, the case manager may begin
monitoring the situation by making on-site visits, but later, when the member's condition
improves, the case manager may decide that off-site monitoring works just as well.
Some health plans elect to perform most of their case management on site. According to these
organizations, certain situations require face-to-face visits, particularly those that are more
complex or catastrophic or that involve members who are likely to ignore or forget self-care
instructions. These health plans value the effectiveness of first-hand observations. For example,
by visiting the member rather than merely placing a phone call, the case manager is much more
likely to learn that the member is not taking prescribed medications. Any savings in
administrative expenses that might have been realized by not meeting with the member would
have soon disappeared if, because of failure to take the prescribed medications, the member's
condition deteriorated and required additional care.

Health plans also rely upon on-site case management when they run into difficulties obtaining
information from members, their families, or providers. For instance, a member who does not
respond particularly well to requests for information over the telephone might be more likely to
provide important information when the case manager meets with the member in person. When
an on-site visit is not possible, the case manager may consult with the caregivers at the healthcare
facility or with home healthcare personnel to obtain additional information.
Both types of case management have advantages and disadvantages, depending on the particular
needs and circumstances of a health plan. As you might expect, each health plan tailors its use of
telephonic and on-site case management to its organizational objectives (including cost
considerations), to its capabilities, and to the nature of its member population. In addition, a
health plan might base its approach on the preference of the group purchaser.
Information Management Systems
Information management systems are a critical element in the design and operation of case
management programs. For example, health plans may develop or purchase software that
integrates a variety of demographic, clinical, claims, and outcomes data from various locations
throughout the healthcare delivery system to produce individual profiles. Based on these profiles,
a health plan can determine which members are most at risk for major clinical episodes, increased
utilization, or significant medical expenses. Similarly, health plans may use software programs to
identify appropriate medical interventions and to help determine those that produce the best
When case managers use computers for real-time access to information, they can share clinical,
referral, and billing data with various members of the case management team, providing more
timely and accurate services. New medical and telecommunications technologies make it possible
for case managers to conduct off-site, virtual interviews or examinations and monitor the
conditions of chronically ill members who are receiving home care. Once they obtain this
information, case managers can analyze and interpret the data, compare outcomes for different
treatment plans, communicate information to providers, and continue to observe the member's
progress. Case managers may also take advantage of Internet technology by providing members
with a list of Internet websites that provide accurate, useful healthcare information.
Risk Management
Case management is a highly visible function that often deals with individuals who are seriously
ill and who, along with their families, can be very emotional. Consequently, case management
activities are exposed to the risks of negative healthcare outcomes, member dissatisfaction, bad
publicity, and lawsuits. In this section, we examine methods that are used to reduce these risks.
By documenting all pertinent research, analysis, discussions, and decisions, a case manager is
better able to understand the member's situation and make appropriate recommendations. Also, in
the event of a complaint or lawsuit, a comprehensive case management file can be used to support
the health plan's position. For example, if the case management plan calls for discharge from the
hospital, the file should include written documentation that the case manager or a qualified
healthcare professional conducted an assessment of the risk of discharge using complete medical
information and valid review criteria. 13

The case manager should also document any complaints from the member, the member's family,
or healthcare practitioners and indicate the steps taken to address the complaints. All
documentation should be objective and professional, avoiding any subjective conclusions,
speculation, or personal opinions, and should recognize the possibility that the documents might
be examined by a state insurance department or in a court of law. 14
Confidentiality and Disclosure Policies
Health plans develop confidentiality and disclosure policies and procedures to protect the privacy
of patients and to avoid regulatory and legal risks. For example, many health plans have a policy
that requires the case manager to obtain the patient's signature (or the signature of a family
member) on a standard consent authorization form before developing a case management plan or
before implementing a specific action as a result of the plan. A consent authorization form is a
document that provides for the release of information to the case manager and gives the case
manager permission to review case information with the healthcare practitioners and other
applicable parties. This form usually includes a provision that the case manager will not share
confidential information inappropriately. By obtaining a signed consent authorization form, the
case manager avoids having to obtain the patient's (or a family member's) signature each time
there is a need to obtain or share information. 15
Having a signed consent authorization form may protect the health plan from allegations of
invasion of privacy. The use of this form is also consistent with accrediting agency requirements
that health plans maintain confidentiality about medical care and protect a patient's right to
Early Intervention
One way that health plans may reduce the risk of poor medical outcomes and dissatisfaction from
members, families, and providers is through early case management intervention. When case
management begins in the early stages of a medical condition, it is more often perceived as
evidence of the health plan's concern for the member's welfare. If, on the other hand, case
management does not begin until after the member has incurred substantial medical expenses, it
is more likely to be viewed as a tool to cut costs rather than improve outcomes.16
Appropriate Oversight of Delegated Case Management
When health plans delegate case management services, they should follow certain procedures to
reduce the risk of legal liability. First, they should use a careful selection process that includes a
thorough review of the potential delegate's procedures, personnel, and history. Once the delegate
has been selected, the health plan should continue to monitor case management activities because
the health plan remains accountable for the case management process. Finally, a health plan may
reduce its risk by making sure that all of its plan documents clearly communicate to members,
providers, and purchasers that the case management delegate is a separate, independent
organization and not a part of the health plan.
Evaluating Case Management Programs
In addition to evaluating case management activities for individual members, a health plan also
examines its case management program as a whole. By evaluating the entire program, a health
plan can

Determine the overall impact of case management on quality and cost-effectiveness

Identify opportunities for program improvement
Support efforts to convince providers and purchasers of the benefits of case management
Justify the continued operation of the programs

When performing these large-scale evaluations, health plans focus on the same types of issues
addressed in the evaluation of specific case management plans: overall clinical outcomes,
utilization management results, financial results, and member and provider satisfaction levels.
Some organizations conduct internal audits of their case management programs. In addition,
health plans establish specific performance measures such as those described below.
Clinical Outcomes
Health plans sometimes examine measures associated with specific medical conditions to help
gauge the impact of their case management programs. For example, a health plan could measure
the level of functional improvement among spinal cord injury patients enrolled in the case
management program. Also, a health plan could measure the length of survival after diagnosis
among AIDS patients receiving case management services.
Utilization Management and Financial Results
Health plans examine hospital days per member per month, average length of hospital stays,
emergency department utilization, and medical expenses per member per month to help
determine the impact of their case management programs on healthcare services utilized and the
cost of those services.
Health plans often document the effects of their case management programs through cost-benefit
analysis. These studies, typically prepared on a monthly, quarterly, and/or yearly basis, establish a
target ratio of medical expense savings to case management administrative costs. The medical
expense savings are calculated as the difference between the actual medical expenses for patients
under case management and the projected medical expenses for those same patients if they were
not receiving case management services (Projected expenses without case management - Actual
expenses with case management). For example, a health plan might have as an objective that its
case management program produce an annual medical expense savings ratio of at least $6 saved
for every $1 spent in administrative costs (often expressed as 6/1).17
Suppose that the health plan calculated the following costs for a particular month:
Administrative costs for case
management ...............$20,000
Actual medical care expenses for patients under case
management ...............$300,000
Projected medical care expenses for the same patients without case
management ...............$430,000
The total medical expense savings for this month are $130,000 ($430,000 - $300,000) and the
ratio of medical expense savings to administrative costs is 6.5/1, that is, $6.50 saved for each $1
of administrative cost ($130,000 $20,000). For this month, the health plan exceeded its

Health plans also take into account the indirect savings that result from their case management
programs. For instance, a case management program often frees up other medical management
personnel who would otherwise have spent time, perhaps less efficiently, with members who
were referred to the case management program.
The Stellar Health Plan used the following costs to calculate the medical expense savings ratio for
its case management program:
Administrative costs for case management.....................................................................$20,000
Actual medical care expenses for patients under case management............................... $175,000
Projected medical care expenses for the same patients without case management......... $250,000
Satisfaction Levels
When members believe that a case manager serves as a true advocate for their needs, medical
outcomes improve and customer satisfaction increases. Similarly, case management programs
gain valuable and influential partners when providers feel they have the support of a professional
and competent organization. Through member and provider satisfaction surveys, as well as
member quality-of-life surveys, companies seek to determine the effectiveness of their case
management programs from the perspective of these key stakeholders.
Regulation of Case Management
The regulation of case management occurs primarily at the state level and varies greatly from one
state to another. Although all 50 states have at least one law that refers to case management, only
a few states have laws that list specific requirements for a case management program. Some states
have introduced comprehensive health plan legislation that recognizes and distinguishes between
activities such as utilization review, disease management, and case management. However, other
states view case management as part of utilization review and, therefore, subject to state
regulations for UR. Very few state laws address the quality management aspect of case
management. 18
Other state laws and regulations from insurance or health commissions may influence a health
plan's approach to case management. States that require health plans to submit to periodic
independent quality audits are likely to examine case management programs. In addition, states
may require health plans to demonstrate case-oriented quality monitoring systems used to assess
the care provided to individual members. Such requirements may be satisfied, at least in part, by
case management programs.
Because case managers work closely with members, healthcare providers, and medical records,
one of the most important issues surrounding case management is the confidentiality of medical
information. Health plans must demonstrate to regulators that their case management policies and
procedures adequately protect the privacy of members. In addition, most states consider case
management files to be medical records that must be retained for a specified length of time,
typically five years or the period during which lawsuits may be filed in that state, whichever is
longer. 20
Requirements that apply to care provided in connection with certain diseases sometimes affect
case management services. For instance, in some states, HIV counseling services, which might be
part of a case management plan, cannot be provided to an individual prior to testing for the

disease, unless the individual receives an explanation of the test and gives informed written
Because case managers often work with seriously ill or injured members, they must also be
familiar with the Americans with Disabilities Act, as well as other federal and state laws that
protect the rights of certain individuals.
Although there are currently no state laws or regulatory requirements for licensure or certification
of case managers, voluntary certification is available from the Commission for Case Management
Certification, as described earlier in this lesson. Also, because case managers are often drawn
from a variety of different professions (e.g., nursing, social work, physical therapy), they may be
required to maintain applicable licensure in their professional areas.
Accreditation Issues for Case Management
Although not all accrediting agencies specifically address the case management process, they do
address issues that are critical to case management, such as coordination of care, discharge
planning, and confidentiality. Recognizing the growth and value of case management, URAC
maintains specific accreditation standards for organizations that perform case management. These
standards, which apply to both on-site and telephonic services, address staff structure and
organization, staff management and development, information management, quality
improvement, oversight of delegated functions, organizational ethics, and complaints. URAC's
case management organization standards may be applied to any entity that performs case
management functions, whether a health plan or an organization that provides only medical
management or case management services. Among other things, URAC's standards require
companies to
Establish oversight and reporting requirements
Specify the delivery of services, including a description of the delivery model for case

management services, the personnel conducting case management services, and the
population served
Establish guidelines for reasonable caseload and employ sufficient personnel to provide
Have licensed physicians available for consultations with case managers
Employ case managers who have appropriate qualifications that demonstrate their ability
to practice case management
Verify licensing and credentials of new hires and re-verify at least every two years
Establish a policy for records and information management that addresses storage,
transfer, destruction, accuracy, and confidentiality
Disclose to patients information concerning the nature of the case management process,
the circumstances under which information may be disclosed to third parties, and the
availability of a complaint resolution process
Develop for every individual who receives case management services a case management
plan that meets specified criteria
Implement a quality improvement program to monitor and evaluate the effectiveness of
the case management program 21

Case management provides the means for a health plan to link and coordinate a variety of medical
management activities in order to arrange better care for individual members who have extensive
or complicated healthcare needs. The cost savings that may result from case management often
benefit both the member and the health plan.
1. Case Management Society of America, Standards of Practice for Case Management
(Little Rock, AR: Case Management Society of America, 1995), 8.
2. Case Management Society of America, Standards of Practice for Case Management
(Little Rock, AR: Case Management Society of America, 1995), 10.
3. Case Management Society of America, Standards of Practice for Case Management
(Little Rock, AR: Case Management Society of America, 1995), 7.
4. Academy for Healthcare Management, Network Management in Health Plans
(Washington, DC: Academy for Healthcare Management, 1999), 6-27.
5. Novartis Medical Benefit Report: Annual Resource (Novartis: USA, 1999), 8.
6. Gary Wolfe, "Fatigue: Understanding and Treating Depression," The Journal of Care
Management 5, no. 5, (1999), in the Disease Management Digest insert 3, no. 5, 2-3.
7. HMO Workgroup on Care Management, "Planning Care for High-Risk Medicare HMO
Members," in Chronic Care Initiatives in HMOs (Washington, DC: The Robert Wood
Johnson Foundation and the American Association of Health Plans [AAHP] Foundation,
July 1997), 9.
8. Case Management Society of America, Standards of Practice for Case Management
(Little Rock, AR: Case Management Society of America, 1995), 15-17.
9. Maria R. Traska, "Beyond Big-Ticket Items: Case Management Comes of Age,"
Faulkner & Gray's Healthcare Information Center (December 16,1993), 6.
10. Mary Sajdak, "Case Management," Medical Management Signature Series, Health Plan
Resources, Inc. (25 November 1997).
11. Mary Sajdak, "Case Management," Medical Management Signature Series, Health Plan
Resources, Inc. (25 November 1997).
12. Case Management Society of America, Standards of Practice for Case Management
(Little Rock, AR: Case Management Society of America, 1995), 11-12.
13. Commission for Case Manager Certification (Rolling Meadows, IL.)
14. Catherine M. Mullahy, The Case Manager's Handbook (Gaithersburg, MD: Aspen
Publishers, Inc., 1995), 66.

