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U P D A T E
C O N F E R E N C E  S U M M A R Y
W E B  E X C L U S I V E   

19 May 2004  
  

Conference Summary:
Setting Priorities In Medical Care 
Through Benefit Design And Medical Management

Reflections from the seventh California HealthCare Foundation/Health Affairs roundtable.

By Jill Mathews Yegian

ABSTRACT:

As health care costs continue to increase, so does the importance of setting priorities in the allocation of medical care resources. Based on a November 2003 roundtable, this paper discusses the potential for benefit design (the definition of covered benefits) and medical management (the criteria by which benefits are applied to specific patients) to contribute to priority setting, particularly in the context of increasing emphasis on evidence-based medicine.

The contemporary acceleration in health care cost inflation highlights the importance of developing priorities for which services will be financed through health insurance, for which patients, and under which conditions. The backlash against managed care, however, has provoked skepticism about any approach used by insurers to limit the forms of health care that qualify for reimbursement. In November 2003 the California HealthCare Foundation (CHCF) and Health Affairs held a roundtable event, “Evidence and Economics in Health Insurance: Benefit Design and Medical Management.” This roundtable, the seventh in a series, brought together thirty leaders from insurance, clinical, purchaser, consumer, and regulatory entities to examine the challenges and opportunities facing initiatives to use benefit design (the definition of covered benefits) and medical management (the criteria by which benefits are applied to particular patients) to set priorities in the allocation of health care resources.¹

Roundtable participants agreed that the scope of benefits covered by health insurance is moving in the direction of greater inclusiveness. Most forms of insurance, such as fire and life, guard against low-probability events with catastrophic costs. By contrast, health insurance has broadened in scope so as to become a form of prepayment for routine services. Dental and vision services have increasingly become insured benefits. The share of prescription drug costs paid by consumers out of pocket has decreased dramatically over the past two decades: Consumers paid 69 percent in 1980 but only 31 percent in 2001. Consumer cost sharing has been largely replaced by payments from private insurance, which rose from 17 percent in 1980 to 47 percent in 2001.² An emerging debate considers whether obesity should be classified as a disease, opening the door to reimbursement for weight-loss therapies and diet counseling. Public programs and private health plans share a goal of focusing resources on the conditions and interventions that are most likely to improve the health status of individuals and populations; in the absence of evidence-based, cost-effective priority setting, the health care system likely will be driven to control inflation through heavy- handed reductions in provider payments and higher consumer cost sharing.

Priority Setting Through Benefit Design

A starting question for roundtable participants to consider was how scientific evidence can be incorporated into benefit design in a way that contributes to more rational resource allocation. Two observations emerged repeatedly. First is the mismatch between the fine detail of available evidence and the blunt instrument of a benefit package. Benefits are defined in broad classes, such as inpatient services, physician visits, and pharmaceuticals, whereas scientific evidence of effectiveness applies to specific procedures and therapies. Moreover, the view that scientific evidence of effectiveness, important as it is, cannot serve as the sole basis for resource allocation was expressed repeatedly at the roundtable. Asking whether a therapy provides any clinical benefit only seeks to eliminate care that is proven ineffective; for the many cases where two therapies (one more costly than the other) demonstrate a similar benefit, or a therapy shows a small gain for a large cost, evidence of effectiveness cannot provide definitive answers. For these cases, cost considerations need to be incorporated into decision making to allocate resources rationally.

A second observation from roundtable participants was that prioritizing among benefits requires classifying some therapies as being of low value, an exercise not for the faint of heart. Blue Shield of California recently attempted to define an “essential benefit package” that could serve as a benchmark benefit level for its state-based universal coverage proposal. Physicians representing four life stages—maternal/childbirth, childhood/adolescence, adulthood, and geriatrics—were recommended by their professional associations and charged with defining a set of benefits having demonstrated effectiveness. The main finding emerging from this effort is that, as defined by clinicians, very few services can be considered nonessential. The group advocated covering a broad array of services, including some services not typically covered by health insurance, such as transportation. The intent was to design a benefit package that could be used as a starting point for discussing coverage expansion in California, but the comprehensiveness of the package meant that the main levers for reducing cost during the actuarial analysis phase were consumer cost sharing and provider reimbursement.³

The difficulties encountered by this effort may help explain why no other state has followed Oregon’s path since the 1994 implementation of the Oregon Health Plan for Medicaid beneficiaries, which ranks condition-treatment pairs based on clinical value and cost-effectiveness and excludes treatments that fall “below the line” of budget affordability set by the legislature.⁴ On the contrary, state legislatures have contributed to the broadening definition of health insurance by enacting scores of benefit mandates. One topic of discussion at the roundtable was the recent effort to incorporate evidence of effectiveness into decision making about state benefit mandates. Like many states, California has a wide array of mandates. After a banner year in which approximately twenty new benefit mandates were introduced, from wigs for those undergoing chemotherapy to in vitro fertilization, the state legislature put a temporary moratorium on new mandates and created the California Health Benefits Review Program in 2002.⁵ Run by the University of California, this new program is charged with conducting evidence-based, scientific analysis of proposed benefit mandates to inform the legislature’s decision making. In addition to examinations of the medical and public health impacts of each proposed mandate, cost analysis is conducted; the first round of reviews was released in February 2004. After years of debating benefit mandates on primarily political grounds, California’s new program may help create an environment in which the legislature can examine various trade-offs and set priorities based on scientific evidence and cost.

