TRENDS & PRACTICES IN MEDICAL MANAGEMENT: 2005 INDUSTRY PROFILE

TRENDS & PRACTICES IN MEDICAL MANAGEMENT: 2005 INDUSTRY PROFILE PROMOTING QUALITY HEALTH CARE 1990-2005 CELEBRATING 15 YEARS

T ABLE OF CONTENTS TRENDS & PRACTICES IN MEDICAL MANAGEMENT: 2005 INDUSTRY PROFILE Part I: Executive Summary and Introduction...........................................1 Part II: Methodology................................................................ 5 Survey Instruments............................................................5 Telephone Interviews..........................................................6 Focus Groups.................................................................7 Site Visits and Face-to-Face Interviews..........................................7 Part III: Findings.....................................................................8 Staffing......................................................................8 Case Loads..................................................................10 Delegation of Staffing: Outsourcing Trends......................................11 Staff Qualifications for UM....................................................11 Utilization Management.......................................................14 Denial Rates..............................................................14 Case Management...........................................................17 Disease Management........................................................20 Health Call Center............................................................24 Patient Safety................................................................26 Use of Criteria, Guidelines, and Evidence-Based Medicine........................28 Quality and Efficiency Measurement Activities and Reporting.....................31 International Services........................................................34 Use of Technology............................................................35 Integration..................................................................37 Accreditation................................................................39 Independent Review..........................................................40 Future Projections............................................................44 Part IV: Conclusions.................................................................46 Acknowledgements/ About URAC.....................................................48 References.........................................................................49

I. EXECUTIVE SUMMARY During the past months, URAC has conducted research into the medical management industry. The research included industry surveys, focus groups, and more informal information gathering. This report summarizes the findings from that research and explores their implications. The report also highlights recent industry trends and projects those trends forward into the near term future, first by making comparisons to findings from the URAC 2001 industry study, but also by asking study participants to assess the industry s future direction. Medical management refers to a broad array of practices used to improve quality and reduce cost. These practices are often captured under the headings of utilization management (UM), case management (CM), and independent review. Medical management also includes the rapidly expanding field of disease management (DM), and is beginning to include total population management techniques (for example, through health call centers) and entities that help with member decision making under consumer-directed health care. This report summarizes nine months of research and analysis and reflects URAC s leadership as it seeks to understand how the industry is evolving, and also as it attempts to promote quality improvements in medical management. This report goes beyond the 2001 survey findings by identifying industry trends. Such research contributes towards our educational mission in that it helps identify best practices, and pinpoints how organizations are using technological advances to integrate services or customize programs for their clients. As medical management evolves, it is vital that we understand how interventions are being advanced, both operationally and from a quality standpoint. National trends reveal a medical management industry in a dynamic period of transition. Its core UM and CM activities remain viable and valuable, and DM appears to be growing rapidly. Technology is changing the industry, adding tools that will improve care coordination and predictive modeling capabilities. The drive towards a national health information exchange network will no doubt accelerate this transformation. However, technology has not replaced the one-to-one personal contact that adds value in some areas, particularly in case management. Most agree there are expanding opportunities for medical management in the years ahead, particularly in the areas of consumer-directed health care, electronic utilization management and predictive modeling. Importantly, the findings point to the demonstrable value of working with accredited medical management organizations, as these companies are more likely to use evidence-based medicine/practice guidelines than non-accredited companies, and are more likely to develop performance reports. These findings support anecdotal and empirical indications that the process of accreditation systematically improves organizational structures, processes, and outcomes. 1

I. EXECUTIVE SUMMARY The process of accreditation Key Findings Care coordination. The move towards care coordination and more targeted interventions (highlighted in the 2001 report) has resulted in the introduction of new strategies which allow closer monitoring and guiding of patient care. Many companies include among their practices on-site reviews at hospitals and provider facilities, face-to-face meetings with patients, proactive telephoning, and even home visits. For example, on-site reviews have more than doubled for DM since 2001, and home visits are now used by 38 percent of providers. The medical management companies back up the personal contact with better information technology, to include predictive modeling and health risk appraisals. A large majority (81 percent) of surveyed companies expect predictive modeling to become more important over the next few years. 1 systematically improves organizational structures, processes, and outcomes. Integration of ser vice deliver y. Service delivery is now more integrated. A key development has been in technology, with more integrated technology platforms. Most companies (71 percent) now make medical management criteria and clinical practice guidelines available to staff online, and a large majority (66 percent) share information among functions on a common IT platform. Staffing integration has increased also, but to a lesser extent. The percentage of companies offering UM, CM, and DM under an integrated staffing model rose from 34 percent (2001) to 62 percent today. Nevertheless, there remain a number of medical management companies without fully integrated information platforms and without the ability to link information from internal sources to providers and patients. The industry includes a broad range of companies with varying capabilities, and many companies are not yet up to speed with their technology. 2 Customized approaches. Medical management companies are now able to more effectively tailor their approaches to the specific needs of clients, as companies upgrade and integrate their technology platforms and expand their lines of business. 3 Smaller case loads. There is a strong trend towards smaller case loads for UM, and to some extent for DM, as companies introduce procedures and technologies that more effectively target those cases that can benefit from medical management services. For example, the percentage of companies with UM caseloads averaging below 20 per day increased from 29 percent (2001) to 65 percent (2005). 4 Staff training and skills. There is no observable trend towards replacing more highly trained staff (such as physicians and registered nurses) with less highly trained staff (such as licensed practical nurses and non-clinical staff). According to focus group comments, even in the unlikely event that nonclinical staff is used, it is in coordination with clinical staff rather than as a replacement service. 5 Few companies operate internationally. The vast majority of companies in this industry are domestic-only operations. Less than 5 percent of companies provide services to clients overseas. According to focus groups, the few companies with international operations are typically responding to the needs of their domestic clients who have employees or locations outside of the United States. 6 2