15. Catherine M. Mullahy, The Case Manager's Handbook (Gaithersburg, MD: Aspen
Publishers, Inc., 1995), 70.
16. Catherine M. Mullahy, The Case Manager's Handbook (Gaithersburg, MD: Aspen
Publishers, Inc., 1995), 57-58.
17. Catherine M. Mullahy, The Case Manager's Handbook (Gaithersburg, MD: Aspen
Publishers, Inc., 1995), 103.
18. George Stuehler, "Case Management: Blue Cross Blue Shield of the Rochester Area,"
Best Practices of Health Plans, (Washington, DC: Centers for Medicare and Medicaid
Services Office of Health Plan, Division of Policy and Evaluation, 1994), 22-23.
19. Garry Carneal, Case Management States Laws: A 50 State Survey of Health & Insurance
Statutory Codes, ed. Thomas G. Goddard, et al. (Washington, DC: American
Accreditation HealthCare Com-mission/URAC, 1999), 8-9, 12.
20. Catherine M. Mullahy, The Case Manager's Handbook (Gaithersburg, MD: Aspen
Publishers, Inc., 1995), 60.
21. American Accreditation Healthcare Commission/URAC, "Case Management
Organization Standards," Overview of URAC Accreditation Programs and Standards,
http://www.urac.org/summaries.htm (1 Nov. 1999).

AHM Medical Management: Disease Management

After completing the lesson Disease Management , you should be able to:

Distinguish between disease management and case management

Explain why health plans establish disease management programs
Describe the types of organizations that provide disease management
Explain the decisions a health plan must make to implement a disease management
Describe four approaches to integrating information for disease management programs
During the late 1980s and early 1990s, health plans noticed that healthcare costs were rising once
again in spite of their efforts to achieve cost-effectiveness while delivering high-quality
healthcare. Looking more closely at these healthcare costs, health plans realized that a large
percentage of costs came from a small percentage of their enrolled populations-members
diagnosed with one or more chronic conditions.
A recent estimate indicates that costs for the care of patients with chronic diseases account for 50
percent of total healthcare expenditures. 1 Most often, these costs result from emergency
department visits, inpatient hospital care, or other interventions performed when an illness is in an
advanced stage or when complications (possibly preventable) of a chronic condition arise. Such
costs take a toll on the purchaser, the health plan, and most importantly the patient.
To address these costs and improve the health of members with chronic conditions, health plans,
pharmaceutical companies, and other organizations developed disease management programs.
Today, over 160 companies offer some form of disease management. 2
What is Disease Management?
Disease management, sometimes called disease state management, is a coordinated system of
preventive, diagnostic, and therapeutic measures intended to provide cost-effective, quality
healthcare for a patient population that has or is at risk for a specific chronic illness or medical
condition. The goal of disease management is to provide comprehensive management of a
chronic disease across all healthcare delivery settings and providers to improve a patient's health
status. Note that the term disease management is somewhat misleading because disease
management programs may focus on medical conditions that are not diseases, such as high-risk
pregnancy, severe burns, and trauma, in addition to diseases.
Disease management is not the same tool as case management. As you learned in the lesson Case
Management, the focus in case management is on responding to the needs of individual members
for extensive, customized healthcare supervision. Disease management focuses the needs of a
population for healthcare supervision. Disease management is a form of population-based
healthcare as discussed in the lesson Quality Management.
Many tools that have been previously discussed in this course manual, such as preventive care,
self-care, decision support programs, and case management, are used in disease management. For
example, a health plan member in a depression disease management program who attempts to
commit suicide probably needs intense care supervision that addresses his or her individual

situation. Such a patient would be a candidate for urgent case management under the disease
management program.
Some disease management programs originated from pharmaceutical manufacturers' efforts to
market drugs for specific diseases, but most of today's disease management programs go far
beyond marketing initiatives. A wide variety of disease management programs are available,
ranging from those that focus primarily on patient education to comprehensive programs that seek
to influence the behaviors of patients, providers, and purchasers to reduce the occurrence and
severity of diseases.
Why Do Health Plans Use Disease Management Programs?
Disease management programs may serve to improve both clinical and financial outcomes for
healthcare services related to chronic conditions. Disease management also helps support a health
plan's continuity of care and primary care efforts.
By identifying members at the highest risk for developing a particular disease or members who
already have a particular disease and then implementing a disease management program, health
plans can help patients and providers manage chronic conditions effectively to avoid acute,
sometimes life-threatening, episodes. For example, diabetic patients are at increased risk for
amputation and blindness. Clinical practice guidelines (CPGs) for diabetes disease management
programs may recommend that primary care providers (PCPs) perform foot and eye examinations
annually for diabetic patients. Detecting clinical changes early may prevent (or at least delay) the
need for drastic treatment and the possible permanent impairment that often occurs after a
complication has progressed significantly.
Disease management programs help health plans manage the health risks present among their
member population. A disease management program for coronary artery disease (CAD) illustrates
the concept of health risk management. A CAD disease management initiative focuses on the
portion of a health plan's population that has or will develop CAD, which often causes patients to
need extensive medical services. To reduce the health risks for these members, the health plan
can identify susceptible members before the disease appears and encourage those members to
modify their health-related behaviors. Hopefully, such behavior modification will reduce the
occurrence of the disease. For example, people with high cholesterol levels are at increased risk
for CAD. By proactively identifying members with high cholesterol levels who have other risk
factors for CAD, a health plan can help those members and their providers manage their
cholesterol levels and encourage them to make other lifestyle changes that may prevent them
from developing CAD. In this way, the health plan may help reduce the risk that their members
will need medical services for the care of CAD.
On the other hand, plan members who are identified with existing CAD can receive the care they
need to slow the progress of their disease, thus reducing the need for expensive medical services
to treat the acute manifestations of the disease. Such identification and prevention initiatives for
members with established chronic conditions or diseases are considered tertiary prevention, as
defined in the lesson Preventive Care Programs.
Some health plans have reported that disease management programs also pay off in terms of (1)
overall reductions in the utilization of medical resources and (2) dollars saved by health plans and
purchasers. For instance, as we discuss in Insight 7A-5 later in this lesson, a pediatric hospital in
Atlanta has experienced an 85 percent decrease in emergency department visits and a 78 percent

decrease in unscheduled hospital admissions for children with asthma who participated in a
disease management program. As an example of cost savings, one health plan expects to realize
annual net savings between $250,000 and $500,000 from its disease management programs for
asthma and chronic obstructive pulmonary disease for its HMO members. 3

Insight 7A-1 discusses how one healthcare system attempts to measure the costs and benefits
from its disease management programs.

Although conclusive results demonstrating the impact of disease management on patient

outcomes and cost management are not currently well established, disease management programs
hold the promise of improved outcomes and lower costs in the long run. Disease management
programs may realize success in lowering costs and increasing patient, provider, and purchaser
satisfaction because they can
Encourage and enable patient self-management of a chronic condition
Help providers by supplying information about specific diseases and effective treatment


Save purchasers money by reducing the amount or intensity of healthcare services

required and, for purchasers who are employers, reduce absenteeism and improve

Disease management may seem very intuitive and some people may ask, "Don't physicians
already perform disease management for patients with chronic conditions?" The answer to this
question is yes and no. Yes, physicians and other providers have been managing individual
patients' chronic conditions for years. However, providers vary in their approaches to a particular
chronic disease. For example, in 1995, the Agency for Health Care Policy and Research
(AHCPR, now the Agency for Healthcare Research and Quality) issued CPGs for CAD that
recommend cardiac rehabilitation as a standard of care. Cardiac rehabilitation is a medically
supervised preventive program incorporating exercise, dietary changes, and medications to limit

heart damage, thereby reducing the risk of death and helping patients resume normal lives. Yet,
despite this recommendation, less than one-third of the patients who could benefit from cardiac
rehabilitation participate in a rehab program. 4 Further, not all providers are able to offer patients
a full range of disease management support services, such as diabetic education or pneumonia
vaccine reminders for congestive heart failure patients.
Of course, each patient is unique and some variation in care by providers is necessary to
accommodate the needs of individual patients. But health plans seek to support the consistent use
of basic treatment patterns that have been proven to produce the best outcomes for chronic
illnesses, thereby reducing unnecessary variation in the treatment approaches of individual
Disease management programs may also satisfy regulatory requirements. For example, some
states require that health plans cover diabetes management including insulin, glucose-monitoring
devices, and other supplies. At least one state requires that educational information about diabetes
be supplied to diabetics. A diabetes disease management program may be a useful tool to help a
health plan deliver the required services and supplies to its diabetic members.
A health plan's disease management programs may help the organization meet accreditation
agency standards for quality improvement initiatives. For instance, the Joint Commission on
Accreditation of Healthcare Organizations (JCAHO) has standards relating to the continuum of
care, education and communication, and health promotion and disease prevention. The National
Committee for Quality Assurance (NCQA) has a specific standard related to disease management
for chronic conditions and high-risk pregnancy.
The initiatives included in disease management programs can also affect evaluations of a health
plan's performance by other external entities. For example, the Health Plan Employer Data and
Information Set (HEDIS) compiles health plans' results for effectiveness of care measures such as
eye exams for diabetics, beta blocker treatment after a heart attack, and prenatal care in the first
trimester. 5
Health plans, hospitals, external organizations that specialize in disease management,
pharmaceutical manufacturers, and pharmacy benefit managers may all offer disease management
services. Some health plans establish and maintain their own disease management programs,
while others delegate some or all aspects of disease management to network providers or other
external entities.
Hospitals sometimes develop disease management programs to improve the quality of care for
their communities, to meet accreditation standards, and to demonstrate to health plans the quality
of care they provide. One strength of hospital-based disease management programs is that they
interface with members when they are ill, rather than when they are feeling more healthy, which
may result in members being more receptive to ways to become healthy, including disease
management efforts. Health plans sometimes choose to delegate disease management activities to
a hospital, particularly if the hospital's disease management program already has a good
reputation in the community.
Who Provides Disease Management?
Companies whose main business is conducting disease management programs also offer disease
management services to health plans and employers. These disease management companies may

accept the financial risk and the responsibility for clinical and administrative management for
disease populations. A health plan that uses a disease management company basically transfers
the authority to care for a population with a specific disease to the external company. This type of
delegation is often referred to as a carve-out.
The term carve-out carries several different meanings in the healthcare industry. In a general
sense, a carve-out refers to the separation of a medical service (or a group of services) from the
basic set of benefits in some way, either through the use of a separate network or delivery system
or through a different compensation method for providers. For example, a health plan may carve
out its HIV/AIDS disease management program from its other medical services by contracting
with an external company to develop and manage the HIV/AIDS program. The health plan still
retains accountability for the HIV/AIDS program. This type of carve-out is the one that is
relevant to our discussion of disease management.
In another form of carve-out, a purchaser carves out a type of service from its main contract with
a health plan. For this type of carve-out, the purchaser contracts with the health plan for a basic
medical benefit package, but also contracts with another entity for specified services, such as a
managed behavioral healthcare organization (MBHO) for behavioral healthcare services. The
health plan has no involvement with the delivery of services under a purchaser carve-out.
Often under a carve-out arrangement, patients with a chronic condition do not visit their own
PCPs for treatment of the disease. Because the PCP is typically not involved in the care process
with a carve-out, some industry observers express concern that primary care cannot be as
effective because the disease management program interferes with the continuity of care.
One new approach to arranging disease management that may address concerns about the
continuity of care is called a carve-in. A disease management carve-in is a partnership between a
specialty disease management company and a health plan in which the disease management
company acts as a consultant to the health plan's network providers who treat a particular
condition. 6 With a carve-in, a patient maintains his or her existing relationship with a PCP for all
care, including disease management. For example, Diabetes Treatment Centers of America offers
a carve-in program that supplies nurses, dietitians, and health educators to work within health
plans and other healthcare organizations to improve diabetic care. 7 In addition to improved
continuity of care, a carve-in approach may result in greater provider buy-in and increased patient
satisfaction with the concept of disease management. However, some providers are concerned
that under a carve-in arrangement, a health plan might ask PCPs to provide additional care
without adjusting their existing workloads and without providing additional support resources. 8
Pharmaceutical manufacturers offer different levels of disease management. Some disease
management programs developed by pharmaceutical manufacturers involve the use of their
products, but this trend is changing as manufacturers develop programs that focus on managing
diseases instead of using specific products. In some instances, pharmaceutical manufacturers'
disease management program offerings consist largely of educational materials provided at no
additional charge to the members of any health plan that is a national account client for the
manufacturer's drugs. Such offerings are not true disease management programs but value-added
services. A few pharmaceutical manufacturers have created separate subsidiaries to perform
disease management services. Such companies indicate that disease management is a business
unrelated to their pharmaceutical manufacturing. These subsidiaries charge customers for any
disease management services provided to the health plan. Often, the subsidiary and the
contracting health plan share in the savings generated by the disease management program. 9

Pharmacy benefit managers (PBMs) also offer disease management services to health plans. For
example, PBMs may assist in managing chronic conditions by developing formularies,
performing drug utilization review, and providing other services to manage drug use by health
plan members.
The disease management programs offered by PBMs are similar to those offered by
pharmaceutical manufacturers. One important asset PBMs offer related to disease management is
a comprehensive database that captures almost all prescription transactions of a health plan's
membership. Prescription data is entered into the database directly from the pharmacy. The
system can then deliver patient precautions and reminders that the pharmacist can print out for
patients when they pick up their prescriptions.
Establishing a Disease Management Program
Many activities are necessary to the establishment of a disease management program. For
example, a health plan must:
Determine the medical condition to be targeted
Determine the type of disease management program it will establish (i.e., coordinated

outreach model or case management model)

Examine any legal considerations that may affect the program (e.g., state privacy laws,

licensing requirements, etc.)

