Utilization review began in the 1970s when many health plans required second opinions before surgery. Today it includes a variety of initiatives:
* Precertification review. The centerpiece of the strategy, the review takes place before hospital admittance and is an attempt to prevent unnecessary hospitalizations and limit the duration of hospital stays. Where appropriate, it shifts procedures to less expensive outpatient facilities.
* Concurrent review. Once hospital treatment starts, this review controls the length of stay and makes sure the treatment is medically appropriate.
* Case management. Broader than concurrent review, it monitors care throughout a catastrophic illness.
* Mental health and substance abuse-care review. Various strategies are employed to control soaring costs of care in this area.
* Hospital bill audits. This strategy tries to cut the cost of care by finding overcharges.
Many of these services cost a few dollars a month per employee, but they often save multiples of that. Used by big companies for years, they are available now to businesses with as few as 50 people.
Last year a Mandel-Kahn employee was seriously injured in an automobile accident. Not willing to accept the hospital's charges at face value, the company sent the bill to Intracorp, which conducted an on-site audit (see Audit Results, next page.)
Enlist Employees in Your Strategy
Few cost-containment strategies are more effective than frank and frequent communication with employees. Smart managers routinely tell employees how much the company spends on medical care and how costs have gone up over the years. Without such information, many employees probably think of health care as "free" in the sense that some faceless insurance company is paying the bills.
Once employees see the relationship between company savings and the resources available for raises, bonuses, and profit sharing, their health-care decisions can change dramatically. And you can help influence those decisions by pointing out the cost savings of using a primary physician or clinic instead of an emergency room for routine care, buying generic drugs, and examining bills for overcharges.
Read the Fine Print
If you're looking for ways to cut health-care costs, one place to start is by examining your current policy -- something few executives do. Gust Headbloom, owner and CEO of Apex Broach & Machine Co., a tool and machine manufacturer in Detroit with 51 employees and $6 million in sales, was surprised at what he found in his. Headbloom discovered that his insurer had been routinely billing the company for what struck him as an unusual item -- maternity benefits for the company's retirees. His retirees were a lively bunch, to be sure, but Headbloom decided to save the $2,623 a year just the same. "We realized that these rascals just weren't playing around anymore," says Headbloom.
Audit Results
(For explanation of charges, see "Facts Behind the Audit," right)
Total bill $19,612.74
Less
Personal items 1.85
Undocumented items 690.90
Charges more than fair and reasonable 5,281.11
Charges unrelated to carrier's responsibility -0-
Not medically necessary days/services -0-
Mathematical errors -0-
Plus
Undercharges 325.30
Savings 5,648.56
Total recommended payment 13,964.18
Less previous payments 15,650.24
Total due $1,686.06 credit
Facts Behind the Audit
1. Total bill
This is what the hospital charged for the patient's stay.
2. Undocumented items
Eliminated charges for 23 separate items and procedures that either were undocumented or not performed at all. One such procedure was a chest X-ray billed at $64; another was for seven wound dressings billed at a total of $173.20.
3. Charges more than fair and reasonable
Reduced charges, often by half or more, for 81 separate entries. For example, the hospital billed five units of anesthesia at $93.20 each, far above the fair and reasonable cost of $37.50 each; it billed crutches at $65.65 when the fair and reasonable was $31.80; it charged $150 for a drainage instrument whose fair and reasonable was $50.75.
4. Undercharges
Picked up items that the hospital failed to charge, and these were added back into the bill. Many of these were medications.
5. Savings
Net overcharges represented 29% of what the hospital billed. Even after the auditing charge of $590, the company saved 26%.
6. Total recommended payment
What the auditor says the company should pay.
7. Less previous payments
The required payment to the hospital of about 80% of the bill before the audit.
8. Total due
In this case, it's the hospital that owes some money.
WHEN YOU'VE EXHAUSTED COST-CUTTING MEASURES: SHARING THE COSTS
Raising the cost to employees -- it's the fastest way for a company to reduce its health-care expenditures. And unless it's handled carefully, it's also the one most likely to cause a rift in management-employee relations.
Companies have several ways to pass on costs to employees. One of the more common practices is to require employees to contribute more to the premium, which reduces the company's cost dollar for dollar.
