:( 

Department of Health and Human Services


OFFICE OF


INSPECTOR GENERAL


MONITORING SERVICES PROVIDED


IN PHYSICIANS' OFFICES


'fRVICESO 

Richard P. Kusserow 

INSPECTOR GENERAL 

'0 OEI-02-90-0041O 

;fIiVd3G 
EXECUTIVE SUMMARY


PURPOSE 

To identify and describe the CUITent private sector and Medicare initiatives to improve the 

monitoring of services provided by physicians in their offices. 

BACKGROUND 

In the past few decades, much of the emphasis given to controlling the utilization and cost of 

health care has been in the public sector, primarly with the Medicare and Medicaid programs. 

These programs have made extensive use of pre-payment and post-payment utilization review 

(UR) and medical review (MR) techniques in the processing of hospital and medical claims by 

contractors or State agencies.


The soarng cost of U.S. health care in the last 10 years (up from $230 bilion to $606 bilion in 

1989) has spuITed similar efforts in the private sector where large employers are seeking to 

control their rapidly escalating expenditures for health care. The private sector has looked to 

managed care (MC) programs to help solve this problem. These programs attempt to control 

costs by assessing the appropriateness of proposed care 
 rough the use of prior review 

techniques, and by channeling patients to specific providers. Examples of major health deli very 

plans utilizing MC are health maintenance organizations (HMO) and prefeITed provider 

organizations (PPO). Together, these plans cover about 75 milion subscribers and family 

members nationwide. 

In the public sector, the Medicare program made Part B medical payments of $37 billion to 

about 33 milion beneficiares in 1989. Physicians are monitored by Medicare cariers through 

sophisticated computer programs. The Health Care Financing Administration (HCFA) has 

continued to build upon 25 years of experience with Part B MR by sponsoring Medicare carer 

studies to improve this process. In addition, HCFA is sponsoring PPO demonstrations involving 

an alternative service delivery model for beneficiares. 

In this report, MCIUR refers to all firms which provide DR and/or MR services, either 

independent of, or as part of, a MC program. 

METHODOLOGY 

In-person interviews were conducted with a purposive sample of 12 MCIUR firms (including 5 

of the nation s 10 largest general service DR firms) and 5 employers. The respondents selected 

provided or used MC plans with the most extensive monitoring of physician services provided in 

ambulatory settings. In addition, visits were made to two Medicare cariers and two PPOs 

involved in HCFA initiatives to develop utilization and alternative service delivery models. 
FINDINGS 

Private Sector Monitoring Of Physicians' Services Provided In Their Offices Is Limited But 

Emerging 

Few MCIUR programs focus on services provided in physicians ' offices. 

A few MCIUR firms are using sophisticated computerized software systems in an 

effort to contain costs of physicians ' services and to develop appropriate patterns of 

ambulatory care based on diagnoses. 

Trade groups are also developing strategies to address ambulatory care. 

Most MCIUR firms employ some specific quality assurance techniques. 

HCFA' s Initatives Explore New Ways To Monitor Services Provided In Physicians' Offices 

The Blue Cross Blue Shield of Arizona and Capp Care PPO demonstrations wil 

allow HCFA to evaluate a private sector MC model's potential for providing quality 

care to Medicare beneficiaries while containing costs. 

The Blue Cross Blue Shield of North Dakota (BCBS/N) study has developed data 

on diagnosis-based patterns of care MRR screens. 

Blue Cross Blue Shield of Indiana and Blue Cross Blue Shield of Arkansas are 

Flexibility Control Carers" HCFA is evaluating as part of a controlled study. 

These carrers have been given greater MRIR flexibility to find innovative ways to 

improve Medicare operations. 

CONCLUSION 

The HCFA appears to be on the cutting edge of efforts to improve the monitoring of services 

provided to Medicare beneficares by physicians in their offces, and to explore alternative 

service delivery systems for beneficiares. 
...................................................................................................... ............. ................. ............................................................. .. ...... .. .. .. .... .. .. ........ .......... .....,.... .. .. 

TABLE OF CONTENTS


EXECUTIVE SUMMARY 

INTRODUCTION.......... 


Purpose.. .. .... 

Background ................ .................. ........ 


Methodology........................ ................................................................................


FINDINGS................................................................................................................ 


CONCLUSIONS 1 a 
INTRODUCTION


PURPOSE 

To identify and describe the CUITent private sector and Medicare initiatives to improve the 

monitoring of services provided by physicians in their offces. 

BACKGROUND 

In the past few decades, much of the emphasis given to controllng the utilization and cost of 

health care has been in the public sector, primarly with the Medicare and Medicaid programs. 