Determine infrastructure necessities (e.g., information management needs and financial

Develop a plan for the program
Implement the disease management program

In the following sections, we discuss each of these activities in more detail. Note that the planning
for the program (the fifth item in the list above) may include the decision to delegate some or all
aspects of the disease management program to a provider or other external organization that
offers disease management services. In this situation, the delegate may plan and execute the
specific steps for implementation. We explore issues related to delegation (sometimes called
"build or buy" issues) for disease management after the discussion of the six basic activities.
Choosing Conditions to Target
Most health plans select a chronic condition for a disease management program based on the
prevalence of a condition or high utilization and costs associated with the condition. Some health
plans may use criteria such as a high degree of unnecessary practice variation in the treatment as
a factor in choosing a particular condition to target with a disease management program. Other
health plans may examine the disease management industry's results in managing a particular
condition to choose conditions appropriate for disease management.
The list of diseases and conditions for which disease management may be effective is constantly
expanding. Many health plans have disease management programs in place for common, costly
diseases such as asthma, diabetes, and congestive heart failure. Figure 7A-1 shows some diseases
and conditions for which disease management programs are currently available.
Sometimes a health plan will initially plan to target one particular disease, but further research
may reveal that another disease is a better candidate for disease management. For example, Blue

Cross Blue Shield of Georgia (BCBSGA) wanted to be sure that its disease management efforts
yielded the greatest possible return on its investment. Initially, BCBSGA wanted to expand an
existing asthma disease management program; however, a quantitative analysis of BCBSGA's
population and data showed that the company would have a greater impact if it concentrated on
any one of five other diseases. BCBSGA adjusted its disease management efforts to incorporate
the results discovered by the quantitative analysis.10
One disease management company suggests comparing data concerning utilization patterns for
physician, hospital, and ancillary resources for different conditions to identify the disease
management programs that will have the greatest effect on clinical, financial, and member
satisfaction outcomes. This company poses the following questions in its data analysis:

How many people in a member population does a disease affect?

What is the demographic profile of these patients?
What morbidities and comorbidities are associated with the disease?
How much do the disease and related morbidities cost to treat?
What preventive measures are available, how effective are they, and how much do they
How much healthcare expenditure savings would be realized by taking preventive
What will improve patient outcomes and functional status?
Comorbidity can have a huge impact on the effective implementation of disease management
programs. Comorbidity refers to the presence of a chronic condition or added complication other
than the condition that requires medical treatment. 12 One of a health plan's greatest challenges in
disease management is designing programs that will address members' comorbidities. For
example, a member with diabetes may also have coronary artery disease. A health plan must
determine whether this member will be enrolled in two separate disease management programs or
one disease management program that addresses both diseases.
Some industry analysts stress the importance of choosing a disease for which the disease
progression and cost drivers are well understood. 13 Another important factor in choosing a
disease for disease management is an evaluation of the health plan's capabilities, strengths, and
competitive business situation. Any disease management program must fit in with the
organization's strategic mission. Competition may also play a role in selection of diseases to
target. If other health plans in a particular market offer a disease management program for
pediatric asthma, a health plan without such a program may decide to add a pediatric asthma
disease management program to make its services more comprehensive and appealing to local
purchasers. Health plans should also consider purchaser concerns when choosing diseases to
manage. The management of diseases or medical conditions that typically contribute to employee
absenteeism or low productivity may be attractive to purchasers.
Types of Disease Management Programs
Disease management programs to prevent or reduce the severity of a chronic condition often take
one of two forms: the coordinated outreach model or the case management model. A coordinated
outreach model program assembles and coordinates existing resources (such as educational
programs and network providers) to establish a standard, comprehensive course of care for a
population of patients with a particular chronic disease. The elements of this type of disease
management program include

Identification of all plan members who have or are likely to have the disease or condition
Classes or written materials to educate members about the disease and to improve patient

compliance with treatment

CPGs for providers treating the disease

Methods for tracking the progress of patients with the disease
Telephone or mail outreach programs that seek to improve the utilization and quality of

services provided aimed at providers and members

Home visits for individualized follow-up with patients are not a typical component of this model.

The case management model program is a disease management program that includes regular,
periodic monitoring and management of individual patients' health status in their homes by a
healthcare professional (typically a nurse). The nurse may make home visits or communicate via
telephone with patients. Home visits allow the nurse to examine the patient, administer
treatments, and assess needs for changes in the overall care plan. In this model, patients help
determine their own long-term care plan, including an action plan if symptoms become worse.
Based on the severity of the symptoms, the action plan may call for the patient to perform
specified self-care measures, call a telephone health information line, or seek emergency care. 16
The case management model program is most appropriate for patients whose disease type and
severity often result in acute episodes in which emergency care and/or hospitalization are
required. The home intervention component may either prevent acute episodes or treat
exacerbations before they worsen to the point that the patient must be hospitalized. Congestive
heart failure is an example of a condition that may be appropriate for a case management model
approach. 17
Both the coordinated outreach model and the case management model incorporate strategies
aimed at providers and members. Strategies directed toward providers include provider education,
the provision of CPGs, and provider profiling. Strategies for members include education on selfcare such as instruction on compliance with drug therapy instructions, performance of clinical
monitoring tests at home, and modification of diet and other behaviors. 18
Legal Considerations
Establishing a disease management program has a variety of legal implications. Health plans must
see that they or their providers have appropriate licenses for the services they offer under a
disease management program. For example, a pediatric asthma disease management program that
uses telephone triage lines staffed by nurses must verify that the nurses are appropriately licensed
in all the states in which the disease management program participants reside. Because disease
management incorporates case management, regulatory requirements that affect case
management may also impact a disease management program.
Earlier in this lesson we discussed how some state regulatory requirements can be met by disease
management programs. Health plans' disease management programs must also comply with
federal laws and regulatory requirements. For example, as you will recall from the lesson
Environmental Influences on Medical Management, a federal law called the Newborns' and
Mothers' Health Protection Act of 1996 (NMHPA) requires that health plans cover hospital stays
for childbirth for both the mother and the newborn for at least 48 hours for normal deliveries and
96 hours for cesarean births. Disease management programs targeted to manage pregnancy must

not interfere with or discourage members from availing themselves of this mandated coverage.
State and federal laws also guarantee the confidentiality of medical information and should be
scrutinized before a health plan sets up its information management system for its disease
management program.
In addition, health plans that contract with federal or state governments to cover Medicare or
Medicaid populations must comply with increasingly specific quality improvement requirements.
For example, Medicare health plans must follow the performance measurement and improvement
standards outlined by the Centers for Medicare and Medicaid Services's (CMS) Quality
Improvement System for Health Plans. Some of these standards impact health plans' disease
management programs.
Infrastructure Requirements
A health plan that decides to establish its own disease management programs must be certain that
it has the necessary infrastructure to develop and support its programs. Infrastructure
requirements include
A firm commitment from the health plan's upper management for support of the disease

management program

Financial resources to absorb the typically high start-up costs of a disease management

program and ongoing operational costs

Information management systems and support staff to meet the information needs of the

disease management program or outside information management vendors to provide

such services
Information Management Needs
Information management is a core requirement for a disease management program. Disease
management programs need information to
Identify populations at risk for diseases or who are known to have the disease
Stratify at-risk populations into high-risk, low-risk, and other risk categories for

Track cost, utilization, and types of services provided
Determine patient satisfaction using surveys and other tools
Determine the clinical and financial outcomes of the disease management program
To meet their information needs for disease management, many health plans are using one of the
following four approaches to integrate the information that is housed in separate databases or in
separate organizations: (1) an integrated data warehouse, (2) a dual database, (3) a hub-and-spoke
model, and (4) outsourcing. 19
Integrated Data Warehouse. An integrated data warehouse seeks to combine all existing
information from all data sources (e.g., medical, laboratory, pharmaceutical) into one
comprehensive system. An integrated data warehouse can support many disease management
functions; unfortunately, it may take years for a health plan to develop such a system. Other
potential drawbacks to the data warehouse approach include the sluggishness of a system that has
to sort through masses of information for a simple disease management query.

Dual Database Approach. A dual database approach involves creating a separate database that
(1) pulls from the claims database only the information necessary to respond to queries and (2)
formats the information for easy analysis. In effect, the health plan now has two databases-its
existing claims database and the new analytical database. For example, a health plan might obtain
medical coding and encounter data from the claims database and build a new database in order to
identify or stratify populations at risk for diseases. 20
Hub-and-Spoke Model. The hub-and-spoke model involves connecting multiple databases with
a central interface engine that acts as an information clearinghouse. The multiple databases are
the spokes, and the interface engine is the hub. The interface engine can query multiple databases
to assemble a virtual clinical record that includes information on prescription use from a
pharmacy database, diagnosis codes from a claims database, and lab and radiology reports from
their respective databases.21
Outsourcing. Outsourcing, which involves hiring outside vendors to provide data integration
services, is another information management option. Plans that outsource their information
management processes for disease management provide vendors with pertinent data that the
vendor then compiles into an integrated database. Often, the vendor provides the integration in
conjunction with clinical analysis and risk-stratification services.22
Because most health plans are just beginning to focus on disease management, few have
information management systems that span across all care settings and include electronic
encounter data, and the costs of establishing new, comprehensive systems such as those described
above are high. A health plan must consider the cost of developing a disease management
information system in relation to the potential medical cost savings and clinical improvement
expected from the proposed disease management program.
Planning a Disease Management Program
Ideally, disease management will be a strategic initiative in the company's corporate business
plan. Including disease management in the business plan emphasizes the organization's
commitment to the process and its belief in the benefits that disease management can produce.
An organization that decides to offer a disease management program needs a plan for introducing
and implementing that program. Planning a disease management program may include the
following activities:
Setting clearly defined, achievable goals and benchmarks for the program
Performing background literature reviews and research on effective programs and

treatment regimens
Identifying network providers to be involved in the disease management program design
Determining how the disease management program will interface with providers in the

local community (e.g., Will PCPs perform disease management functions? Will outside
providers with special training for the particular disease perform disease management?
Will there be some combination of caregivers to administer the disease management
Identifying local resources to partner with, such as hospitals or advocacy groups
Seeing that information management resources are available across all care settings to
track patients' clinical progress, providers' adherence to CPGs, financial results, and
satisfaction measures

Allocating resources for hiring staff for the disease management program (including

clinical staff, program management staff, and marketing managers)

Designing the program itself (e.g., the processes and procedures that will be used to

manage the disease including establishment of quality assessment and improvement

measures, creation of patient educational materials, identification of outcomes measures
to track)
Setting timelines for introducing the program to providers, purchasers, and patients
Determining criteria to be used in evaluating the success of the disease management
Determining how the disease management program will work with existing preventive
care, self-care, case management, utilization review, and quality management initiatives
Another essential element of a disease management program is a communications plan. Health
plans need to plan how they will inform providers, purchasers, patients, caregivers, and other
support staff about the disease management program and any program changes that occur. Health
plans may use newsletters and conduct informational meetings at providers' offices to
communicate disease management program goals and processes. A health plan's communications
plan will also include ideas for a marketing strategy. The communications plan is important
because it is the vehicle the health plan uses to obtain provider and patient buy-in into the disease
management program.
Depending on which, if any, disease management activities that the health plan delegates to
providers or other external entities, most of the planning activities listed above may be performed
by a delegate rather than by the health plan itself. However, the health plan sets the overall goals
and may establish other parameters for the delegate to follow in planning the program.
Steps in Implementing a Disease Management Program
The major steps required to implement a disease management program are

Determining the population to target with disease management

Developing the CPGs to be used by providers in caring for disease management patients
Building providers' knowledge and support of the disease management effort
Educating patients and encouraging patient self-management of the disease

We discuss these elements in the following sections.