I. EXECUTIVE SUMMARY Medical review criteria and guidelines. Most companies in the industry rely on a small number of commercial sources for medical review criteria, and relatively few use medical society guidelines. Focus groups indicated that medical management companies often will augment the external criteria by combining several sources and filling in gaps internally. Medical review committees (used by 60 percent of companies) are the most common approach to updating and developing medical review criteria. 7 Expanding opportunities. More than four out of five respondents to the Web survey see expanding opportunities for medical management in the years ahead. Some of the most frequently mentioned opportunities for expansion were discharge planning (88 percent), telephonic case management (88 percent), consumer-directed health care (86 percent), electronic utilization management (83 percent), and predictive modeling (81 percent). 8 Value of accreditation. Accreditation was found to be associated with industry best practices. Accredited companies are more likely to measure and report quality performance. On average, URACaccredited companies report on 7.15 quality measures compared to fewer than 4 by non-accredited companies. Accredited companies also are 50 percent more likely to use evidence-based guidelines than non-accredited companies. 9 Conclusion The medical management industry appears to be in a dynamic period of change. Advances in technology are changing the industry, adding tools that will improve both efficiency and effectiveness. At the same time, many of the services remain labor intensive and telephonically based and still require the decisionmaking skill of medical professionals such as registered nurses (RNs) and physicians (MDs). Responding to the regulatory, provider and consumer push-back on aggressive managed care tactics, the medical management industry has introduced care coordination as a general strategy. Rather than allow the industry to be defined by denials it has become an industry that defines itself by care coordination. As such, medical management is relying on the increased use of evidence-based medicine as the basis for decision making. Likely future expansion in medical management will come with technology improvements and in the way insurance products are managed. Consumer-directed health care (CDHC)--with its implications for member accountability is expected to grow rapidly. Consequently, insurers are moving towards an oversight model that encourages personal accountability and self care, and actively intervenes in care only in cases where it matters most high cost, chronic conditions and high cost episodes (hospitalizations). Market trends point to the development of programs that consider the entire population and management of health risks as well as chronic conditions. This will result in bringing prevention to the forefront. These programs consider health needs of populations along a continuum and incorporate traditional wellness programs (obesity management, smoking cessation, etc.) using health risk assessments to identify populations at risk and telephonic coaching to manage and influence health knowledge, attitudes and behavior. 3

I. EXECUTIVE SUMMARY INTRODUCTION The term medical management refers at some times to all of a health care organization s programs established to prevent and manage disease or to improve health. In other instances it refers simply to systems employed to manage health care costs. The broad term medical management captures the more specific terms under its umbrella, including utilization management (UM), case management (CM), and independent review. Medical management also includes the rapidly expanding field of disease management (DM), and is beginning to include total population management techniques (for example, through health call centers) and entities that help with member decision making under consumer-directed health care. The findings outlined in this report are the result of URAC s research initiative launched to better understand how medical management services are evolving. Some of the questions addressed in this report include: Evolution in Staffing: How pervasive is the practice of cross-training for different types of medical management (UM, CM, DM), and how are staffing patterns changing to reflect new technology? Evolution in Utilization Management, Case Management, Disease Management and Health Call Center: How has integration of services changed these practices? What effect has the Internet had on some traditionally labor-intensive roles? The Role of Information Systems: How do information systems and management practices support medical management operations and reporting capability? Patient Safety: How are medical management companies responding to the call for greater accountability in this area? Criteria, Guidelines and Evidence-Based Medicine: How are evidence-based guidelines used to support medical management programs? Is the evolving concept of evidence-based medicine compatible with current medical management criteria? Quality and Efficiency Measurement Activities and Reporting: How are medical management companies responding to the call for greater transparency and accountability? Differentiating Among Market Segments: What differences are there among UM, CM and DM services in different settings and market segments? Trends to Watch Changing Technology and Integration: How are these trends affecting medical management practice? We asked medical management organizations to respond to our queries because we corporately recognize that changing practices affect the viability and credibility of medical management accreditation programs. Survey findings, participant observations and URAC s experience in the field have been used to identify key findings and to inform our analysis. 4

