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D A T A W A T C H :
M A N A G I N G C A R E
W E B E X C L U S I V E
18 June 2003
Managing Care: Utilization Review In Action
At Two Capitated Medical Groups
Prospective denials of coverage
on grounds of medical necessity
are only a small part of the overall picture.
by Kanika Kapur, Carole Roan
Gresenz, and David M. Studdert
ABSTRACT:
Despite widespread concern about denials of coverage by managed care organizations,
little empirical information exists on the profile and outcomes of utilization
review decisions. This study examines the outcomes of nearly a half-million
coverage requests in two large medical groups that contract with health plans
to deliver care and conduct utilization review. We found much higher denial
rates than those previously reported. Denials were particularly common for emergency
care and durable medical equipment. Retrospective requests were nearly four
times more likely than prospective requests were to be denied, and when prospective
requests were denied, it was more likely because the service fell outside the
scope of covered benefits than because it was not medically necessary.
The management of health care use is a defining feature of managed care. However,
managed care organizations (MCOs) use diverse strategies to control the volume
and type of services delivered to enrollees. At one end of the spectrum are
indirect controls, such as provider panels and financial incentives targeted
at physicians; at the other end is direct oversight, most notably utilization
review (UR) procedures that evaluate the coverage status of services case by
case.1
Spurred by widespread dissatisfaction with overt cost-control strategies, MCOs
in some markets have begun moving away from authorization-based approaches.2
However, many MCOs continue to rely on some form of UR.3 Thus,
it should not be surprising that recent efforts to protect consumers in managed
care have a strong focus on explicit coverage denials.4
State and federal policymakers have enacted or are considering reforms that
arm enrollees with opportunities to have coverage denials reconsidered.5
Private and public attempts to “dull” the sharp end of utilization
management in managed care have unfolded in the context of surprisingly little
empirical information about the operational reality of UR.6
Studies have found relatively low coverage denial rates (3 percent or less),
but these studies are limited by the self-reported nature of the data and the
specificity of the service areas investigated.7
We examine the outcomes of coverage requests using administrative data from
two large medical groups based in California. These groups deliver services
almost exclusively within a “delegated” model—an organizational
structure prevalent in California in which medical groups receive capitated
payments from health plans and are responsible for care delivery and UR.8
Approximately forty million managed care enrollees nationwide receive care through
this type of delivery model.9 This descriptive portrait
reveals contentious service areas in coverage decisions and the most frequent
bases for denials.
Study Methods
Data.
We analyzed administrative data associated with nearly a half-million coverage
requests in two large medical groups in California (MG1 and MG2).10
They are multispecialty groups, each consisting of several hundred physicians
who provide care to more than 100,000 enrollees in multiple health care facilities.
The data encompass all coverage decisions rendered for privately insured enrollees
during three-year periods at MG1 (1 January 1997 through 31 December 1999) and
MG2 (1 January 1998 through 31 December 2000). In total, the database comprised
146,997 coverage requests at MG1 and 329,382 requests at MG2.
Study definitions.
We defined a coverage request as a claim made by or on behalf of an enrollee
for approval of coverage for a service or group of services. The enrollee might
have been seeking coverage for desired services (“prospective” request)
or already have obtained services (“retrospective” request).11
Counting conventions.
Although the definition of coverage requests may appear straightforward, several
issues merit careful consideration. First, coverage requests for multiple related
services, or multiple visits to a particular clinician, were counted as one
request. Second, we excluded cases where providers were questioning whether
or not a particular service was covered under their negotiated capitation rate
with the medical group. These “provider requests” were excluded so
that the analysis could focus on patient coverage issues, not disagreements
between physicians and the medical groups over contractual issues. Third, we
excluded coverage requests and denials for drugs, vision, dental, and behavioral
health services. Because many enrollees received these services through “carve-out”
arrangements, a “denial” of coverage from the medical group typically
involved a redirection to the appropriate decision-making entity rather than
a true denial of services.
Study Results
Distribution and outcomes
of coverage requests.
Exhibit
1 shows the distribution of coverage requests by detailed service category,
the proportion of coverage requests denied for each service type, and the distribution
of denials by service. There were some discrepancies in the medical groups’
service categorizations, but we attempted to create comparable categories across
the two groups to the greatest extent possible.
Distribution of coverage requests. Diagnostics and testing (22 percent at
MG1; 19 percent at MG2) and emergency care (11 percent at MG1; 13 percent at
MG2) were common subjects of coverage requests. At MG2 physician services (28
percent) and surgery (16 percent) also accounted for a sizable share of requests;
at MG1 these services accounted for 11 percent and 8 percent of requests, respectively.
Rates of denial. Overall, denial rates at the two medical groups were
quite similar (10 percent at MG1; 8 percent at MG2) (Exhibit
1). Durable medical equipment (DME) (23 percent at MG1; 15 percent at MG2)
and emergency care (17 percent at MG1; 16 percent at MG2) had relatively high
rates of denial at both medical groups.12 Denial
rates were also relatively high for several service subcategories, most notably
laboratory/pathology, speech therapy, chiropractic services, and dermatology
consultations (MG2 only). In contrast, requests for inpatient care, surgery,
and obstetric care had low rates of denial at both groups.