How Health Plans Determine the Disease Management Population
Health plans use a variety of information sources to identify members with a particular disease
and to stratify those members into risk categories for disease management purposes. Typically,
health plans use enrollment data, claims data, pharmaceutical data, and diagnostic test results to
identify chronic disease populations. Some health plans also review handwritten provider data
contained in member medical records to obtain more information on their chronic disease
Identifying populations with chronic diseases is easier with comprehensive, integrated
information management systems; however, to date, few health plans have such systems in place.
One stumbling block to such integration is patient privacy and confidentiality concerns. Another
problem is lack of automation of provider information. Although more and more provider

practices are automating their encounter data, the number of physician offices with computerized
information that can be shared electronically with the health plan and other players in disease
management is still low.
Once a health plan has developed a way to integrate its databases, it can identify members who
are most likely to benefit from disease management by using an electronic clinical logic program.
An electronic clinical logic program is a type of retrospective claims analysis tool that "relies on
a series of user-defined clinical rules and algorithms to identify-based on patterns in available
data-patients with (or at risk for) a particular chronic condition." 23 Not only can these programs
identify members with a disease and those at risk, but they can also stratify the identified
population into categories based on the severity of the disease. Stratification of members with
chronic diseases is useful because it allows health plans to tailor their disease management
programs to different target populations using different levels of interventions. For example, a
member with a mild form of a chronic disease may benefit by receiving an educational mailing
explaining methods to manage the disease. Direct contact by a disease management specialist and
ongoing monitoring to help prevent acute manifestations of the disease may be more beneficial to
members with a severe form of the disease. 24
Developing Clinical Practice Guidelines for a Disease Management Program
Developing and implementing CPGs is a core component of disease management programs.
Some health plans create their own practice guidelines based on their review of past successes
with courses of care. Others adopt CPGs created by the Agency for Healthcare and Policy
Research (AHCPR, now known as AHRQ) or other organizations, then customize those CPGs to
local needs with the input of local providers.
CPGs typically recommend specific clinical services that may be appropriate for a particular type
of patient. Because disease management encompasses services from various types of providers
delivered in various care settings, a CPG for disease management may also include
recommendations on who (e.g., physician, nurse, physical therapist) should deliver a particular
service and where (e.g., in the hospital, in the provider's office, in the member's home).
Educating Providers and Building Provider Support
Successful disease management programs often involve providers in the disease management
process from the very beginning. They seek providers' ideas about how to structure the program
and, after implementation, ask for feedback on changes to be made. Such disease management
programs communicate the goals of the program clearly and early to providers. One health plan
vice-president explained the relationship between disease management and physicians in this
Physicians are rightly suspicious when someone wants to change the way care is

delivered. It's important to help physicians understand that disease management programs
are not replacements but supplements and complements to the services they already
provide. 25
Most disease management programs provide some form of provider orientation early in the
disease management development process. Some programs conduct a pilot program before
instituting a system-wide disease management effort. Pilot programs can help convince providers
of the results that disease management programs can produce.

One of a disease management program's most challenging tasks is convincing providers to

modify their practice patterns. Health plans may benchmark providers' behavior and care methods
against best practice performance data. Health plans can show providers if a gap exists between
the most effective clinical course of care for a condition and the course of care the provider has
followed in the past. Scientific evidence demonstrating that one therapy yields better outcomes
than another is a great persuader for providers to change their practice patterns. 26 Two effective
ways to achieve buy-in and continuing participation in a disease management program are
To inform providers about ways to change their practice patterns to benefit the health

status of the chronic disease patient

To supply data to providers on outcomes that illustrate the impact of the suggested

changes in the treatment of the patient

Insight 7A-2 describes how a disease management company supplies providers with tools to help
them implement disease management procedures.
Many health plans use financial incentives to encourage provider participation and compliance
with disease management program initiatives. For example, a health plan might pay a flat fee to
PCPs for appropriate referrals into a disease management program for congestive heart failure.

Educating Providers and Building Provider Support

Providers who participate in a disease management program may realize the potential positive
effects that disease management may have on health outcomes, patient satisfaction, and their
practices. One approach to streamlining care that has emerged is called the group clinic, which is
a medical appointment for a group of people who share similar medical and psychosocial issues.
For example, group clinics have been used successfully with diabetic patients. The group clinic
appointment is usually 90 minutes in length and is co-led by a physician and a behavioral
healthcare professional. During the appointment, the physician writes or changes prescriptions for
medications, orders tests and discusses test results, reviews charts and documents each patient's
visit, answers medical questions, and discusses treatment options in the group setting.

As needed, the group clinic may involve a brief, private medical examination or individual
discussion during group time. Patients can benefit from the group clinic by sharing similar
experiences, learning about healthy lifestyles, and receiving support from peers with similar
medical, emotional, and lifestyle concerns. Physicians benefit in terms of time by having fewer
individual office visits and being able to deliver information about drug side effects or
educational material to several people at once. 28
Educating Patients and Encouraging Patient Self-Management
Patient participation and compliance with program efforts are crucial for effective disease
management. If a patient does not comply with a care regimen designed by a provider or disease
management program, the disease cannot be managed. One industry source identifies four goals
that a disease management program should ask members to strive toward in order to manage a
chronic disease:
1. Recognize and report symptoms to their providers or case managers and participate in planning
or revising treatment plans
2. Comply with providers' instructions concerning medications or other forms of care
3. Make lifestyle changes as needed to affect the progression of the disease
4. Follow up as scheduled with their providers or case managers to monitor compliance with
treatment instructions or lifestyle changes29

To be successful in getting members to adopt and follow these four goals, members must
understand the disease they have, its typical course of progression, and the impact lifestyle
changes and medications can have on the severity of the disease. Patient education about specific
diseases has proven successful in encouraging member participation in and commitment to
disease management.
Health plans use various tools to educate members about diseases, including
Mailing educational information directly to a member identified as having a disease or

being at risk for a disease, or mailing such information to PCPs for distribution
Conducting group classes led by a nurse or other healthcare provider concerning selfmanagement of a disease in locations such as providers' offices, schools, or places of
Establishing telephone information lines staffed by nurses to answer members' questions
about the disease
Providing self-management kits that may include educational videotapes or pocket
reference guides as well as daily diaries and other tools useful for managing the particular
Facilitating direct contact with providers who explain the disease verbally and provide
members with written material that gives more detail about the disease
Providing information over the Internet and/or suggesting reliable Internet resources for
disease-specific information
Facilitating membership in local or national support groups for particular diseases or
Co-sponsoring educational events with local organizations or chapters of national
organizations such as the American Cancer Society

Insight 7A-3 describes a unique method of educating children about chronic diseases using video
Once members have been educated about the disease, they need motivation to address the
components of the disease over which they can exercise some control. This process is called selfmanagement. Some members are self-motivated to participate in a disease management program
and follow the regimen outlined under the program. These members see the benefits to
themselves in terms of their sense of regaining control of their health, improving the quality of
their lives, and saving money by avoiding deductibles and copayments for acute services. 30

However, not all members are intrinsically motivated to participate in or follow the course of
treatment prescribed by disease management programs. For these members, external incentives
and information on the potential benefits of self-management and the consequences of not
managing the disease may help sway them to participate in a disease management program.
Some disease management programs use negotiated contracts that outline the roles of the patient,
caregivers, providers, or others involved in the disease management process. Patients formally
sign the contract, agreeing to a particular series of actions to combat the disease. Either included

in the negotiated contract or set forth in another contract can be a series of rewards for patients
who comply with their course of treatment. The rewards can be small gifts or "good behavior"
commendations from the provider.31
Sometimes the influence of family, friends, spouses, co-workers, or significant others may
encourage a member to enroll in a disease management program. These groups of people can
become coaches and support resources for the member in following the disease management
Delegation Issues for Disease Management
Once a health plan decides to establish a disease management program for a particular condition,
the health plan must decide whether to develop its own disease management program or delegate
the program to a provider or other supplier of disease management services. To make this
decision, a health plan should examine its strategic mission and answer the following questions:
Is unified, all-inclusive care a core concept of the health plan?
What effect will the delegation have on continuity of care for members?
Does the health plan have the human, information management, and monetary resources

needed to develop its own disease management program? Many disease management
programs require the hiring of additional staff, such as nurse educators, physicians whose
primary function is to implement disease management programs, and psychosocial
support staff.
Does the health plan have the time required to develop its own program when competing
health plans may already have a program in place?
If a health plan decides to delegate all or part of a disease management program, it needs to
consider the following qualifications in selecting a disease management delegate:
What sort of financial arrangement will the delegate accept?
o Will the delegate accept capitation as a payment method for disease

Will the delegate accept a risk-sharing arrangement under which the delegate
agrees to manage a group of chronic disease patients? In this type of
arrangement, the delegation contract sets forth an estimated total cost for
managing the group and the delegate receives no payment until a predetermined
reduction in medical costs is achieved. If the delegate's disease management
program does not result in medical cost reduction, it loses money or has a
reduced profit.32 These risk-sharing arrangements are sometimes referred to as
financial performance guarantees. Sometimes a disease management delegate
will agree to a performance guarantee under which payment for services is based
on clinical results. Note that improved clinical outcomes may not immediately
translate into medical cost savings.
How much experience does the delegate have with disease management in general and
with the particular disease for which the health plan is seeking a disease management
What are the quantitative and qualitative results (e.g., financial, clinical, and member and
provider satisfaction outcomes) the delegate has achieved with similar disease
management programs for other clients?

What information does the health plan have about the quality of the delegate's work and

the qualifications of its staff?

What processes does the delegate use for sharing clinical information with the health


What CPGs does the delegate use? Are those CPGs current and how were they


Health plans that delegate disease management must also understand their liability with respect to
the actions of the delegate. The health plan is ultimately accountable for any delegated disease
management activities. In many cases, the health plan can be held liable in a court of law for the
actions of its disease management delegate even if the delegate appears to assume full risk for the
Evaluating Disease Management Program Results
Measuring outcomes allows a health plan to obtain information on the results of its disease
management program as well as some idea of how well certain processes are working. Outcomes
can be classified into three categories: clinical outcomes, member satisfaction outcomes, and
financial outcomes. For example, did the disease management program improve the physical
health or quality of life for members who participated in the program? A cost/benefit analysis
may reveal if the disease management program saved money by reducing the overall number of
emergency department visits or hospital admissions, for instance, due to acute asthma attacks or
diabetic ketoacidosis. Were the savings offset by the start-up costs the health plan paid to
establish the program?
Some clinical outcomes are labeled as true outcome measures while others are viewed as
intermediate outcome measures. True outcome measures "demonstrate whether the intended
results of the patient's care processes have been achieved." 33 Intermediate outcome measures
demonstrate progress toward the intended results. To illustrate the difference between a true
outcome measure and an intermediate outcome measure, consider a specific disease management
program. A true outcome measure for a diabetes disease management program would be the
percentage of diabetic patients who undergo foot amputations. An intermediate disease
management outcome measure for this program would be the percentage of members who receive
foot exams from their providers according to the recommended guidelines of the disease
management program.
An example of a clinical true outcome measure for an asthma disease management program is the
number of emergency department visits for acute asthma attacks. A clinical intermediate outcome
measure for asthma may be the number of asthma patients who are appropriately using peak flow
Outcome measures and process measures together help a health plan identify best practices. An
example of an important process measure for a disease management program is the level of
providers' adherence to CPGs. Once the health plan has this information and measures of clinical
outcomes, it can determine whether the guidelines have impacted patient care. If the clinical
outcomes do not reflect the projected improvements in participants' health status, the CPGs for
the disease management program may need to be revised. Note, however, that some clinical
outcomes of disease management, such as lowering the number of foot amputations for diabetic

patients, may take years to show noticeable results and the health plan should factor such
considerations into its expectations for outcomes. The process of reviewing and testing CPGs to
see if they improve the care of patients with chronic diseases is called outcome validation. 34
Insight 7A-4 suggests some meaningful outcome measurements for a diabetes disease
management program.
Providers, members, employers, and the health plan can all be involved in measuring outcomes.
Providers report changes in the health status of their patients to the health plan. Members may
respond to satisfaction surveys. Employers may be asked to provide information on days of work
missed. The health plan collects, analyzes, and develops reports using its own data plus
information received from the other players.

Information management tools play a key role in the evaluation of a disease management
program. Computers can assist in analyzing quality and cost information to develop a
comparative analysis looking at outcome measurements before and after the implementation of a
disease management program. Health plan executives then use this information to determine if
the disease management program is achieving its goals, and, if not, what steps need to be taken to
address program inadequacies. Computer models can help health plans pinpoint certain elements
of their disease management program that may be generating higher costs than were initially