In the commercial arena, a number of roundtable participants proposed varying cost sharing based on evidence of effectiveness as one of the few prioritization tools remaining to health plans in the post–managed care environment. Consistent with the broader trend toward consumerism, evidence-based cost sharing respects consumers’ autonomy and the importance of choice while exposing consumers to a greater share of the cost for services found to be relatively less effective. The most common approach to tiered pharmacy benefits now is to increase cost sharing for brand-name drugs and lower it for generics. Yet all brand-name drugs are not created equal. A recent study showed that costly brand-name drugs are no more effective than inexpensive diuretics at treating high blood pressure, while other brand-name drugs that lack generic substitutes—including some formulations of insulin for diabetes and inhaled corticosteroids for asthma—are critical for the treatment of these conditions.⁶ Restructuring cost sharing based on scientific evidence of clinical benefit has received much discussion and some interest among employers seeking innovative ways to reduce costs, but it faces clear obstacles, both political and administrative.

An interesting twist on evidence-based cost sharing proposed by roundtable participants was to reduce cost sharing for those willing to participate in clinical trials. While drug companies must demonstrate evidence of effectiveness (albeit relative to placebo, rather than relative to standard therapies), surgical procedures and other therapies often diffuse into medical practice with little evaluation. As the movement toward evidence-based medicine gathers steam, increasing importance is being placed on gathering information early in the process of adoption. Often, however, patients resist participating in clinical trials because they do not want to receive the placebo treatment. In some cases, such as autologous bone marrow transplants (ABMT) for breast cancer, this resistance can lead to years of delay in obtaining the answer—ultimately negative for ABMT—as to the therapy’s effectiveness.⁷ Charging substantial cost sharing for patients who are unwilling to contribute to the data-gathering process could speed clinical trial recruitment and result in quicker answers about promising therapies, although it could pose thorny ethical issues. Alternatively, access to an unproven procedure could simply be restricted to trial participants—Medicare recently restricted coverage of lung-volume reduction surgery to trial participants until the procedure’s evaluation was complete.

Priority Setting Through Medical Management

During the managed care era, health plans took on the task of taking cost and effectiveness into account and deciding who should get what. Plans established gatekeeping, prior authorization, closed formularies, and other processes so that patients would receive only those services determined to be medically necessary. However, health plans have recognized that one-size-fits-all medical management is not cost-effective for healthy enrollees and not clinically effective for the chronically or catastrophically sick. In addition, the backlash against managed care resulted in a retreat from utilization management activities. Many health plans have now stopped using medical necessity as a criterion for deciding whether to deny care and have refocused medical management on developing different programs for different population groups (for example, chronic disease management and catastrophic case management). Plans are now emphasizing identification of and intervention with specific patient groups, with analysis of return on investment from the various approaches and programs. At the same time, in recognition of patients’ and providers’ low tolerance for the managed care techniques of the past, plans are placing high priority on minimizing the intrusiveness of these interventions.⁸

Health plans’ remaining efforts to prioritize the provision of clinical services and deny care that fails the tests of effectiveness can face regulatory challenge. Roundtable participants discussed independent medical review (IMR) processes, now in place in the vast majority of states. A legacy of consumers’ distrust of managed care–era decision making, IMR provides an opportunity for patients to appeal denied care. However, reviewers’ decisions may conflict with health plans’ efforts to consistently apply evidence-based clinical protocols. Many states do not require the independent medical reviewer evaluating requested treatments to consider information on scientific evidence of effectiveness.⁹ This likely derives, at least in part, from a historical concern among consumer advocates and policymakers that evidence-based medicine is simply a way to justify care denial; accordingly, IMR statutes tend to emphasize the independence of the review process rather than its grounding in scientific evidence. Even when states do emphasize the application of scientific evidence in IMR, the ability to do so may be limited by the availability of relevant research; in such cases, the IMR process may lean toward approval, while the health plan process leans toward denial. Thus, the conundrum: IMR may lower the evidence standard of coverage, to the extent that health plans with evidence-based protocols stop denying services that are overturned by IMR. Further, the lack of clear, evidence-based standards for decision making by reviewers presents questions of consistency across reviewers, a problem compounded for nationwide health insurers facing dozens of different IMR processes.

On a more positive note, several roundtable participants pointed out that the increasing focus on patient safety—and development of information technology to support that focus—will contribute greatly to prioritization by eliminating care that is harmful, such as drug-drug interactions.