II: METHODOLOGY TABLE 1 2005 URAC Web Survey The data collection efforts described below enabled URAC researchers to study a broad cross-section of medical management organizations in the United States. URAC used a number of different methods to collect data for the 2005 survey. Survey Instruments For the 2005 study, URAC fielded two surveys. With each, respondents were identifiable to URAC, but were offered anonymity. Individual organizations are not identified in this report. First, URAC sent out a 29-question, web-based survey to almost all of URAC s 505 accredited companies and an additional sample of 900 health care organizations (referred to as the 2005 Web Survey ). The additional sample was obtained from URAC s database of organizations that have contacted URAC in the past two years. The 2005 Web Survey was conducted in February and March. This cohort included both large and small companies in many different market segments with various business models. In addition, the response sample was geographically diverse. A total of 282 completed surveys were used in this analysis (a slightly higher number of surveys were received, but URAC eliminated duplicate responses from the same company 10 ), representing a 20 percent response rate (however, when recalculated to exclude bad Internet addresses, the response rate from functioning addresses was close to 30 percent). Almost 40 percent of the respondents were URAC-accredited companies. A copy of the survey instrument can be obtained by contacting URAC. Company Profiles: Company Type Number of companies responding = 178 of 282 CM 108 UM 103 DM 62 PPO 59 HMO 49 POS 41 TPA 34 Facility 31 Call Center 27 Indemnity 26 IRO 18 CDH 15 QIO 9 IPA 6 Source: 2005 URAC Web Survey TABLE 2: 2005 Respondent Company Profiles: Self reported Market Segments Number of companies responding = 185 of 282 Self-Funded 76% Fully-Insured 72% Small Groups 46% Medicare 43% Medicaid 40% A wide range of company types responded to the 2005 FEHBP 34% Web Survey (see Table 1). The top three types of companies offer case management (CM) (n=108), utilization State Employee Program 32% management (UM) (n=103) and disease management (DM) (n=62) services. Please note, while 282 companies responded to the survey, the response for each question Individual Coverage COBRA Tricare/Military 31% 30% 22% is noted in the appropriate table (for example, there were MEWA 8% only 178 responses to the question for Table 1). Source: 2005 URAC Web Survey Also, a wide array of market segments were represented in the survey responses (see Table 2). For example, more than two-thirds of the respondents participate 5

II: METHODOLOGY in both the self-funded and fully insuredmarkets. State and federal programs also were well represented with 43 percent of respondents in Medicare, 40 percent in Medicaid, 34 percent in the Federal Health Employee Program, 32 percent in state employee programs, and 22 percent in military offerings. Secondly, URAC and the National Association of Independent Review Organizations (NAIRO) fielded a survey of the independent review industry (referred to as the IRO Survey ) in August 2005. This survey was sent to 45 companies known to NAIRO and URAC that offer independent review services. Although this is a small group of companies, it represents nearly the entire industry segment. One-third responded and the results are highlighted in this report. Eighty percent of the IRO respondents operate nationally and the other 20 percent are traditional state-based quality improvement organizations (QIOs). A copy of the IRO Survey can be obtained by contacting URAC. Neither the 2001 survey nor the 2005 Web Survey were necessarily representative of the entire industry. Both were convenience samples built around a survey of all URAC-accredited companies. 11 As a result, any comparison of the two studies or application of the survey results to the entire medical management industry must be made with care. In both surveys, URAC avoided defining the key medical terms or phrases used in the questionnaire in order not to bias the survey respondents. Telephonic interviews with companies holding multiple accreditations In August 2005, URAC interviewed 28 URAC-accredited companies which hold multiple accreditations in a combination of UM, CM, and DM on the topic of integration of medical management systems. This sample represents more than half of possible interviewees. Twenty-one of these companies are URACaccredited for UM and CM services. Five offer and are accredited for UM, CM, and DM. Two offer and are accredited for UM and DM. Several companies offer IRO or health call center (HCC) services in addition to those described above. One-half of the companies that participated in the telephone interviews are insurance companies. The other half are stand-alone medical management companies. One half of the participants are national in focus; one quarter regional in focus; and one quarter are single-state organizations. Twenty-six of the 28 are large organizations, serving more than one million covered lives. 6

II: METHODOLOGY Focus Groups URAC convened five focus groups to augment the 2005 Web and Telephone surveys. A focus group was held April 26, 2005 with URAC-accredited representatives of the DM industry and members of the Disease Management Association of America and their guests. A focus group was held June 7, 2005 with URAC s Health Standards Committee members. A focus group was held June 23, 2005 in conjunction with the Case Management Society of America s annual meeting. A focus group was held July 21, 2005 of individuals attending URAC workshops. A focus group was held September 15, 2005 of broad industry stakeholders to discuss care coordination and integration. Site Visits and Face-to-Face Interviews URAC visited or held face-to-face interviews with the leadership of a wide range of randomly-selected health care organizations. The types of companies included were: Health plans; Preferred provider organizations; Medical management organizations offering UM, CM, DM, IRO and HCC services; Third party administrators; Review criteria companies; and Software companies. 7