Challenges and Limitations of Disease Management Programs

While some disease management programs have proven successful in keeping patients healthier
and saving money, disagreement exists concerning the overall effectiveness of disease
management. For example, in many cases, patients with existing chronic conditions have more
than one chronic disease. A person with hypertension may also have congestive heart failure
(CHF) and chronic obstructive pulmonary disease. A disease management program that targets
only the patient's hypertension does not address the comorbidities. Because many disease
management programs available today are designed to focus only on one disease, the individual
with hypertension would have to be enrolled in three separate disease management programs to
address each chronic disease or the health plan would have to choose one of the chronic diseases
to target. Skeptics on the effectiveness of disease management programs argue that such an
approach fragments the care to an individual and does not supply a unified, preventive regimen
that addresses all of an individual's illnesses in one program. However, a recent trend in disease
management is to expand disease management programs to handle comorbidities.
Another initial challenge in establishing a disease management program is the expense of startup.
Delegates often offer money-back guarantees on their disease management results; however, a
health plan must still find the funds to engage a delegate or start its own program. Both prospects
can be prohibitively expensive to some health plans.
To date, disease management programs identify members of a certain population at risk and
invite those members to participate in the disease management program. Participation is
voluntary, and not all at-risk members choose to participate in disease management programs.
Because participation is voluntary, the health plan is unable to implement true population-based
disease management. For example, most CHF disease management programs target only
members with severe cases of the disease-about 15 percent of a health plan's population with
CHF. Of that 15 percent, only about half are actively managed because other members with CHF
choose not to participate in the program or have comorbidities or pre-existing conditions that
exclude them from the program's eligibility. 35
Getting patients to participate in a disease management program is not the only hurdle for a health
plan contemplating a disease management program. Patient turnover is also a challenge. When
patients switch providers or change health plans, the patient may drop out of or become ineligible
for the disease management program in which they were participating. Such turnover makes it
difficult for health plans to accurately assess the results of their disease management efforts.
As we discussed earlier in this lesson, managing information related to a patient's condition is a
cornerstone of most disease management programs. Being able to automate patient information
and make it available to all care providers in all settings is a definite advantage for disease
management. However, patient information privacy and confidentiality laws and regulatory
requirements may present barriers to making automated information available to all care
providers. While efforts are underway to create electronic medical records that are secure, neither
the public nor the medical community has embraced these concepts yet.
Automating patient information is only one step in the information management systems and
processes that make a disease management program a success. Historically, health plans' data on
their members have been scattered in multiple databases that often are not connected to each
other. Health plans have enrollment information and claims data, providers have encounter data
(often handwritten), and pharmacies that participate in the health plan have data on prescription

drug use. As we discussed earlier, many health plans are addressing these disparate sources of
information and working to create information systems that house all member information in one
location or use sophisticated information technology to pull information from separate system
locations. Obtaining and managing data on a health plan's members is a costly proposition and
quite a challenge for health plans in implementing a disease management program.
Finally, lack of provider support can result in the failure of a disease management program. In
addition to obtaining provider support, disease management programs often encounter difficulty
when trying to modify providers' clinical practice patterns to reflect the disease management
program methods.
Although most healthcare players would probably agree that managing diseases is a positive
strategy to improve the health status of plan members, establishing disease management programs
for every chronic disease is not economically feasible. Earlier in this lesson we explained how
Blue Cross Blue Shield of Georgia reevaluated the diseases it had chosen to target with disease
management after performing a data analysis of its membership's health status. Health plans must
examine the costs, which may be quite high, in starting a disease management program versus the
anticipated benefits of the program.
How does a health plan or disease management delegate bring together its resources and
information to develop and then analyze the effectiveness of a disease management program? As
might be expected, the answer varies according to a variety of factors including the organization's
goals and resources for disease management, the targeted disease, applicable regulations and
accrediting standards, and expectations of members, providers, and purchasers.
We conclude this lesson with an insight that illustrates one approach to establishing a new disease
management program. Insight 7A-5 describes a hospital-based disease management program in
Atlanta and explains how the hospital progressed through the steps of planning, implementation,
and evaluation in creating its pediatric asthma disease management program.

1. Thomas Bodenheimer, M.D., "Sounding Board: Disease Management-Promises and
Pitfalls," The New England Journal of Medicine 340 (15 April 1999): 1203.
2. The 2004 Disease Management Directory. National Health Information, Atlanta, GA,

3. "High Start-Up Costs of Disease Management Programs Offset by Improved Outcomes,

Lower Utilization, Reduced Costs," Health Plan Week (21 June 1999): 7.
4. William N. Tindall, Ph.D., R.Ph., "Cardiac Rehab: Movement and Medication," Business
& Health (February 1998): 49.
5. National Committee for Quality Assurance, Accreditation '99: Standards for the
Accreditation of Health Plans (Washington, DC: National Committee for Quality
Assurance, 1998), 13.
6. Matt Mahady, "Carving-in Care: Evolving Tactics for Chronic Care Management,"
Managed Healthcare News (June 1999): 15.
7. Thomas Bodenheimer, M.D., "Disease Management-Promises and Pitfalls," The New
England Journal of Medicine (15 April 1999): 1204.
8. Matt Mahady, "Carving-in Care: Evolving Tactics for Chronic Care Management,"
Managed Healthcare News (June 1999): 16.
9. Karen Southwick, "To Partner or Not to Partner?" Health Forum Journal,
http://www.amhpi.com/thfnet/th960104.htm (13 April 1999).
10. Aidan N. Farrell, Kenneth L. McDonough, M.D., and John H. Meyers, "Session 61:
Creating the Information Roadmap for Chronic Disease Management," 1999 HIMSS
Proceedings 2 (The Healthcare Information and Management Systems Society, 1999),
11. Adapted from Aidan N. Farrell, Kenneth L. McDonough, M.D., and John H. Meyers,
"Session 61: Creating the Information Roadmap for Chronic Disease Management," 1999
HIMSS Proceedings 2 (The Healthcare Information and Management Systems Society,
1999), 137. Used with permission.
12. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd ed. (Gaithersburg, MD:
Aspen Publishers, Inc., 1998), 153.
13. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd ed. (Gaithersburg, MD:
Aspen Publishers, Inc., 1998), 44.
14. Karen Southwick, "To Partner or Not to Partner?" Health Forum Journal,
http://www.amhpi.com/thfnet/th960104.htm (13 April 1999).
15. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,
MD: Aspen Publishers, Inc., 1997), 183-184.
16. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,
MD: Aspen Publishers, Inc., 1997), 181, 183-184.
17. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,
MD: Aspen Publishers, Inc., 1997), 181, 183-184.

18. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,
MD: Aspen Publishers, Inc., 1997), 184-187.
19. John Meyers, "Beyond Intervention: Data Warehousing and the New Disease
Management," Managed Healthcare (January 1998): 30.
20. Carl Peterson, "The Technology of Disease Management," Healthplan (March/April
1999): 80.
21. Carl Peterson, "Using Technology to Target Disease Management Approaches,"
Healthplan (May/June 1998): 16
22. Ed Rabinowitz, "Seeing the Big Picture: Expanded Views of Disease Management Hold
Promise for the Future of Health Plan," Managed Healthcare News (August 1999): 24.
23. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,
MD: Aspen Publishers, Inc., 1997), 180.
24. "Developing and Implementing Provider and Practice Support Tools," The Health Plan
Yearbook, 4th ed., Melanie A. Matthews, ed. (Manasquan, NJ: The Health Plan
Information Center, 1998), 242.
25. "About Lovelace Healthcare Innovations," Lovelace Healthcare Innovations, 1998,
http://www.lhiweb.com/LHI.htm (7 October 1999).
26. "Developing and Implementing Provider and Practice Support Tools," The Health Plan
Yearbook, 4th ed., Melanie A. Matthews, ed. (Manasquan, NJ: The Health Plan
Information Center, 1998), 242.
27. Edward B. Noffsinger, Ph.D., "Increasing Quality of Care & Access while Reducing
Costs through Drop-In Group Medical Appointments," Group Practice Journal (January
1999): 12-18.
28. Scott MacStravic and Gary Montrose, Managing Health Care Demand (Gaithersburg,
MD: Aspen Publishers, Inc., 1998), 480.
29. Scott MacStravic and Gary Montrose, Managing Health Care Demand (Gaithersburg,
MD: Aspen Publishers, Inc., 1998), 487.
30. Scott MacStravic and Gary Montrose, Managing Health Care Demand (Gaithersburg,
MD: Aspen Publishers, Inc., 1998), 488.
31. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,
MD: Aspen Publishers, Inc., 1997), 187.
32. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,
MD: Aspen Publishers, Inc., 1997), 73.
33. James B. Couch, M.D., The Physician's Guide to Disease Management (Gaithersburg,
MD: Aspen Publishers, Inc., 1997), 75.

34. Lisa Ketner, "Population Management Takes Disease Management to the Next Level,"
Healthcare Financial Management (August 1999): 38.

AHM Medical Management: Medical Management Strategies for Acute Care

After completing this lesson you should be able to:
Describe the potential benefits and drawbacks of using hospitalists for the management of
inpatient acute care
Explain why the utilization of emergency services is an ongoing concern for health plans
and describe some approaches that health plans may use to improve UM for emergency
Explain how clinical pathways may be useful for medical management and how a health
plan can facilitate the development of these tools
Define the term center of excellence and describe how the use of centers of excellence
may benefit a health plan's medical management programs
Most of our discussion of medical management up to this point has focused on primary care and
secondary care (care delivered by specialists). We have also described medical management
approaches for preventive care and for the management of chronic conditions. However, a health
plan also needs medical management programs for levels of care that involve more extensive
This lesson explores medical management strategies and tools that a health plan may use to
support the quality, appropriateness, and cost-effectiveness of care delivered in acute care
What is Acute Care?
Acute care refers to healthcare services for medical problems that require prompt, intensive
treatment by healthcare providers in order to restore a previous state of health or prevent the
worsening of an existing condition. Acute care typically addresses healthcare needs that are
expected to be of limited duration, usually no more than 30 days. 1 In many instances, the need for
acute care arises suddenly, as in the case of myocardial infarction or injuries from a motor vehicle
accident; however, acute care may also be necessary for a chronic condition that has gradually
worsened over time. The utilization of resources, including provider time and expertise,
medications, supplies, equipment, and facilities, is usually quite substantial for acute care. Acute
care is typically the most costly level of care.
The settings where acute care most often takes place are acute care hospital inpatient units and
emergency departments. Many health plans have developed medical management initiatives
specifically for hospital inpatient care and for emergency department (ED) services, as described
in the next sections. After the discussion of emergency services, we explore two additional
medical management strategies that may be useful for improving the delivery of acute care:
clinical pathways and centers of excellence.
Management of Inpatient Acute Care
The management of care for members admitted to acute care hospitals is critical to both
healthcare quality and cost-effectiveness. Hospitalized members are typically suffering from a
serious illness or injury or are at risk of significant complications related to a medical condition.

Their well-being depends in great part on the quality of the care they receive. Further, many
inpatients have multiple medical problems that require the attention of various medical specialists
and ancillary providers. The resulting recommendations for care are often complex and even
Coordination of the care from the different providers is needed to prevent the delay, omission, or
duplication of medically appropriate services and to protect patients from unnecessary
interventions. The physician in charge of coordinating inpatient care for a patient is called the
attending physician.
Effective management of inpatient care not only improves clinical outcomes, it also enhances the
efficient utilization of inpatient facilities and associated medical resources. Because inpatient care
represents a large proportion of a health plan's total costs for care, health plans need attending
physicians who understand the importance of managing both the quality and cost of inpatient
The Role of the Attending Physician
Ideally, an attending physician visits each inpatient at least once a day to (1) assess progress
toward recovery and provide emotional support, (2) see that appropriate tests and treatments are
ordered and delivered, and (3) perform concurrent utilization review (UR) and participate in
discharge planning. The attending physician should also communicate regularly with other
providers involved in the patient's care. Health plans may need to educate specialists and other
providers on the attending physician's role as care coordinator. 2
Health plans should require specialists to provide regular updates and to direct care back to the
attending physician when appropriate. Specialists should not initiate new courses of care without
consulting with the attending physician. The attending physician may have already ordered the
recommended test or treatment or know additional information that indicates a different approach
to care. 3
For complex inpatient cases, the attending physician often receives assistance from a health plan
or hospital case manager, as we discussed in lesson Case Management. Case managers may help
with preauthorization of the hospital admission and specific procedures, concurrent UR, and
discharge planning.
PCPs as Attending Physicians
Health plans that rely on primary care providers (PCPs) for the coordination of care typically take
one of two approaches to the management of inpatient care. Under the first, more traditional
approach, each member's own PCP acts as the attending physician, even if specialists or ancillary
care providers actually deliver most of the healthcare services. (In Healthcare Management: An
Introduction, we described how members' PCPs act as attending physicians.) Management of
inpatient care by a member's PCP has several potential benefits:
Continuity of care during the inpatient stay because of the PCP's previous knowledge of

the member

Emotional support for the hospitalized member in the form of regular visits from a

familiar provider

Participation of a PCP who knows the patient, as well as the patient's medical history, in

concurrent review and discharge planning

Continuity of care after discharge from the hospital because the PCP will be familiar with

the inpatient course of care

In addition, a PCP who has knowledge of a member's capabilities and support systems may be a
better judge of the level of care required and the most appropriate care setting than a physician
who is not familiar with the member. 6
As an alternative approach to using members' PCPs to manage inpatient care, a health plan may
include hospitalists in its provider network to address the needs of hospitalized patients.
Hospitalists, also known as inpatient specialists or designated attending physicians, are
physicians who spend at least one-quarter of their time in a hospital setting where they serve as
the attending physicians for patients who have been temporarily transferred to their care by
community PCPs. The patients return to the care of their original PCPs after discharge. 7
A hospitalist may manage inpatient care on behalf of a health plan, the hospital, or a provider
group. Although some hospitalists practice exclusively in a hospital setting, others maintain
outpatient practices as well.
Hospitalists are usually internal medicine physicians, although many have specialties or
subspecialties in fields such as pulmonology, cardiology, or critical care medicine. They typically
have extensive experience with the most common illnesses and injuries that lead to
hospitalization, such as pneumonia and myocardial infarction. In some instances, hospitalists
participate in the assessment and treatment of health plan members who come to a hospital's
emergency department for care. However, they generally do not manage obstetric, pediatric, or
oncology cases.
The use of hospitalists is a recent development in the healthcare industry in the United States. The
overall impact of hospitalists on the cost-effectiveness and quality of inpatient care has yet to be
determined and the practice remains controversial. In the following sections, we explore potential
benefits and drawbacks of the hospitalist approach (as summarized in Figure 8A-1) and possible
strategies for health plans that use a hospitalist system.

