Academic journal article Health Care Financing Review

Use of Utilization Management Methods in State Medicaid Programs

Academic journal article Health Care Financing Review

Use of Utilization Management Methods in State Medicaid Programs

Article excerpt


State Medicaid programs are increasingly emphasizing managed care approaches to better organize care and control expenditures. Managed care is generally characterized by the existence of a provider network, the assumption of risk by the network or an intermediary, and the use of UM methods. Medicaid enrollment in managed care organizations is growing rapidly. Between 1993-95, the Medicaid enrollment in managed care plans more than doubled, from 4.8 million to 11.6 million. In 1995, enrollees in managed care plans constituted 32 percent of all Medicaid enrollees (Health Care Financing Administration, 1995a). This number is more than triple that in 1987.

This trend will likely continue. The majority of Medicaid beneficiaries in managed care have been enrolled under freedom-of-choice waivers that allow States to mandate participation in managed care (Rotwein et al., 1995). More recently, though, States have dramatically increased their requests to operate demonstration programs under section 1115 of the Social Security Act. A major incentive for operating such a program is that other limits on the use of managed care in a State's Medicaid program can be waived (Riley, 1995).

The wish to control costs motivates States' interest in increasing the use of managed care. Total Medicaid expenditures have increased rapidly in recent years and exceeded $130 billion in 1993 (Buck and Klemm, 1993; Health Care Financing Administration, 1995b). After education, Medicaid constitutes the largest item in State budgets (National Association of State Budget Officers, 1995).

One way in which managed care organizations are thought to control costs is through the use of UM methods. There are a variety of such methods, but they all generally seek to limit unnecessary care or to promote greater use of cost-effective alternatives. For instance, second surgical opinion programs try to discourage unnecessary surgery by having patients obtain another opinion before committing to the surgery.

Although UM methods are used extensively by managed care organizations, they also can be used within conventional insurance plans (Miller and Dial, 1993). The extent to which this is the case could limit savings expected from substituting a managed care program for a fee-for-service one.

This may be an important consideration for States planning to increase their use of managed care within their Medicaid programs. Many State Medicaid programs already pay providers at less than prevailing rates (Holahan, 1991), thus potentially limiting savings that might be realized through negotiated discounts. Better management of utilization then potentially becomes a more important component of cost control. However, if the Medicaid program already extensively uses UM methods, this source of potential savings may also be limited.

Unfortunately, we have little information by which to assess the relevance of this issue for Medicaid. Program requirements mandate States to have physician certification of hospital admissions and to have utilization review of hospital stays. However, the effectiveness of these requirements in controlling costs is unknown. Regarding the use of optional methods, Lindsey (1989) found that 15 States had a second surgical opinion program. The same study reported that 27 States had a preadmission screening program. There is not much information available about the use of other optional methods.

This article addresses these problems by reporting the findings of a survey of State Medicaid programs of their use of a variety of UM methods in 1993. In addition to providing information about these methods, programs rated their impact on program costs (expenditures), quality of care, and beneficiary access to services.


HCFA contracted with Mathematica Policy Research to survey State Medicaid programs about their UM methods (Frazer, Chu, and Felt, 1994). …

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