Distribution of denials across services. Diagnostics and testing services
and emergency care together accounted for more than one-third of denials at
both medical groups (Exhibit
1). However, there were several marked differences in the distribution of
denials across groups, most notably for DME (19 percent of denials at MG1; 5
percent at MG2) and physician services (11 percent at MG1; 24 percent at MG2).
These differences partly reflect the fact that DME and physician services accounted
for different shares of coverage requests at the two groups.
Type of coverage request:
prospective versus retrospective.
Information on the prospective versus retrospective status of coverage requests
was available at MG1 only. Four-fifths of coverage requests at MG1 were prospective
(Exhibit
2), with diagnostic/testing (24 percent) and ancillary health services (17
percent) being the most prevalent clinical categories (data not shown). These
services accounted for a much smaller proportion of retrospective requests,
nearly half of which related to emergency care.
Overall, retrospective requests were much more likely than prospective requests
were to be denied (23 percent versus 6 percent). Among prospective requests,
DME had the highest denial rate (24 percent), and obstetrical care (<1 percent),
surgery (2 percent), and inpatient care (2 percent) had the lowest. Among retrospective
requests, diagnostic/testing services, ancillary health services, and other
care all had denial rates greater than 40 percent.
Reasons for denial. Forty-two
percent of prospective requests at MG1 were denied on the grounds that the service
did not fall within the scope of benefits covered by the enrollee’s health
insurance policy, 29 percent were denied because they were judged not to be
medically necessary, and 22 percent involved denials of coverage for the specific
provider requested by the enrollee (Exhibit
3).
Most DME denials (86 percent) were because the requested service was not contractually
covered. About two-thirds of ancillary health service and minor surgery denials
were because the service was not deemed medically necessary. As expected, all
emergency care denials were made on the basis of medical necessity.
With respect to retrospective requests (not shown in Exhibit
3), MG1’s denial reasons were much more uniform. The reason cited for
almost every denial of emergency care services was that the enrollee’s
medical condition was not deemed an emergency according to the “prudent
layperson standard.”13 Among retrospective
requests for other services, virtually all denials were because enrollees should
have obtained preauthorization and did not.
Study limitations.
Because these data come from two medical groups in one state, they are not necessarily
generalizable nationwide. Our results reflect the administrative structure,
policies, and contracts within the two medical groups analyzed. In addition,
although we labored to ensure that data from the two groups were comparable,
we still relied on existing taxonomies, which had been developed independently
at each group. Finally, our analysis does not address the kind of “implicit”
denials that stem from changes in physicians’ practice behavior.
Summary And Policy Implications
Rates of denial across the two medical groups we studied were remarkably similar,
and much higher than those previously reported. Separation of requests and denials
along three basic axes—services, type (prospective versus retrospective),
and denial reason—revealed much heterogeneity in several noteworthy areas.
At the service level, denial rates for emergency services and DME were particularly
high. Retrospective requests were nearly four times more likely than prospective
ones were to be denied. Lack of medical necessity accounted for a relatively
small share of denials of prospective requests; these requests were more likely
to be denied because the medical group judged that services were not covered
benefits or because the enrollee’s choice of providers was impermissible.
Unbundling of the UR process is a valuable exercise for several reasons. As
policymakers continue to press accountability on MCOs in the name of consumer
protection, there is growing interest in denials of coverage as a potential
marker of inappropriate management of care. Indeed, the external review programs
that now exist in more than forty states are premised on objective scrutiny
of denials. More generally, disaggregation of denials into services and reasons
helps to pinpoint the irritants in enrollee-plan relations. Also, direct analysis
of UR data at their administrative source showed some definitional inconsistencies
between the medical groups and permitted us to adopt uniform counting conventions
to address them. Differing approaches to UR tracking may have an enormous impact
on basic descriptive statistics about the UR process; hence, careful standardization
is essential to any interorganizational comparisons of UR performance.
There has been considerable concern among policy researchers about the use of
medical necessity as a tool to control use of services.14
We found that prospective denials of coverage on the grounds of medical necessity
were a surprisingly small part of the overall UR picture—16 percent of
denials at MG1. A substantial number of coverage denials were for emergency
care. The usual reason for these denials, which were predominantly retrospective,
was that medical care was not deemed to be emergency in nature. This suggests
the need for more extensive dissemination of coverage rules for emergency care
and possibly a reevaluation of the standards for emergency care coverage. Better
dissemination of insurance rules also could be useful in guiding enrollees to
seek required preauthorization for services—another important factor in
coverage denials.
Denials made on contractual grounds—the largest share of denials—may
call for both clinical and contractual expertise. Hence, they should ideally
be made by personnel who are versant in both areas. There was some evidence
of this sort of dual expertise being brought to bear on coverage decisions at
the two groups we studied. However, for reasons of size or financial stress,
this may be beyond the reach of many smaller medical groups that have assumed
responsibility for UR.