Potential Benefits of the Hospitalist Approach

Having a physician dedicated to inpatient care may benefit the health plan, its members, and the
community PCPs who contract with the health plan. A hospitalist's presence on site, knowledge
of conditions requiring inpatient care, and familiarity with the hospital's procedures can expedite
the delivery of appropriate diagnostic and therapeutic services. As a result, patients may have
faster recoveries and shorter stays in the hospital. Management of care by hospitalists may
significantly reduce the length of stay and the total costs of care for a hospital admission. 8 The
efficient use of resources may also benefit a hospital that is compensated on a case rate or
capitation basis.
Hospitalists are often more accessible to hospitalized members and their families than a PCP who
makes rounds on inpatients only once or twice a day. Increased interaction with the member and
family allows the hospitalist to monitor the patient's evolving needs and to actively participate in
patient education.
In addition, a hospitalist is likely to be more familiar with a health plan's utilization management
(UM) and quality management (QM) standards for inpatient care than the average community
PCP, so the use of hospitalists may reduce unnecessary variations in care and improve clinical
outcomes. A hospitalist who participates in emergency care can facilitate notification of the
health plan and the member's PCP and see that the member is directed to the appropriate level of
care, such as acute inpatient care, follow-up with a PCP or specialist, or home care. A hospitalist

in the ED eliminates the need for community PCPs to rush to the hospital each time one of their
patients visits the ED.
As more and more healthcare services shift to outpatient settings, community PCPs often have
only a few patients in a hospital at any given time. Traveling to the hospital once or twice a day to
visit a limited number of patients is generally not an efficient use of PCP time. For PCPs in rural
areas with a limited number of healthcare practitioners, time management is often a significant
concern. Further, some PCPs may not have the range of knowledge to be the most effective care
coordinators for hospitalized members with complex conditions. As a result, many busy PCPs
appreciate being able to turn their hospital patients over to an inpatient specialist so that they can
focus on their ambulatory patients.
A hospitalist can also support the appropriate use of resources and discuss any problems related
to healthcare quality or resource use with the health plan's medical director. Further, a hospitalist
system may facilitate communication with a health plan's medical management staff. The health
plan's UM and QM personnel can contact the hospitalist for all questions and issues related to
hospitalized members rather than having to contact each member's own PCP.
Although the use of hospitalists has grown rapidly since the mid 1990s, health plans, physician,
and patient reaction to this practice has been mixed. Some health plans and PCPs believe that the
use of hospitalists may disrupt the continuity of care because the hospitalist is not familiar with
the patients, their health histories, personal preferences for healthcare, and support systems. These
health plans and PCPs feel that the interests of patients are better served through the continuous
participation of community PCPs across all care settings than through inpatient management by a
Some PCPs are concerned that a busy hospitalist who oversees the care of many patients will not
have enough time for individual patients and their families. 10 Further, if a patient is dissatisfied
with care from a hospitalist or is simply unhappy about having care managed by an unfamiliar
physician, the PCP-member relationship may suffer.
In addition, PCPs may want regular involvement with hospital care in order to maintain their
inpatient management skills and stay up-to-date with advances in pharmaceutical treatment and
medical technology. Some PCPs fear that they might lose hospital-admitting privileges if their
skills and knowledge are not current.
Strategic Considerations for a Hospitalist System
The selection of experienced, respected physicians as hospitalists is crucial to the acceptance of
the hospitalist concept by community PCPs. 11 Regular communication between hospitalists and
PCPs can enhance the quality and continuity of care and PCPs' comfort levels. Communication
with the hospitalist allows a community PCP to have input into the care plan for a particular
patient, monitor the patient's progress, and prepare for the transfer of the member's care back to
the PCP after discharge from the hospital.
For QM and risk management purposes, the health plan should regularly assess clinical outcomes
and satisfaction among plan members whose inpatient stays have been managed by a hospitalist.
If hospitalist care appears to compromise clinical or satisfaction outcomes, the health plan must
develop and implement a plan of corrective action to improve these outcomes.

One of the main controversies related to hospitalists is the use of mandatory hospitalist programs
by health plans. In a mandatory program, PCPs must transfer responsibility for the care of
hospitalized patients to a hospitalist. Clear advantages of mandatory programs over the voluntary
use of hospitalists have yet to be established. In addition, many physicians have indicated
opposition to a mandatory hospitalist system. Because community PCPs may not be comfortable
with inpatient care management by hospitalists, most health plans that use hospitalists offer their
PCPs the option of managing inpatient care themselves or turning their hospitalized patients over
to a hospitalist.
Health plan members may also be apprehensive about having their course of hospital care
managed by a physician with whom they are unfamiliar. A PCP's approach to explaining the
hospitalist process and its benefits to the member can influence the member's acceptance of and
satisfaction with the hospitalist, so a health plan may benefit by working with its PCPs on the
presentation of the hospitalist concept to members. 12
Medical Management for Emergency Services
The purpose of emergency services is to provide immediate access to acute care for patients who
are not currently hospital inpatients. The availability of emergency services is often essential to
the successful diagnosis and treatment of critical conditions such as myocardial infarction,
appendicitis, and severe injuries.
A health plan must support the quality of the emergency services delivered to its members by
regularly reviewing the outcomes and QM processes of emergency service providers. A health
plan should investigate deaths and other adverse outcomes related to emergency care for any
deficiencies in the provider's quality of care. Figure 8A-2 lists some factors that a health plan may
monitor to evaluate the quality of emergency services.

Appropriate care in the emergency department typically improves clinical outcomes and reduces
the overall utilization of resources for an episode of care. For example, prompt, appropriate
treatment for a member suffering a severe asthma attack may result in a shorter hospital stay for
the member or even eliminate the need for hospitalization. In addition, convenient access to highquality emergency care improves members' overall satisfaction with a health plan.
However, emergency services carry a high cost to health plans because of:
The intensity of the resources (personnel, supplies, medications, and high-technology

devices) utilized
Overhead charges associated with maintaining the facility and its resources for immediate


Cost-shifting for unreimbursed services delivered to individuals who lack healthcare

The delivery of duplicate services or unnecessary services by providers who are not
familiar with the patient or the patient's history
The high cost of emergency services is compounded by the fact that, in many instances, health
plan members who seek care from emergency care providers (typically EDs in hospitals) do not
need this level of care. Members with nonemergency situations often visit EDs for the following
Inability to determine if a health problem is life- or limb-threatening
Lack of access to immediate care in another setting (e.g., PCP office is closed or no

appointment is available on that day)

Lack of knowledge about appropriate use of the ED and other care settings
Convenience of the ED compared to other settings

In addition to generating high costs, members who seek nonemergency care in the ED may create
congestion and interfere with the unit's ability to provide immediate treatment for real
emergencies. Further, these members may be dissatisfied with the length of time they have to
wait for care because EDs treat patients based on the results of triage. Triage is the classification
of patients into categories according to the severity of the illness or injury and the resulting need
for acute care. Cases classified as more severe take priority over less severe conditions, even
though the less severe cases may have arrived first at the ED. Ideally, a triage examination
follows evidence-based guidelines that were developed specifically for emergency care.
The challenge for health plans is to support the delivery of emergency services for legitimate
emergencies while directing members with nonemergency conditions to primary care settings or
urgent care centers. An urgent care center is a healthcare facility that provides immediate care to
ambulatory patients for minor illnesses and injuries. Urgent care centers often have hours that
extend beyond the office hours of most PCPs and may even be open 24 hours a day. The costs of
urgent care are higher than the costs for primary care delivered in a provider's office, but are
significantly less than those for emergency services because urgent care typically requires less
intensive and less expensive facilities, personnel, or equipment than an ED.
Health plans have tried a variety of approaches to manage the utilization and costs of emergency
services, as we describe in the following sections.

Authorization Systems for Emergency Care

Authorization requirements for emergency services vary greatly from one health plan to another.
Some health plans have required preauthorization for emergency services; however, this approach
may pose risks to members' well-being if the authorization process results in the delay or
nonauthorization of care for conditions that are truly life- or limb-threatening. Some health plans
perform retrospective review on claims for emergency services and base payment decisions on
the final diagnosis of the condition rather than on the member's symptoms at the time of the visit
to the ED. Both preauthorization requirements and diagnosis-based retrospective review of
emergency services have come under critical scrutiny by legislative, regulatory, accreditation, and
healthcare industry entities, and by the media and the general public.
The majority of health plans follow the prudent layperson standard or a similar rule for
determining coverage of emergency services. The prudent layperson standard (as described in
the Balanced Budget Act of 1997) defines an emergency as "a medical condition manifesting
itself by acute symptoms of sufficient severity (including severe pain) such that a prudent
layperson, who possesses an average knowledge of health and medicine, could reasonably expect
the absence of immediate medical attention to result in placing the health of the individual in
serious jeopardy, serious impairment to body functions, or serious dysfunction of any bodily
organ or part." 14
Twenty-six states have adopted the prudent layperson standard (or a variation of that standard) for
defining emergencies and require health plans to reimburse care according to that standard. 15
The Balanced Budget Act of 1997 (BBA) established the use of the prudent layperson standard
for Medicare and Medicaid health plans. The BBA also prohibits preauthorization requirements
for Medicare and Medicaid plan members.
The federal Emergency Medical Treatment and Active Labor Act (EMTALA) of 1986, as
described in Figure 8A-3, requires hospitals that receive Medicare reimbursement to screen and,
if necessary, stabilize all patients who come to their emergency departments. To reduce the
amount of unreimbursed care provided by EDs, some states place restrictions on health plan
requirements for preauthorization of emergency services and retrospective nonauthorization of
payment for those services. For example, the New York Health Plan Reform Act of 1996
stipulates that health plan members do not need prior authorization for emergency treatment.
Most health plans, including those in states that have not adopted the prudent layperson standard,
have moved away from strict authorization requirements for emergency services and are using
other methods to decrease the delivery of nonemergency services through the ED.

Other Strategies for Managing ED Utilization

As we discussed in lesson Self-Care and Decision Support Programs, some health plans have
telephone triage lines to help members determine what level of care is needed for a medical
problem. However, many health plan members do not have access to a telephone triage service,
or in their distress about the illness or injury, they forget to call the triage line. A health plan that
is attempting to reduce inappropriate utilization of emergency services may need additional
strategies such as
Educating all members on the appropriate use of the ED and other care settings
Identifying members who repeatedly use the ED in order to provide them with additional

education and, perhaps, access to other medical management programs

Improving access to primary care and urgent care settings

Education for the Member Population

Many consumers simply do not understand the concept of different levels of care and appropriate
settings for care delivery. Typically, these consumers seek healthcare only after a problem is
apparent and do not have an established relationship with a PCP. Whenever a healthcare need
arises, their automatic response is to go to the ED at a nearby hospital.
To help members access the appropriate level of care, a health plan may take a proactive
approach and distribute information describing different care settings (such as PCP offices, urgent
care centers, and emergency departments) and the purpose of each of those settings to all
members of a health plan. This type of information may be included with the provider directory.
A health plan that uses a telephone triage system may encourage members to use this service by
decreasing the ED copayment for members who call the triage line prior to going to the ED.

Focused Strategies for Individual Members

Instead of providing instruction about appropriate care settings to all members, a health plan may
target its messages about inappropriate utilization of emergency services to members who have
demonstrated a pattern of using the ED for primary or urgent care. Health plan members may also
receive education about appropriate use of care settings from providers in the ED, such as the
health plan's hospitalist or an ED nurse. In some instances, the ED personnel assist the member
with making an appointment for follow-up care with a PCP.
Repeated use of the ED, for primary care, urgent care, or real emergencies, should alert the health
plan to the possibility that a member's condition may warrant additional medical management
measures. For example, a member with complex needs due to multiple medical conditions may
benefit from case management. A member who repeatedly visits the ED for exacerbations of a
chronic illness may be a candidate for disease management.
Improved Access to Primary and Urgent Care
A health plan must not only inform its members about appropriate care settings; the health plan
must also make sure that care in those settings is accessible. For example, a health plan may
contract with local urgent care centers that have extended service hours. Some health plans offer
financial incentives to PCPs who have evening or weekend hours. A provider group may be
willing to contract to cover urgent care needs within the group 24 hours a day, seven days a week.
Ideally, health plans prefer to arrange for members to see their own PCPs (or at least a provider in
the same medical group) whenever possible in order to support the continuity of care.
However, many health plans have concluded that, regardless of health plans' attempts to direct
care to alternative settings, a significant number of members will still visit an ED for
nonemergency care. As a result, some of these health plans have begun to focus on other ways to
reduce the costs associated with delivering this care. In some instances, health plans increase
members' access to nonemergency outpatient care by contracting with hospitals that, in addition
to emergency care, offer other levels of care designed to address the needs of ambulatory patients.
Examples of outpatient care that may be provided at a location within the hospital or even within
the ED include
Urgent care
Observation care

Urgent Care. Having an urgent care center nearby or connected to the ED can benefit plan
members, health plans, and the healthcare facility. Members with immediate needs know that
they can go to the ED even if their conditions are not life- or limb-threatening. When members
arrive in the ED's receiving area, the triage nurses there can direct them to the appropriate level of
care. As a means of supporting quality care, a health plan should see that the triage nurses use upto-date, evidence-based decision support tools when routing patients to the different levels of
care. Members with urgent care needs such as fevers, cuts, and sprains may receive attention
more quickly in an urgent care center than in a traditional ED because the urgent care staff is not
preoccupied with emergency cases.
The facilities, equipment, and staffing required for an urgent care center are much less costly than
those needed to maintain an ED. For example, an urgent care center's staff may include nurse
practitioners and physician assistants who provide many of the same services as physicians, but

usually at a lower cost. As a result of lower costs, the hospital will likely agree to provide urgent
care to a health plan's members at a cost that is substantially lower than that for services delivered
in the ED. In exchange for the lower rates, the health plan may agree to forego retrospective
review on cases treated in the urgent care center. 17
In addition, providing access to urgent care through the ED may allow a health plan's hospitalist
to become involved in the member's care. The hospitalist can improve both UM and QM by
matching healthcare needs with plan resources and seeing that plan members receive the
appropriate discharge instructions and follow-up.
An urgent care center near the ED can lessen the congestion in a busy ED's waiting room as
urgent care needs are triaged to a different area. The ED personnel can then focus their attention
on emergency cases without creating dissatisfaction among patients with less severe problems.
Close proximity of the ED to the urgent care center allows the two units to share clinical staff
according to current needs. For example, if an ED receives several victims from a motor vehicle
accident at one time, the urgent care center may send some of its staff to assist the ED personnel.
If the ED has very few patients and the urgent care center is overwhelmed with influenza cases,
ED personnel may help the urgent care staff. A similar staff-sharing arrangement may be used
with an observation unit that is near the ED.
Observation Care. A hospital may also offer observation care for patients who need healthcare
services beyond primary care, but do not currently require the resource-intensive services of the
ED or inpatient acute care. Observation care is the aggressive evaluation and management of
patients who have a reasonable chance of stabilizing to the point of being released to a non-acute
level of care within 24 hours. Observation care provides a monitored environment for these
patients to wait for their conditions to improve or to be diagnosed. A hospital that offers
observation care may have a unit specifically for this purpose. Alternatively, a health plan's
contract with a hospital may indicate that members in need of observation care should be
admitted to regular medical-surgical units at a lower rate than that for acute care. Figure 8A-4
shows some examples of patients for whom observation care may be appropriate.