STAFFING, CASELOADS AND OUTSOURCING Staffing Since the 2001 survey, URAC has observed a sharp increase in the number of companies reporting that they are offering integrated medical management services from a staffing perspective (see Table 3). 12 In 2001, the URAC survey revealed that approximately onethird of the company respondents were actively integrating their medical management systems; and in 2005, about two-thirds of the Web Survey respondents reported they are TABLE 3 Trend toward integration: Percentage of companies with integrated staffing models Number of companies responding 2005 = 169 of 282 Number of companies responding 2001 = 87 of 92 2001 2005 UM, CM, DM 34% 62% UM, CM 47% 70% Precertification and concurrent review 50% 81% Source: 2001 URAC Survey and 2005 URAC Web Survey offering medical management services through an integrated platform. For example, the number of companies reporting that they are integrating UM, CM and DM services on a staffing level almost doubled during the past four years (i.e., from 34 percent in 2001 to 62 percent in 2005). Similarly, respondents reported a large increase in the level of integration of UM and CM services (i.e., from 47 percent in 2001 to 70 percent in 2005). In August 2005, URAC conducted telephone inter views with 28 URAC-accredited companies which hold multiple accreditations in a combination of UM, CM, and DM. Ninety-six percent of those interviewed indicated that there is integration among their multiple medical care management programs (see also the Integration section for more information on integration of medical management systems). URAC s focus groups and telephone inter views with medical management leaders revealed that while most companies are offering hybrid approaches to medical management staffing, many acknowledged that their approach is still one that remains more separate (siloed) than integrated. Among other reasons, they noted that nurse training, experience, and retention issues sometime limit how aggressive a company can be when integrating medical management functions. For example, some nurses are more comfortable with the UM process only while others prefer the multi-dimensional tasks of coordinating a wide range of issues through CM. The 2005 Web Survey found that government purchasers are more likely to be served by an integrated staffing model than the privately insured. For example, more than 80 percent of the medical management companies provide an integrated staffing approach to Medicare, Medicaid and Tricare, but less than two-thirds provide an integrated staffing approach for the privately insured (see Table 4). 8

The 2005 Web Survey also found that UM and CM companies with fewer than 500,000 covered lives, are more likely to have a combined staffing model than UM and CM companies with more than 500,000 covered lives. For CM companies with fewer than 500,000 covered lives, 72 percent use a combined staffing model, while for those with more than 500,000 lives 46 percent use a combined model. A similar pattern is found with UM companies (see Table 5). TABLE 4 Comparison of Customer Type and Staffing Model Customers Combined Siloed Total # Staffing Model Staffing Model of Respondents Medicare 82% 18% 80 Medicaid 83% 17% 73 Tricare/Military 81% 19% 41 State Employees 76% 24% 61 COBRA 71% 29% 58 Federal Employees/ FEHBP 67% 33% 65 Commercial Fully-Insured 66% 34% 137 Commercial Self-Funded 65% 35% 144 Small Group 64% 36% 89 Individuals 61% 39% 62 Source: 2005 URAC Web Survey TABLE 5 Percentage with combined staffing model by covered lives, UM and CM Number of Covered Lives: UM Combined UM Staffing model Siloed Staffing model Total # of Respondents 500,000 and over 53% 47% 30 Under 500,000 68% 32% 82 Number of Covered Lives: CM Combined UM Staffing model Siloed Staffing model Total # of Respondents 500,000 and over 46% 54% 28 Under 500,000 72% 28% 89 Source: 2005 URAC Web Survey 9

CASE LOADS The 2005 Web Survey results show a decrease in case loads for UM, CM and DM services when compared to the 2001 results (see Figure 1). 13 Several observations could help explain the apparent trend towards lower case loads: UM has shifted to more high cost, complex cases; The medical management systems are now targeted toward patients with chronic conditions and comorbidities; DM interventions have become more widespread than in 2001, with less emphasis on distribution of educational materials and more emphasis on coaching; FIGURE 1. Percentage of Companies with Caseloads Less than 20 (per day) In 2001, respondents were asked to report their personal case load average, whereas the 2005 Web Survey respondents were asked to report case load averages on a company-wide basis. The focus groups suggested that case loads should be examined in greater detail in a follow-up survey, in part because it was difficult to generalize about case loads. For example, one case manager may only work on a handful of cases per day due to the acuity of patients, whereas another case manager with patients of a lower acuity may be able to manage a higher case load. It is also interesting to note that UM and CM companies with fewer than 500,000 covered lives have larger case loads per staff person than companies with more than 500,000 covered lives (see Table 6 below). The relationship between case loads and covered lives also holds true with care coordination (e.g. companies providing a combination of UM, CM, DM services). However, this pattern did not hold for DM companies. % 90 80 70 60 50 40 30 20 10 0 29% 65% 60% 64% 69% 82% UM CM DM Number of companies responding 2005 = 256 of 282 Number of companies responding 2001= 74 of 92 Source: URAC 2001 and 2005 Web Survey 2001 2005 TABLE 6: Average case load by number of covered lives, UM and CM Average case load per day: UM Number of Covered Lives: Less than 20 20-49 50-79 0ver 80 Total # UM Respondents 500,000 and over 73% 14% 5% 8% 37 Under 500,000 64% 21% 7% 8% 86 Average case load per day: CM Number of Covered Lives: Less than 20 20-49 50-79 0ver 80 Total # CM Respondents 500,000 and over 72% 19% 6% 3% 32 Under 500,000 56% 21% 15% 8% 102 Source: 2005 URAC Web Survey 10

