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The relentless rise in health care costs is finally producing its own antidote.

So serious is the problem -- medical benefits continue to soar 20% or more a year -- that many companies can get a good payback by hiring a medical-review firm to scrutinize all their payments.

These firms are now tracking some 10% of the country's work force by auditing bills, precertifying hospital stays, and performing other services in the name of cost containment. "By 1990, virtually all employees will be subject to medical-review services," says Anthony Gajda, a principal at William M. Mercer-Meidinger Inc., a benefits consulting firm. "It's becoming another element in the administration of a benefits plan." Experts say that reviews often reduce medical costs by 10%.

A review of hospitalizations costs can deliver dramatic results for individual companies. Penny Troup, insurance manager at U.S. Rentals Inc., in Irvine, Calif., says that one review firm slashed $178,900 from the company's medical bill in its first two years under the program. Troup calculated that amount by subtracting the total number of hospital days requested by employee's physicians from the number actually approved by Cost Care Inc., U.S. Rentals's review firm.

Employees often save under review programs as well, since many health insurance plans require co-payment by the patient. For example, when a 12-year-old boy needed a tonsillectomy, one hospital estimated a fee that was nearly twice as much as the regional average for such a procedure. Health Risk Management Inc., a medical-costs review firm in Minneapolis, negotiated for a lower fee with the hospital. That saved money for both the employer and the employee -- the child's parent -- who was required to pay 20% of the hospitalization after paying for the deductible.

Physicians usually cooperate with the reviewers, says Gajda. In the event of a dispute, though, an employee could end up the loser, paying the difference between the reviewer's and the physician's recommendation if he or she opts for the longer hospital stay. Experts advise companies to inform employees at the outset of the benefits -- and the pitfalls -- of these services.

Last updated: Feb 1, 1986

DONNA FENN | Inc.com Contributing Editor

Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.




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