Like hospital-based urgent care, observation care may offer quality and cost advantages.
Observation care staffing may include nurse practitioners and physician assistants with a limited
number of physician supervisors. An ED physician, a hospitalist, or a patient's personal physician
may oversee the observation care. If the patient's condition does not resolve in a given time
period, the patient can be admitted for inpatient care.
Because observation care is much less resource-intensive than ED or inpatient care, health plan
members who receive observation care can obtain the immediate attention they need without
incurring unnecessarily expensive charges. 18 Observation care allows more opportunity for
clinical staff to determine if a patient is well enough to go home or if the condition requires
hospitalization. Observation care patients do not occupy ED space and do not require personnel
who may be needed for more severe illnesses or injuries. In many instances, an additional benefit
is that the observation unit or bed is apart from the busy, noisy atmosphere often found in EDs, so
patients can rest undisturbed.
Clinical Pathways
A medical management approach that providers frequently apply to acute care is the use of
clinical pathways. A clinical pathway, also known as a critical pathway, is "an optimal
sequencing and timing of interventions by physicians, nurses, and other disciplines for a
particular diagnosis or procedure, designed to minimize delays and resource utilization and to
maximize the quality of care." 19 A clinical pathway outlines not only the services that will be
delivered, but also who will deliver each service, when, and where, as well as the expected results
of the interventions.
Clinical pathways typically incorporate one or more sets of standing orders. The term standing
orders refers to a set of physician orders (often available on a pre-printed form) for tests,
medications, procedures, and supplies that have been designated as standard practice for specific
medical diagnoses or conditions. 20 Standing orders in a clinical pathway are often organized as a
checklist that facilitates documentation and reduces the likelihood of omission, substitution, or
addition of orders by the caregiver executing the orders.21 Ideally, clinical pathways standardize
care enough to decrease unwarranted variation while allowing enough flexibility to accommodate
the needs of individual patients. Before implementing a clinical pathway for a particular patient,
the attending physician must evaluate each component of the clinical pathway to avoid rendering
services that are unnecessary or inappropriate for that patient.
Although the most frequent use of clinical pathways is for inpatient acute care, a pathway may
cover other care levels or settings. Figure 8A-5 lists some examples of the scope of activities for a
clinical pathway.
Clinical pathways address medical conditions that affect a significant proportion of the population
in a particular area. Common medical topics for clinical pathways include pregnancy, pain
management, and stroke as well as chronic conditions such as asthma, diabetes, hypertension,
back pain, and depression. Types of surgeries and procedures for which providers often use
clinical pathways are biopsy, angioplasty, cardiac surgery, hysterectomy, and total joint surgery.

Advantages of the Clinical Pathway Approach

Clinical pathways serve multiple purposes for healthcare providers. The pathways are generally
an effective means of planning the care to be delivered, organizing the human and other resources
that will be required, and communicating the care plan to patients, caregivers, and health plans. A
clinical pathway is also helpful for scheduling and coordinating the care from different providers
and different settings. Clinical pathways often result in reduced lengths of inpatient stays and
lower total usage of resources. 23
The interventions and timeframes included in a clinical pathway are typically drawn from
evidence-based medicine, so the use of clinical pathways should serve to

Reduce unnecessary variation in care

Eliminate interventions that offer no significant benefit
Increase the efficiency of care delivery
Improve clinical outcomes

Because clinical pathways include anticipated outcomes, these tools are useful for evaluating the
quality of care. A health plan or healthcare facility can track its own outcomes over time as well
as compare its clinical and financial results to those of other similar entities. 24 Health plan claims
administration personnel may also use clinical pathways as a guideline for determining which
services to pay for.
Development of Clinical Pathways
Although individual hospitals or hospital affiliations often develop their own clinical pathways
and may use very different approaches for pathway development, the following steps are
representative of the basic process: 25

1. Select a diagnosis, condition, or procedure for the pathway. The choice of topic typically
depends on the perceived need to reduce costs and/or variation for the condition or procedure. For
example, if the clinical or financial outcomes of a particular surgical procedure vary, the
development of a clinical pathway for the procedure may be indicated.
2. Examine the typical diagnosis and treatment steps for possible ways to reduce cost or
variation. Then define the scope of the pathway (e.g., inpatient care only or episode of care).
For instance, does the variation primarily occur during inpatient care or outpatient care, or is care
variable across all settings? Which aspects of care are associated with the highest costs?
3. Based on the chosen scope for the pathway, select a development team that represents the
key clinicians involved in the pathway. The development team typically includes a variety of
healthcare professionals (e.g., PCPs, specialists, nurses, pharmacy, and relevant ancillary service
providers) as well as representatives from other hospital departments (e.g., finance, information
systems, and medical records), and, perhaps, health plans. PCP involvement is essential because
PCPs often manage the patient's care after the acute episode. Pharmacy input is very important to
the process because pharmaceutical management can have a great impact on the patient's progress
and length of stay.26 Health plans can provide helpful information about their benefit plans,
medical policies, and CPGs so that clinical pathways will not conflict with a health plan's
coverage of services or clinical practice parameters. Costs and coverage are important issues for
clinical pathways. If an intervention is not covered, many patients will refuse the service because
they cannot or will not pay for it on their own.
4. Document the current process and outcomes for the pathway. Look for possible areas of
variation in the current approach and identify the results (either positive or negative) of those
variations. Record the time required for each of the steps in the process.
5. Examine the current practices for consistency with evidence-based best practices as
described in the current medical literature. Look at current activities to determine which steps
are unnecessary or could be performed in a less intensive setting. For example, could certain
aspects of preoperative care be shifted to an ambulatory care setting? Note which activities are
most important to the achievement of desired outcomes. Benchmark clinical pathways from other
hospitals for goals and check the practices that they have identified as best. Unless a new clinical
pathway follows evidence-based best practices, it may only serve to reinforce current
inefficiencies and unnecessary activities. The development team can often adapt an existing
clinical pathway for their own use.
6. Identify the ultimate desired clinical outcomes for the pathway, such as discharge home
or return to a specific level of function. Describe outcomes in objective, quantifiable terms
when possible.
7. Identify intermediate objectives that must be met before the final outcome can be
achieved. An example of an intermediate goal is the transfer of a patient from the intensive care
unit to a general medical-surgical floor.
8. Identify the activities and events that must occur in order to reach the intermediate and
ultimate objectives. In this context, an event is a milestone and an activity is an intervention that
takes time and resources to complete. For instance, the successful removal of a cardiac surgery
patient from a mechanical respirator is an event. Examples of activities include tests, treatments,

medications, and education. In this step, the team can also identify the resources that will be
needed to complete the activities as well as the most appropriate care settings. 27
9. Determine which steps must be completed before others can start, then formalize the
optimal sequence. For example, an oncologist needs the results of a biopsy before planning
cancer treatment. Determine which steps can or should be conducted concurrently. Draw or at
least list the steps in order to help with the sequencing.
10. Create a formal tool that depicts or at least describes the clinical pathway. The
description of the clinical pathway may include written descriptions, charts, or both. The type of
chart most commonly used to depict a clinical pathway is a matrix that lists the different activities
to be performed according to the time period in which they should occur. Figure 8A-6 shows an
example of a template for an activity/time matrix.

The matrix organizes activities into categories such as treatments, activity level, diet, patient and
family education, medications, and tests. The time periods listed depend on the type of service
being delivered. For instance, emergency services and surgeries are typically timed in minutes,
while intensive care is timed in hours, and other care is generally timed in days, weeks, or
Activity/time matrices are usually concise and easy to understand, but the sequence and duration
of individual activities may not be readily apparent. In addition, complex cases involving many

different providers and activities may be difficult to depict on or understand from this type of
In many cases, the clinical pathway development team utilizes project management computer
software to expedite pathway development; to display the pathways for patients, providers, and
health plans; and to document the use and effectiveness of the pathways.
Health Plan Participation in Pathway Development
Because clinical pathways offer cost and quality benefits, some health plans are becoming more
involved in the development process. Participation on the development team may allow a health
plan to improve the continuity of care for its members by combining care from different settings
(such as ambulatory care and acute care) into a single clinical pathway. Hospitals may also be
willing to incorporate health plan initiatives such as preventive care, self-care, and disease
management programs into their clinical pathways.
Health plans may also assist their network hospitals with pathway development in several other
ways. A health plan might gather existing clinical pathways and create a library of current
pathways for hospitals to customize to their own type and size of facility. Having such a library of
pathways reduces the duplication of effort and decreases the research burden on individual
hospitals. Other forms of assistance that a health plan might offer hospitals include

Sharing past experience and expertise with the development team

Providing computer software to aid in the development process
Sponsoring instructional meetings on clinical pathway development
Providing medical literature resources on best practices and outcomes research
Compiling outcomes information from network hospitals to identify the clinical pathways
that yield the best results in a particular region or for a particular type of hospital28

Implementation and Evaluation of Clinical Pathways

After a clinical pathway tool has been disseminated to the caregivers at a hospital, the pathway
may be placed into use as a guide to daily care for most patients with the condition addressed by
the pathway. A health plan may have case managers or utilization review personnel who
continuously monitor the use of clinical pathways for outcomes and variances. For clinical
pathways, a variance is an activity that differs from the one listed on the clinical pathway or the
failure of an event to occur as planned. For example, a test may not be performed as planned due
to equipment failure. A patient's recovery may be delayed due to an infection or an adverse
reaction to a medication. Concurrent monitoring of clinical pathways allows for correction of a
variance before it impacts outcomes or adjustment of the clinical pathway to accommodate a new
situation. All variances, the clinical reasons for the variances, and the results of the variances
must be documented. 29
If a physician chooses to modify a clinical pathway before care begins or not to use the pathway
for a particular patient, the reasons for and the results of the physician's action should be
documented. Nonuse or modification of a clinical pathway may indicate the need to revise the
pathway or to educate the provider on the intent and use of the pathway. However, health plans
and hospitals must bear in mind that clinical pathways may not be appropriate for every patient
with a particular condition, particularly if a patient has other serious medical problems. In

addition, the pathway development team should regularly review pathways and revise them as
necessary based on advances in medical knowledge or technology.
Tracking both clinical and financial outcomes is essential for a health plan's evaluation of clinical
pathways. An effective pathway must improve quality without increasing cost or reduce costs
without lowering quality. Ideally of course, it should improve quality and decrease costs. The
health plan should document and investigate all variations from the expected clinical and
financial outcomes to determine if corrective actions should be taken to modify a clinical
Risk Management for Clinical Pathways
A health plan and its network hospitals should take appropriate precautions to see that the use of
clinical pathways does not increase their exposure to financial liability as a result of harm to
patients. Risk management for clinical pathways often includes the following approaches:
Developing evidence-based pathways that reflect a thorough review of relevant medical

literature and documenting the specific sources of information

Making clinical pathways flexible enough to accommodate multiple health problems and

patients' preferences for care

Including a written policy that the purpose of the pathway is to enhance quality or cost-

effectiveness rather than to establish a new standard of care and that medically
appropriate variances will be accommodated
Establishing a process for documenting the rationale for any variances in case the
variances are questioned
Reviewing pathways regularly and updating them as needed, based on documented
variances or changes in medical knowledge
Attaching a disclaimer similar to the one shown in to each clinical pathway

Centers of Excellence31
In order to provide its members with access to appropriate, high-quality acute care services, a
health plan may contract with one or more centers of excellence. A center of excellence is a

healthcare institution that, because of its combination of clinical expertise, equipment, and other
resources, has the ability to provide specific medical procedures or treatments more effectively
and efficiently than other providers in the same region. 32 A center of excellence typically focuses
on complex, costly procedures and conditions such as organ transplants, bone marrow transplants,
open heart surgery, cancer, neurological diseases and injuries, trauma, total joint replacements,
and high-risk obstetrical cases. A center of excellence may be located within a hospital or in a
separate facility and may provide inpatient care, outpatient care, or both.