DELEGATION OF STAFFING: OUTSOURCING TRENDS In recent years, URAC accreditation reviewers have reported a greater tendency for companies to delegate aspects of their medical management operations to outside vendors or third parties. This trend was further confirmed by certain specialty organizations applying for URAC accreditation such as companies that only focus on first- or second-level UM reviews (but not both). URAC examined the level at which companies outsource services to third parties. URAC s 2005 staffing allocation results show that the majority of UM, CM and DM companies rely mostly on in-house registered nurses and physicians, although physicians are more likely to be consultants or externally contracted than nurses. STAFF QUALIFICATIONS FOR UTILIZATION MANAGEMENT The 2005 Web Survey inquired about staffing qualifications for various UM functions (see Figure 2) 14. For the areas of precertification, concurrent review, discharge planning, and retrospective review, registered nurses are employed the majority of the time. Non-clinical staff was utilized most often for assisting in benefit determinations, but even in this capacity they were used by a minority of the companies (27 percent). Physicians are utilized most commonly (by 41 percent of the companies) and registered nurses used almost as frequently (by 39 percent of the companies) for medical necessity appeals. These 2005 Web Survey findings suggest that companies are not relying heavily on non-clinical staff for UM. FIGURE 2. 2005 Telephonic UM Staffing Overview Number of Companies Responding = 150 of 282 Non-Clinical Nurse LPN Nurse RN Physicians Allied Comp % 70 60 50 40 30 20 10 0 Precert. Concurrent Discharge Retro Benefits Med Nec Appeals Source: 2005 URAC Web Survey 11

Key Findings: Staffing, Caseloads and Outsourcing There is a trend towards a more integrated staffing model for providing UM, CM, and DM services. The percentage of companies with combined staffing for two or more of the services approximately doubled between 2001 and 2005 (2001 survey and 2005 Web Survey). There remain barriers to further staff integration, including employee skill sets, time and expense to conduct cross-training and the differentiation of core skills needed to conduct UM, CM and DM services, particularly of registered nurses (focus groups). Increased staffing integration allows companies to offer more tailored approaches depending on client needs, in some cases still using a siloed approach and in others using an integrated approach (telephone interviews and site visits). Companies serving fewer covered lives (fewer than 500,000) and companies serving government customers (Medicare, Medicaid and Tricare) were more likely to use an integrated staffing model (2005 Web Survey). There is a general movement between 2001 and 2005 towards smaller case loads--that is, companies with case loads of fewer than 20 patients per day. This trend holds for UM, CM, and DM services, although it is most pronounced for UM, and less prevalent for CM (2001 survey and 2005 Web Survey). Companies with fewer than 500,000 covered lives are less likely to have low average case loads (fewer than 20 patients per day) (2005 Web Survey). Most medical management clinical staff (physicians and nurses) are employees of medical management firms rather than consultants or employees of externally contracted firms (2005 Web Survey). Physician services are more likely to be outsourced to consultants than nursing services. UM staffing varies somewhat by type of UM. However, in all cases, more than half of the companies use either RN or physician staffing models for medical management positions (2005 Web Survey). Licensed practical nurses (LPNs) are used in fewer than 20 percent of the companies surveyed for utilization management initial clinical review. For most types of review the LPN staffing model is used by fewer than 10 percent of companies (2005 Web Survey). 12

Analysis of Staffing, Caseloads and Outsourcing Data By more effectively targeting a narrower range of cases for medical management services, medical management companies have been able to bring more resources to bear on those cases. This would likely explain the trend towards smaller case loads. The trend towards integrated staffing models, combining UM, CM, and DM services, probably reflects improved technology platforms which allow improved internal communication and data sharing (see Technology section). It might also reflect the expansion to more lines of business. The fact that companies with smaller total covered lives (fewer than 500,000) are more likely to use combined staffing models suggests there may be a structural component to combined staffing. Fewer cases per business segment (and smaller staffs) probably require staffing models that can service more than one segment. Companies with larger case loads, even using an integrated platform, can afford to utilize more specialized (siloed) staffing approaches. Outsourcing (delegated services) for specialized skills or for commodity services that don t require a local presence is a broad economic trend across many industries. Medical management companies are, for the most part, themselves beneficiaries of outsourcing, where UM, CM, DM, HCC and IRO services are outsourced from insurers to specialized vendors. In addition, highly trained specialists, such as physicians, are often contracted rather than employed in order to tap into specialties that are only occasionally required. For physician reviews, independent review can also eliminate bias in decisions, particularly when community physicians are contracted to review cases for their peers. The medical management industry was heavily (and sometimes falsely) criticized during the late 1990s (as part of the general push-back against managed care) for using clerks to overturn decisions by physicians. As a result, or perhaps because of client demand and accreditation standards, there appears to be no move towards replacing registered nurses with LPNs or non-clinical staff. Instead, the industry appears to maintain a focus on review quality by retaining highly skilled staff, in this case using registered nurses and physicians. 13