These programs have made extensive use of pre-payment and post-payment review techniques in 

the processing of hospital and medical claims by contractors or State agencies. They have also 

engaged Professional Review Organizations (formerly Professional Standards Review 

Organizations) to review the medical necessity of hospital admissions and stays. Also, the 

Public Health Service (PHS) has a 1989 legislative mandate to develop clinical guidelines over 

the next several years to enhance the quality, appropriateness and effectiveness of health care. In 

developing standards of quality, PHS wil be stressing oUtcomes, to help health care practitioners 

and others who review health care to assure its quality. 

The soarng cost of U.S. health care in the last 10 years (up from $230 bilion to $606 bilion in 

1989) has spuITed similar efforts in the private sector where large employers are seeking to 

control their rapidly escalating expenditures for health care. The private sector has looked to 

managed care (MC) programs to help solve this problem. About 300 MC firms nationwide 

cUITently provide or arange for review of services on a packaged or customized basis to 

employers, unions and insurers; some employers and insurers provide this service themselves. 

The MC approach attempts to control costs by assessing the appropriateness of proposed care 

through the use of prior review techniques and by channeling patients to specific providers. 

EXilmples of major health delivery models utilizing MC are health maintenance organizations 

(HMO) and prefeITed provider organizations (PPO). While HMOs evolved out of public sector 

initiatives in the 1970s, PPOs are a private sector development of the early 1980s. They 

generally do not offer the full range of services found in HMOs, but provide more benefits than 

enrollees receive in conventional plans. 

At present, about 600 HMOs operate nationwide, with reported enrollments of around 35 

milion. Among these HMOs are approximately 105 plat.s with Medicare contracts enrolling 

almost 2 million beneficiares. The number of operational PPOs in the U. S. has increased 

dramatically, from 25 in 1981 to around 800 in 1990; they serve an estimated 42 milion workers 

and family members. No CUITent data is available on the actual size of physician membership in 

either HMOs or PPOs, although about half of all physicians in the U.S. are estimated to be 

members of one or more MC health plans. 
In the public sector, the Health Care Financing Administration (HCFA) is the primary insurer of 

about 33 milion Medicare beneficiares. In 1989, the Medicare program made Par B medical 

payments of $37 bilion. For calendar year 1988, the program experienced nearly 124 milion 

visits to physicians ' offces, and paid about $3. 2 bilion for Part B medical services in that 

setting. 

Physicians are monitored by Medicare carers through sophisticated computer programs. Often 

program dollars are withheld or are recovered from providers when the medical necessity of 

services is not established. The HCFA has continued to build upon 25 years of experience with 

Par B service review by sponsoring Medicare carer studies to improve this process. In 

addition, HCFA is sponsoring PPO demonstrations involving Medicare beneficiaries. 

Other Federal agencies also utilize MC health plans. About 1.8 milion Federal employees 

retirees and dependents are enrolled in HMOs through the Federal Employees Health Benefits 

Program - up 16 percent from 20 years ago. The Civilian Health and Medical Program of the 

Uniformed Services makes MC available to 900,000 beneficiaries through PPO networks in 

California and Hawaii. 

The term "ambulatory" care, as used in this report, includes, but is not limited to, services 

physicians provide in their offices. Monitoring refers to the application of techniques used to 

review the actual or proposed utilization of all care for its appropriateness and necessity. 

Utilization review (DR) is a term generally applied to inpatient hospital care, while medical 

review (MR) is a term generally applied to ambulatory care. In this report, MCIUR refers to all 

firs which provide UR and/or MR services, either independent of, or as part of, a MC program. 

METHODOLOGY 

Mail contact was made with all of the 86 MCIUR firms attending a March 1990 "UR Summit 

conference of the American Managed Care and Review Association (AMCRA). Information 

was requested regarding the specific services offered by each to its clients. In addition , the 

Washington Business Group on Health (WBGH) furnished, at our request, a list of 15 large 

employers utilizing MC health plans for their employees. These employers were contacted by 

phone and mail and asked to provide information about their health care plans. Forty-seven 

MCIUR firs furnished the requested information. Other firms did not respond, or indicated 

they were not performing MCIUR for ambulatory care. All the employers were contacted but 

only 10 offered MCIUR plans to substantial numbers of employees. 