The perceived value of a center of excellence is based on the relationship between the center's
clinical outcomes and its level of experience with a particular disease or condition. Multiple
studies have shown that, for many surgical procedures and medical diagnoses, better outcomes
occur when a provider treats a large volume of patients who have the specific condition. For
example, in a study conducted for the Office of Technology Assessment, researchers validated
the volume-outcomes relationship for a variety of procedures, including cardiac catheterization,
coronary artery bypass graft surgery, and total hip replacements, as well as for medical diagnoses
including acute myocardial infarction and newborn diseases. 33 One explanation for the improved
outcomes is that increased experience with a medical problem results in superior knowledge and
skills for a facility's clinical staff.
When a health plan contracts with a center of excellence for the evaluation and treatment of a
selected condition, the health plan usually refers all plan members who suffer from that problem
to the center of excellence.34 However, members (or their families) may be reluctant to go to
these centers. In many cases, the center of excellence is unfamiliar to the member and may be
located far away from the member's family and friends. The health plan may offer richer benefits,
such as reduced or eliminated copayments, deductibles, or coinsurance, to members who use the
preferred centers rather than another provider.
Because members' needs vary greatly according to their medical conditions, each health plan
establishes quality standards for its centers of excellence according to the particular medical focus
of each center. Figure 8A-8 lists some of the issues that are typically addressed in quality
standards for a center of excellence.

A health plan should conduct a careful examination of the quality management program of a
center of excellence, both as part of the process to select a center and periodically thereafter, to
see that the center's quality initiatives meet the health plan's standards. The center should also
promptly notify the health plan of any unexpected deaths or other significant adverse events so
that the health plan may perform its own investigation of the situation.

1. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd ed. (Gaithersburg, MD:
Aspen Publishers, 1998), 4.
2. Michael B. Brouthers, "Health Plans Move Hospitalist Programs to the Next Phase,"
Managed Healthcare (July 1999): 38.
3. Peter R. Kongstvedt, M.D., "Managing Basic Medical-Surgical Utilization," in Best
Practices in Medical Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher,
M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 169.
4. Peter R. Kongstvedt, M.D., "Managing Basic Medical-Surgical Utilization," in Best
Practices in Medical Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher,
M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 169-170.
5. Peter R. Kongstvedt, M.D., "Managing Basic Medical-Surgical Utilization," in Best
Practices in Medical Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher,
M.D. (Gaithersburg, MD: Aspen Publishers, Inc., 1998), 169.
6. Robert M. Wachter, M.D., "Hospitalists Fan Winds of Change and Inpatient Care Won't
Be the Same," Managed Healthcare (January 1998): 37.
7. John R. Nelson, M.D., and Winthrop F. Whitcomb, M.D., "The Case for Hospitalists,"
Healthplan (November/December 1999): 21.

8. David W. Plocher, M.D., Jean Stanford, and Bruce Meltzer, "The Hospitalist Model: A
Method for Managing Inpatient Care," in Best Practices in Medical Management, ed.
Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen
Publishers, Inc., 1998), 181-182.
9. Neil Chesanow, "When Hospitalists Take OverWho Wins? Who Loses?" Medical
Economics (28 December 1998): 102.
10. Neil Chesanow, "When Hospitalists Take OverWho Wins? Who Loses?" Medical
Economics (28 December 1998): 109-110.
11. David W. Plocher, M.D., Jean Stanford, and Bruce Meltzer, "The Hospitalist Model: A
Method for Managing Inpatient Care," in Best Practices in Medical Management, ed.
Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen
Publishers, Inc., 1998), 183.
12. Neil Chesanow, "When Hospitalists Take OverWho Wins? Who Loses?" Medical
Economics (28 December 1998): 110, 115.
13. James Augustine, M.D., and Ann M. Dietrich, M.D., "Emergency Medicine in a Health
Plan Environment," Health Plan Interface (February 1998): 59.
14. Sally K. Richardson, "State Medicaid Director Letter (Emergency Services)," Centers for
Medicare and Medicaid Services, 20 February 1998,
http://www.hcfa.gov/medicaid/bba2208c/htm (28 March 2000).
15. Molly Stauffer, 1999 State by State Guide to Health Plan Law, ed. Donald R. Levy
(Gaithersburg, MD: Aspen Publishers, Inc., 1999), 3-4-3-10.
16. American Association of Health Plans (AAHP), Code of Conduct (Washington, DC:
American Association of Health Plans, Summer 1998), 3.
17. Angela Zotos, "The Fast-Track Emergency Department," in Best Practices in Medical
Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg,
MD: Aspen Publishers, Inc., 1998), 136, 138.
18. Angela Zotos, "The Fast-Track Emergency Department," in Best Practices in Medical
Management, ed. Peter R. Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg,
MD: Aspen Publishers, Inc., 1998), 135-136.
19. Richard J. Coffey, et al., "An Introduction to Critical Paths," Quality Management in
Health Care 1, no. 1 (1992): 45.
20. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd ed., (Gaithersburg, MD:
Aspen Publishers, Inc., 1998), 193.
21. Mary B. Kilmer, "Clinical Pathways Can Help Manage Health Plan," Healthcare
Financial Management (Fall 1997),
http://wilsontxt.hwwilson.com/pdfhtml/03028/PV385/VSI.htm (15 September 1997).

22. Lawrence B. Lehman, M.D., et al., "Critical Pathways: A Program Description in a

National Health Plan," Health Plan Interface (June 1998): 56.
23. Richard J. Coffey, et al., "Critical Paths: Linking Care and Outcomes for Patients,
Clinicians, and Payers," in Best Practices in Medical Management, ed. Peter R.
Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers,
Inc., 1998), 233.
24. Richard J. Coffey, et al., "Critical Paths: Linking Care and Outcomes for Patients,
Clinicians, and Payers," in Best Practices in Medical Management, ed. Peter R.
Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers,
Inc., 1998), 221, 236.
25. Richard J. Coffey, et al., "Critical Paths: Linking Care and Outcomes for Patients,
Clinicians, and Payers," in Best Practices in Medical Management, ed. Peter R.
Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers,
Inc., 1998), 223-230.
26. Mary B. Kilmer, "Clinical Pathways Can Help Manage Health Plan," Healthcare
Financial Management (Fall 1997),
http://wilsontxt.hwwilson.com/pdfhtml/03028/PV385/VSI.htm (15 September 1997).
27. Mary B. Kilmer, "Clinical Pathways Can Help Manage Health Plan," Healthcare
Financial Management (Fall 1997),
http://wilsontxt.hwwilson.com/pdfhtml/03028/PV385/VSI.htm (15 September 1997).
28. Lawrence B. Lehman, et al., "Critical Pathways: A Program Description in a National
Health Plan," Health Plan Interface (June 1998): 56, 63.
29. Richard J. Coffey, et al., "Critical Paths: Linking Care and Outcomes for Patients,
Clinicians, and Payers," in Best Practices in Medical Management, ed. Peter R.
Kongstvedt, M.D., and David W. Plocher, M.D. (Gaithersburg, MD: Aspen Publishers,
Inc., 1998), 226-227.
30. Suzanne M. Mitchell, et al., "Legal Issues Associated with the Use and Development of
Practice Guidelines," in Managing the Risks of Health Plan, ed. Barbara J. Youngberg
(Gaithersburg, MD: Aspen Publishers, 1996), 56, 59.
31. Adapted from Academy for Healthcare Management, Network Management in Health
Plans, (Washington, DC: Academy for Healthcare Management, 1999), 6-9-6-11. Used
with permission; all rights reserved.
32. Richard Rognehaugh, The Managed Health Care Dictionary, 2nd ed. (Gaithersburg, MD:
Aspen Publishers, Inc., 1998), 34.
33. Daniel Dragalin and Philip Goldstein, "The Centers of Excellence Phenomena," in The
Physician's Guide to Health Plan, ed. David B. Nash, M.D. (Gaithersburg, MD: Aspen
Publishers, Inc., 1994), 163-166.
34. Sheryl T. Dacso and Clifford C. Dacso, M.D., Health Plan Answer Book, 4th ed. (New
York, Panel Publishers, 2000), 16-44.

AHM Medical Management: Medical Management Strategies for Post-Acute Care

After completing lesson Medical Management Strategies for Post-Acute Care, you should
be able to:

Identify and describe the purposes of four types of post-acute care

Explain how subacute care differs from skilled care
Explain two types of advance directives
Describe the role of a health plan in end-of-life care

In many instances, patients have medical conditions that require services beyond primary and
secondary care, but do not warrant acute care. Rather than unnecessarily using acute care
resources and facilities, health plans often arrange for the delivery of post-acute care for such
This lesson addresses several different types of post-acute care, situations in which these different
types of care may be appropriate, and medical management considerations for each type.
What is Post-Acute Care?
Post-acute care generally refers to healthcare services delivered after a course of acute care or
instead of acute care. Post-acute care involves less intensive resources than acute care, so it
typically is less costly than acute care.1 Despite the apparent contradiction ("post" means after),
post-acute care may also be used in place of acute care. Originally, this type of care was
implemented following hospitalization; however, with the increased availability of post-acute
care services, health plans and their providers can often reserve acute care settings for patients
whose conditions require the highest level of care.
Within the category of post-acute care, the type and intensity of services rendered to patients vary
greatly. The most appropriate type of post-acute care for a health plan member depends on the
following factors:
The member's medical condition
The amount and type of support available from family and community resources
Services covered by the member's benefit plan and the availability of those services in a

geographically accessible location

Member and family preferences

When a plan member needs post-acute care, personnel from the health plan, such as utilization
review (UR) staff, case managers, or hospitalists, may work with the member and the member's
primary care provider (PCP) to (1) determine the most appropriate level of care, (2) define
realistic goals for that care, (3) design a care plan to achieve the goals, (4) plan for the member's
discharge, and (5) assess when discharge is appropriate. Among the specific types of post-acute
care that health plans may provide to plan members are subacute care, skilled care, home
healthcare, and end-of-life care.

Subacute Care
Some patients in need of ongoing medical and rehabilitative services do not require the level of
care and resources typically offered by acute care hospitals, but they are so ill or debilitated that
they do need significant amounts of medical care on a 24-hour basis. In order to provide these
plan members with the appropriate care in the most cost-effective setting, health plans arrange for
the delivery of subacute care.
According to the National Subacute Care Association (NSCA), subacute care is a
comprehensive, cost-effective, inpatient level of care for patients who
Have had an acute event resulting from injury, illness, or exacerbation of a disease


Have a determined course of treatment

Though stable, require diagnostics or invasive procedures but not intensive procedures

requiring an acute level of care

The severity of the patient's condition requires

Active physician direction with frequent on-site visits

Professional nursing care
Significant ancillary services
An outcomes-focused interdisciplinary approach utilizing a professional team
Complex medical and/or rehabilitative care

Typically short term, subacute care is designed to return patients to the community or transition
them to a lower level of care. 2
The ultimate goal of subacute care is to optimize a patient's medical condition, functional ability,
and sense of well-being within a reasonable timeframe so that the patient can be discharged home
or to a lower level of care. Rehabilitation typically plays a prominent role in subacute care.
Rehabilitation is the process of restoring patients with functional impairments to their maximum
levels of function (physical, mental, and vocational) in order to enhance their independence and
productivity. 3 The most commonly used forms of rehabilitation are physical therapy (PT),
occupational therapy (OT), speech language pathology (SLP), and recreational therapy. Patients
may also receive rehabilitation in other care settings, such as acute care hospitals, skilled nursing
facilities, ambulatory care centers, and at home.
Because many recipients of subacute care have ongoing medical conditions or persistent
impairments, self-care education for patients and families is an essential component of subacute
care. Otherwise, the patient's condition may deteriorate after the patient returns home.
Subacute care relies on the coordinated efforts of a multidisciplinary team of healthcare
practitioners that generally includes several types of rehabilitation specialists. Figure 8B-1 lists
the disciplines that are commonly represented on a subacute care team.

Subacute Patients
Subacute patients are typically elderly; however, many younger patients are also candidates for
subacute care. Subacute patients vary greatly in terms of the types of disease or injury, treatments
required, and length of stay. 5 Figure 8B-2 lists some examples of patients for whom subacute
care may be an appropriate option.

Utilization Management
Because the medical needs of subacute patients are often extensive, case management is a useful
component of a health plan's approach to utilization management (UM) for subacute care. The
health plan's case management and UR personnel typically work with the member's physician to

determine the type of subacute care required and the most appropriate setting for that care. The
health plan's case manager can then facilitate the member's admission to the subacute care setting,
coordinate care and monitor progress, and plan for the member's discharge from that setting.
Many subacute care facilities or units have their own case managers. In this situation, a health
plan's case managers may share responsibilities for case management with the subacute care
provider, or the health plan may choose to delegate case management activities to the provider.
Even if a health plan does not formally apply case management methods to subacute care, the
health plan's utilization review personnel can improve utilization through prospective and
concurrent review. Conducting preauthorization for a subacute inpatient stay helps a health plan
match member needs to the subacute care facility best suited to meet those needs. Through
concurrent review, the health plan can monitor a member's progress and changes in needs and
then respond accordingly. For example, if a member's condition does not improve as much or as
rapidly as originally anticipated, the health plan can work with the subacute provider to revise the