UTILIZATION MANAGEMENT URAC DEFINITION: Utilization Management is the evaluation of the medical necessity, appropriateness, and efficiency of the use of health care services, procedures, and facilities under the provisions of the applicable health benefits plan; sometimes called utilization review. As part of the 2005 findings, URAC detected that the trend towards integration of medical management services continues. But at the same time, traditional UM functions such as precertification, concurrent review and retrospective reviews are foundational elements that continue to be employed. With rising medical costs again a major market issue, some focus group participants noted that their companies are under a high degree of pressure to control costs through traditional UM interventions. However, in many cases advances in technology, including the use of predictive modeling and other methods of data analysis, are creating opportunities for UM services to be targeted to where they are likely to yield the greatest impact. Denial Rates The 2005 Web Survey asked several questions about UM denial and appeal rates, and the underlying reasons for making such denials. 15 Table 7 shows that 70 percent or more of the responding companies make denials less than 2 percent of the time for each type of denial. TABLE 7: 2005 UM Denials Number of companies responding = 252 of 282 Type of Denials Less than 2% More than 2% to 6% More than 6% to 20% More than 20% Don t know Precertifications 70% 15.5% 7% 2.5% 5% Concurrent Review 73% 13% 6% 2% 6% Retrospective Review 72% 11% 7% 3% 7% Source: 2005 URAC Web Survey Focus group participants indicated that UM denial rates are probably even lower than the pattern indicated by the results in Table 7. Because URAC was not prescriptive in how we defined denial rate, more than one focus group participant suggested that the survey question may have been too ambiguous to be accurate. 14

The 2005 Web Survey also asked respondents to estimate the annual percentage of appeals in their respective UM programs that are requested either by providers/facilities or by consumers/ patients (see Table 8). The results showed few adverse decisions were appealed by either providers or consumers (70 percent or more indicated less than 2 percent of adverse decisions were appealed). TABLE 8: Annual Percentage of Appeals in UM Program Number of companies responding = 252 of 282 Providers/ Facilities Consumers/ Patients Less than 2% 70% 75% More than 2% to 6% 7% 6% More than 6% to 10% 6% 5% More than 10% to 20% 3% 2% More than 20% to 30% 2% 1% More than 30% to 40% 1% 0% Don t know 8% 8% Source: 2005 URAC Web Survey The 2005 Web Survey also asked how often an initial denial decision was overturned on appeal; either through internal or external review (see Table 9). Most companies (more than 60 percent) indicated that appeals decisions were overturned less than 2 percent of the time, whether internally or externally. More companies reported high internal overturn rates (of more than 6 percent) than reported high external turnover rates. Several participants in the focus groups stated that external overturn rates were much higher (e.g., sometimes as high as 50 percent). TABLE 9: 2005 UM Appeals Number of companies responding = 252 of 282 Less than 2% More than More than More than 20% Don t know 2% to 6% 6% to 20% Overturned Internally 62% 5% 12% 14% 7% Overturned Externally 69% 5% 7% 9% 10% Source: 2005 URAC Web Survey 15

The 2005 Web Survey also queried the reasons for making the initial denial and for initiating an appeal (see Table 10). The denial and appeal results were similar. Medical appropriateness was the most common reason given, followed by lack of information and non-covered benefit. Key Findings: UM Denials Denials, appeals, and overturned decisions are extremely rare for most UM companies, but not for all. Most companies (70 percent or more) have a very low denial rate (less than 2 percent) across all types of UM. However, a small percentage of companies (2 to 3 percent) have denial rates of 20 percent or more (2005 Web Survey). Most companies (70 percent or more) also have few appeals (less than 2 percent of adverse determinations are appealed). Almost half of denials and appeals are related to medical appropriateness issues. Lack of sufficient information results in about one in four denials and appeals, and non-covered benefits trail at about one in five denials and appeals. Most companies (more than 60 percent) report that less than 2 percent of appeals result in an overturned denial. However, a significant minority of companies (9 percent to 14 percent) have more than 20 percent of appeals overturned. Analysis of UM Data Most companies report a very low service denial rate, despite the presumed shift to more targeted UM. This suggests that much of UM value derives from its sentinel effect (people avoid out-of-bounds behavior when they are monitored) rather than actually finding the out-of-bounds behavior. This interpretation also suggests that UM will remain an important component of medical management, despite low denial rates. The relatively few companies with high denial rates may be focused on industry segments that cannot be managed in other ways (such as by targeted co-pays or coinsurance). While the survey has no information on the industry segments with higher denial rates, a likely conclusion is companies focusing on experimental, investigational or emerging technologies in the UM activity. It seems reasonable that where denials are rare, it is likely that appeals are also rare. As a result, companies with low denial rates probably use denial only when the requested service or treatment does not meet established review criteria. Therefore, there are likely to be few appeals, and when appeals do occur, few cases are likely to be overturned. For companies where denial rates are high, the opposite phenomenon is likely to occur. TABLE 10: Reasons for UM Denials and Appeals UM Denials Number of UM Appeals Number of companies responding = 138 of 282 companies responding = 134 of 282 Not medically appropriate 47% 46% Lack of information 23% 23% Non-covered benefit 17% 17% Other 7% 8% Experimental 5% 5% Don t Know 1% 1% Source: 2005 URAC Web Survey 16