The Consumer Perspective

To many roundtable participants, the desirability of restricting the role of insurance to insurable events and applying an evidence-based screen to the services provided is clear: It encourages cost-conscious use of medical care and contributes to a more rational allocation of resources. But consumers may disagree. As presented at the roundtable, Sacramento Healthcare Decisions recently led a project designed to force consumers to make trade-offs among services in designing a benefit package and found that many people chose a broad but shallow level of coverage (a wide array of services but higher cost sharing, less choice, and less convenience) over excluding some services altogether.¹⁰ An earlier effort led by the same organization found that consumers accepted the use of cost-effectiveness as one decision-making criterion used by a trusted physician but strongly resisted more systematic attempts to apply cost-effectiveness: “On a personal level, consumers view private health care coverage as an entitlement to an open-ended set of benefits, rather than a societal resource shared by many.”¹¹ This perspective presents a challenge to efforts to set priorities on a population rather than an individual basis, but sensitivity to costs and receptivity to broader resource allocation efforts may increase over time if medical care inflation continues at its current pace.

Conclusion

Perhaps the central, if not unanimous, conclusion of the discussion was that scientific evidence is a critical tool in priority setting in both benefit design and medical management but is not in itself sufficient basis for resource allocation without taking cost into account. Much less clarity emerged about how cost analysis should be conducted and incorporated into decision making.

Although some developments discussed at the roundtable show promise—including California’s Health Benefit Review Program, early experimentation with evidence-based cost sharing, and increasing focus on patient safety—they are clearly marginal in an environment of effective new therapies with breathtaking costs. Failing a more systematic approach to setting priorities, medical professionals will continue to bear the brunt of front-line rationing as they make day-to-day decisions regarding the provision of care, and a growing number of Americans will be priced out of health insurance and denied the benefits of breakthrough medical technologies.

The author thanks Jamie Robinson for his review and helpful comments. The views presented here are those of the author and do not necessarily reflect those of the California HealthCare Foundation.

NOTES

1. Participants included the following: Wade Aubry, University of California at San Francisco (UCSF); Elaine Batchlor, LA Care; Michael Belman, Blue Cross of California; Sophia Chang, California HealthCare Foundation (CHCF); Lesley Cummings, Managed Risk Medical Insurance Board; Marion Danis, National Institutes of Health; Cindy Ehnes, California Department of Managed Health Care; Lynn Etheredge, Health Insurance Reform Project; Susan Foote, University of Minnesota; Alan Garber, Stanford University; Mark Gibson, Milbank Memorial Fund; Marjorie Ginsburg, Sacramento Healthcare Decisions; Emma Hoo, Pacific Business Group on Health; Sandra Hunt, PricewaterhouseCoopers LLP; John Iglehart, Health Affairs; Harold Luft, UCSF; Don Metz, Health Affairs; Christine Paige, Kaiser Foundation Health Plan; David Pockell, CHCF; Robert Rebitzer, United Behavioral Health; Lonny Reisman, Active Health Management; Jeffrey Rideout, Blue Shield of California Foundation; James Robinson, University of California, Berkeley; Debra Roth, independent consultant; David Studdert, Harvard School of Public Health; Joyce Vermeersch, California Public Employees Retirement System; Victor Villagra, Health and Technology Vector Inc.; Paul Wallace, Care Management Institute; Stanley Wallack, Brandeis University; and Jill Yegian, CHCF.
2. Centers for Medicare and Medicaid Services, Office of the Actuary.
3. Blue Shield of California Foundation, Essential Health Benefits (San Francisco: Blue Shield of California Foundation, June 2003).
4. Of note, the Oregon approach incorporated extensive input from the public and explicitly considers cost, while the Blue Shield effort was based primarily on providers’ assessment of scientific evidence and clinical importance.
5. More information is about this program is available at www.chbrp.org.
6. ALLHAT Officers and Coordinators for the ALLHAT Collaborative Research Group, “Major Outcomes in High-Risk Hypertensive Patients Randomized to Angiotensin-Converting Enzyme Inhibitor or Calcium Channel Blocker versus Diuretic: The Antihypertensive and Lipid-Lowering Treatment to Prevent Heart Attack Trial (ALLHAT),” Journal of the American Medical Association 288, no. 23 (2002): 2981–2997.
7. M. Mello and T. Brennan, “The Controversy over High-Dose Chemotherapy with Autologous Bone Marrow Transplant for Breast Cancer,” Health Affairs 20, no. 5 (2001): 101–117.
8. J. Robinson and J. Yegian, “Medical Management after Managed Care,” Health Affairs, 19 May 2004, content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.269 (19 May 2004).
9. S. Singer et al., “Regulating Medical Necessity Decision-Making by Health Maintenance Organizations” (Unpublished manuscript), www.hcfo.net/pdf/singer.pdf (15 March 2004).
10. Sacramento Healthcare Decisions, When Options Exceed Resources: Making Trade-Offs in Healthcare Benefits (Sacramento: SHD, October 2003).
11. SHD, Cost Effectiveness as a Criterion for Medical and Coverage Decisions (Sacramento: SHD, October 2001), 3.

Jill Yegian (jyegian{at}chcf.org) is director, health insurance, of the California HealthCare Foundation in Oakland.

Read related papers by: James Robinson and Jill Yegian, Victor Villagra, Alan Garber, and Marjorie Ginsburg.

DOI: 10.1377/hlthaff.W4.300
©2004 Project HOPE–The People-to-People Health Foundation, Inc.