As MCOs in many parts of the country continue their evolution away from a command-and-control
approach to utilization management and toward cost sharing with purchasers and
enrollees, the future role of UR remains unsettled. Although some form of UR
seems certain to remain a fixture in many MCOs, the shift to consumer-centered
strategies could alter the profile of both coverage denials and requests. For
example, higher cost sharing may force overall declines in the volume of requests.
In this environment, contractual coverage and medical-necessity issues that
persist are likely to be for services that enrollees feel especially strongly
about. Such consumer concerns, together with ongoing consumer protection agendas
that include reforms such as guaranteed external review and right-to-sue provisions,
mean that the policy importance of UR denials in managed care is unlikely to
wane in the foreseeable future.
Funding for this study was provided by the U.S. Department of Labor (DoL).
The authors are grateful to Nancy Campbell for valuable programming assistance.
Any views expressed herein are solely those of the authors, and no endorsement
by the DoL or RAND is intended or should be inferred.
NOTES
1. P.R. Kongstvedt, The Managed Care Handbook, 4th ed.
(New York: Aspen, 2000).
2. D.A. Draper et al., “The Changing Face of Managed Care,”
Health Affairs (Jan/Feb 2002): 11–23.
3. T.M. Wickizer and D. Lessler, “Utilization Management:
Issues, Effects, and Future Prospects,” Annual Review of Public Health
23 (2002): 233–254; and L. Greenberg, G. Carneal, and M. Hattwick, Trends
and Practices in Medical Management: 2001 Industry Profile (Washington:
URAC, American Accreditation HealthCare Commission, 2002).
4. E.D. Kinney, Protecting American Health Care Consumers
(Durham, North Carolina, and London: Duke University Press, 2002).
5. A.A. Noble and T.A. Brennan, “The Stages of Managed
Care Regulation: Developing Better Rules,” Journal of Health Politics,
Policy and Law 24, no. 6 (1999): 1275–1305; and T.E. Miller, “Center
Stage on the Patient Protection Agenda: Grievance and Appeal Rights,” Journal
of Law and Medical Ethics 26, no. 2 (1998): 89–99.
6. Wickizer and Lessler, “Utilization Management.”
7. D.K. Remler et al., “What Do Managed Care Plans Do to
Affect Care? Results from a Survey of Physicians,” Inquiry 34, no.
3 (1997): 196–204; H.H. Schauffler et al., “Differences in the Kinds
of Problems Consumers Report in Staff/Group HMOs, IPA/Network HMOs, and PPOs
in California,” Medical Care 39, no. 1 (2001): 15–25; A. Koike,
J. Unutzer, and R. Klap, “Utilization Management in a Large Managed Behavioral
Health Organization,” Psychiatric Services 51, no. 5 (2000): 621–626;
TM Wickizer, D. Lessler, and J. Boyd-Wickizer, “Effects of Health Care
Cost-Containment Programs on Patterns of Care and Readmissions among Children
and Adolescents,” American Journal of Public Health 89, no. 9 (1999):
1353–1357; US General Accounting Office, Medicare Part B: Inconsistent
Denial Rates for Medical Necessity across Six Carriers, Pub. no. GAO/T-PEMD-94-17
(Washington: GAO, March 1994); and Texas Department of Insurance, An HMO
Purchasing Guide for Texas Consumers (Austin: Department of Insurance, June
1997).
8. Responsibility for adjudicating enrollees’ appeals of
coverage denials remains with the health plan.
9. M.B. Rosenthal, B.E. Landon, and H.A. Huskamp, “Managed
Care and Market Power: Physician Organizations in Four Markets,” Health
Affairs (Sept/Oct 2001): 187–193; and Henry J. Kaiser Family Foundation,
Trends and Indicators in the Changing Health Care Marketplace—Chartbook,
May 2002,
www.kff.org/content/2002/3161/marketplace2002_finalc.pdf
(6 May 2003).
10. These medical groups are much larger than the average medical
group in California, which has about ten physicians. The average size of multispecialty
groups in the United States (23.4 physicians) is nearly four times that of single-specialty
groups (6.4 physicians). American Medical Association, Medical Group Practices
in the US (Chicago: AMA, 1999).
11. Almost all coverage requests in both medical groups are
made by physicians on behalf of their patients. In rare cases—for instance,
when the enrollee is outside the United States—the enrollee may directly
submit a request for reimbursement.
12. While these differences most likely represent true variations
in patterns of UR between the medical groups, differences in service coding
between medical groups may be partly responsible.
13. Under this standard, health plans would be required to
cover emergency services if the patient seeks care for symptoms that a prudent
layperson, possessing an average knowledge of health and medicine, could reasonably
expect to result in serious impairment to the patient’s health.
14. S. Rosenbaum et al., “Who Should Determine When Health
Care Is Medically Necessary?” New England Journal of Medicine (21
January 1999): 229–232; and L.A. Bergthold, “Medical Necessity—Do
We Need It?” Health Affairs (Winter 1995): 180–190.
Kanika Kapur is an associate economist at RAND in Santa Monica, California.
Carole Roan Gresenz is an economist at RAND in Arlington, Virginia. David Studdert
is an assistant professor of law and public health at the Harvard School of
Public Health in Boston.
©2003 Project HOPE–The People-to-People Health Foundation, Inc.
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