CASE MANAGEMENT URAC DEFINITION: Case management is a collaborative process of assessment, planning, facilitation and advocacy for options and services to meet a consumer s health needs through communication and available resources to promote high quality, cost-effective outcomes. In recent years, the importance of CM services has expanded as a fundamental building block to the medical management system. Most of the 2005 Web Survey respondents use a wide variety of CM strategies (see Table 11). Almost 90 percent of the respondents noted that they work with a patient s provider when rendering CM support. Of special interest is the percentage of companies reporting that case managers conduct onsite visits at provider facilities (60 percent of responding companies). Also, a relatively high percentage of responding companies (38 percent) report their case managers do home visits. Some focus group participants TABLE 11: 2005 Case Management Services Number of companies responding = 161 of 282 Program services/function Percentages Provide ongoing collaboration with providers involved with individual cases 89% Telephonic case management 85% Refer consumers to community resources for non-covered services 85% Refer consumers to providers 78% Conduct onsite case management services at facility or provider 60% Monitor financial outcomes of the consumers served 58% Refer cases to disease management 58% Issue medical necessity denials 57% Offer discharge planning services for non-case managed consumers 55% Integrate disease management services within the case management program conducted by the case manager 51% Ability to flex benefits 43% Contract with another case management organization for specialty cases (e.g., mental health) 40% Conduct field visit to consumers in the home 38% Issue benefit denials 38% Provide the consumer with a copy of the case management plan of care 36% Provide the physician with a copy of the case management plan of care 35% Contract with another case management organization for catastrophic cases (e.g., transplants, SCI, TBI, Multiple trauma, severe burns) 22% Source: 2005 URAC Web Survey 17

confirmed these findings by noting that CM programs have begun complementing telephonic support with onsite visits at hospitals and other facilities. The responses reinforce other findings concerning the integration of CM and DM services. For example, a majority of respondent companies report that they refer cases to DM (58 percent) and actively integrated DM and CM services (51 percent). It is also of interest that there is some overlap in CM services and benefits administration. Thirty-eight percent of respondent companies reported that their case managers make benefit denials as well as provide CM services. One-third of the responding companies indicate they make their CM care plans available to patients and physicians. Tables 12 and 13 highlight the 2005 Web Survey responses for determining eligibility and assigning cases. Diagnosis and cost are the two most common factors determining eligibility, and acuity level and clinical specialty area are the two most common factors for assigning cases. Some focus group participants suggested that URAC further analyze the survey results (for determining consumer eligibility for CM) because the responses give the impression that diagnosis, high dollar claims, catastrophic claims, potential cost savings and the other factors are considered 54 percent of the time or less. The focus groups suggest that at least one of these factors is used at all times and in some cases, multiple criteria are used. A review of the data shows that approximately 65 percent of the time at least one criterion is selected and in a majority of cases multiple criteria are considered. TABLE 12: Consumer Eligibility For Case Management Number of companies responding = 237 of 282 TABLE 13: Determinants for Assigning Cases Case Management Number of companies responding = 151 of 282 Diagnosis 54% High Dollar Claim 51% Catastrophic Claim 50% Potential Cost Savings 42% Patient Request 40% Contract Requirements 35% Scope of Benefits 27% Predictive modeling 22% Acuity Level 64% Clinical Specialty Area 57% Geographic Region 49% Delivery Model: Onsite or Telephonic 40% Contract Requirements 38% Number of Covered Lives/CM Ratio 36% Source: 2005 URAC Web Survey Source: 2005 URAC Web Survey 18

Key Findings: Case Management CM tends to be a face-to-face activity for many responding companies. Sixty percent of responding companies use case management to conduct onsite visits at hospitals and provider locations; 38 percent of companies use case managers to conduct home visits (2005 Web survey). Fifty-eight percent of companies cross-refer cases to DM programs; 31 percent integrate CM and DM and 55 percent integrate CM with discharge planning (2005 Web survey). Fewer than half of the companies allow case managers to flex benefits in response to patients needs or allow case managers to deny coverage for services (2005 Web survey). Only one in five of the responding companies report they have access to predictive modeling to help determine eligibility for CM (2005 Web survey). The most common criteria used in determining eligibility for CM are type of diagnosis and high/catastrophic cost of the case. Potential cost savings is also an important criteria (2005 Web survey). Analysis of Case Management Data Case management is a labor-intensive activity. The integration of CM with UM and DM is likely contributing to the smaller case loads associated with those functions. Just under half the companies surveyed allow case managers to flex benefits, while just about the same proportion allow them to deny benefits or services. This indicates that CM companies are divided on the role of case managers. Since CM is an intensive service, selection of which cases are to be managed is quite important. A relatively new approach for assisting in case selection, predictive modeling from claims data, allows companies to use patterns uncovered in claims data to better target patients that can benefit from case management. 19

DISEASE MANAGEMENT URAC DEFINITION: Disease management is a system of coordinated health care interventions and communications for populations with conditions in which patient self-care efforts are significant. Disease management supports the physician or practitioner/patient relationship and plan of care, emphasizes prevention of exacerbations and complications utilizing evidencebased practice guidelines and patient empowerment strategies, and evaluates clinical, humanistic, and economic outcomes on an ongoing basis with the goal of improving overall health. Disease management components include: population identification processes; evidence-based practice guidelines; collaborative practice models to include physician and support-service providers; patient self-management education (may include primary prevention, behavior modification programs, and compliance/surveillance); process and outcomes measurement, evaluation, and management; routine reporting/feedback loop (may include communication with patient, physician, health plan and ancillary providers, and practice profiling. (Source: Disease Management Association of America). DM services have expanded tremendously in recent years and assume a critical role in managing targeted chronic conditions. 16 TABLE 14: Percentage of Companies with Specific Disease Table 14 shows a comparison of Management Strategies, 2001 and 2005 Number of companies responding in 2005 = 101 of 282 DM intervention strategies that Number of companies responding in 2001 = 59 of 92 was reflected in both the URAC 2001 survey and 2005 Web Survey. Intensive onsite CM grew most in 2001 2005 frequency, from being offered by Onsite CM 19% 40% 19 percent of the respondents in Telephonic CM 85% 87% 2001 to offered by 40 percent of Call Center 50% 57% respondents in 2005. In-person Internet Education 44% 48% education rose from 28 percent in Patient Support Groups 14% 19% 2001 to 58 percent in 2005. Physician Education 63% 61% Some members of the DM focus Mail Patient Education 69% 83% group indicated that the rise in inperson In-Person Education 28% 58% education and onsite CM is Clinical Interventions 41% 51% due to the increased DM focus on harder-to-reach patients and the Source: 2001 URAC Survey and 2005 Web Survey increased focus on more complex patient cases. The only DM strategy that declined slightly from 2001 to 2005 was physician education services, from 63 percent to 61 percent. 20

The top six conditions managed by DM programs, according to the 2005 Web Survey, are diabetes, asthma, congestive heart failure, coronary artery disease, chronic obstructive pulmonary disease and high risk pregnancy. 17 Members of the DM focus group suggested that mental health DM programs were increasing (e.g., depression) along with multiple disease stage management, and that there is an increasing interest in targeting patients in a pre-disease state--for example, targeting patients who are pre-diabetic. Telephonic CM (used by 87 percent of responding companies) and mailed patient education materials (used by 83 percent) are the two most commonly used DM interventions, according to the 2005 Web Survey (see Table 16). Fewer companies (48 percent) reported Internet-based education compared to 44 percent of companies reporting its use in 2001. Some members of the DM focus group explained that the low web utilization was because only a select segment of the patient population uses TABLE 15: 2005 Disease Management Services: Conditions Managed Number of companies responding = 98 of 282 Diabetes 92% Asthma 80% Congestive Heart Failure 76% Coronary Artery Disease 56% Chronic Obstructive Pulmonary Disease 52% High Risk Pregnancy 50% Hypertension 42% Transplant (Organ & Bone Marrow) 39% Depression 31% End Stage Renal Disease 29% Low Back Pain 27% Oncology 25% High Cholesterol 23% Obesity 23% Chronic Kidney Disease 21% Post Partum Depression 12% Attention Deficit/ Hyperactivity Disorder 3% Source: 2005 URAC Web Survey TABLE 16: 2005 Disease Management Services: Services Provided Number of companies responding = 101 of 282 Telephonic case management 87% Mailed patient education materials 83% Health promotion/wellness program 66% Physician education 61% In-person patient education (e.g., classes, telephone, case manager driven) 58% Telephone triage (HCC) 57% Clinical interventions (e.g., exams, specialist referrals, other) 51% Internet-based education or support 48% Onsite case management 40% Referral to the payer s contracted CM program 40% Physician profiling 32% Provide the consumer with any medical equipment if participated in the program 25% UM services conducted by the DM program staff 21% Patient support groups 19% Provide the consumer with a reduced prescription co-pay if participates in the program 10% Source: 2005 URAC Web Survey 21