From those respondents, a purposive sample of 12 MCIUR firs (including 5 of the nation s 10 

largest general service UR firms) and 5 employers was selected for onsite visits. The 

respondents selected provided or used MC plans with the most extensive monitoring of 

physician services provided in ambulatory settings. In addition, visits were made to two 

Medicare carers and two PPOs involved in HCFA initiatives to develop utilization and 

alternative service delivery models. Detailed information was collected about each 

organization s MRIR activities, quality assurance practices and provider relations. Employers 

were asked about how health care plans offered to employees were selected and their experience 
with MC firs. This information was complemented by statistical and survey data from the 

Midwest Business Group on Health (MBGH), the American Medical Association (AMA), the 

Blue Cross Blue Shield Association (BCBSA), the American Managed Care and Review 

Association (AMCRA), the Group Health Association of America (GHAA), the American 

Association for Retired Persons (AARP), the Health Insurance Association of America (HIAA) 

and HCFA. 
FINDINGS


PRIVATE SECTOR MONITORING OF PHYSICIANS' SERVICES PROVIDED IN 

THEIR OFFICES IS LIMITED BUT EMERGING 

Few MC/UR programs focus on services provided in physicians' offices. 

The focus of MCIUR has been on inpatient hospital services with special concern for mental 

health and substance abuse cases (MHSA). All 47 responding MCIUR firms provide 

comprehensive programs for managing inpatient hospital services and some ambulatory services. 

Most of these firms (37 of 47) perform UR of inpatient hospital and ambulatory MHSA services. 

Four specialize in MCIUR for MHSA services. 

While twenty-two of the 47 firs report performing some varety of ambulatory care review, the 

extent is quite limited. Seventeen of these 22 firms limit ambulatory care review to prospective 

certification of selected procedures or procedures over a certain dollar amount. Some also 

perform retrospective review of targeted ambulatory services, such as chiropractic care. Only 

the remaining five firms are using relatively new and highly sophisticated computer software 

systems to monitor services provided in a physician s office. 

The lack of private sector experience with the monitoring of physicians ' in-office services was 

noted in a recent issue of Medical Utilization Review an industry newsletter: 

CUITently, carers and other vendors of UR management services are promoting new 

ambulatory care UR systems. However, employers must keep in mind that ambulatory 

care UR is immature and has not yet evolved to the same degree as inpatient UR. 

(Faulkner & Gray Healthcare Information Center Washington, D. , October 25, 1990) 

Afew MC/URfirms are using sophisticated computerized software systems to contain costs of 

physicians services and to develop appropriate patterns of ambulatOlY care based on 

diagnoses. 

The computer programs used by four of the five MCIUR firms which review in-office services 

screen physicians prospectively (where prior utilization data is available) and identify physician 

member outliers through sophisticated data base management programs. The firms get outliers 

to conform to acceptable utilization levels or drop them from their HMO and PPO networks. In 

contrast, Medicare law permits HCFA to exclude a physician from paricipation because of 

excessive utilization only as the result of a long and complex sanctions procedure, usually 

related to a quality of care issue.


Three of these MCIUR firs, including two insurers, utilize an adaptation of a patented software 

program that measures services biled against established standards of treatment based on 

diagnoses. A key element in the patented program is the use of local physician control and input. 

However, the three firms have obtained little or no local medical community input in adapting 
the program. All use the system primary on a prospective basis, to determne appropriateness 

of services based on the established guidelines. 

According to these respondents only about 40 organizations nationwide, including major 

insurers and HMO networks, use the patented software program for this purpose. The total 

population covered by all these programs is estimated to be three million, or less than five 

percent of all those estimated to be covered by MC plans. 

Indications are that the popularty of such programs is growing. Similar types of software have 

been developed or are being developed. The insurers and MCIUR firms using them say they 

now have a clearer picture of where health care costs are located. More time is needed, however 

to adequately assess financial impact and employer and subscriber satisfaction. 

Trade groups are also developing strategies to address ambulatory care. 

The HIAA has proposed a strategy to achieve effcient and high-quality health care in the private 

sector through a public-private insurance system. Such a system would include efforts to 

channel patients to efficient, high-quality providers, and to promote and paricipate in the 

development, dissemination and use of outcome-based medical guidelines and protocols as a 

means of improving the quality of patient care. 

According to the MBGH, major strategies cUITently being pursued by employers include 

developing employer-sponsored purchasing initiatives for specific procedures or comprehensive 

service, and requiring quality and cost-containment features from insurers and providers as a 

basis for contracting. 

Recently, the AMA, HIAA, BCBSA and AMCRA formed a task force to develop national 

utilization review guidelines for inpatient hospital services. Down the road, a similar effort is 

planned for out-of-hospital services. 

Most MC/URfinlls employ some specifc qualiy assurance techniques. 

Seven of the sample MCIUR firms select physicians for health care plans, based on rigorous 

credentialing which screens physicians prospectively, and analysis of utilization data to identify 

abeITant practices. These are quality assurance (QA) techniques used by all. Credentialing 

committees are used by these firms to develop, maintain and apply the qualifications standards 

necessar in the selection of physicians wishing to join the HMO or PPO plans. Data is 

collected on medical specialty and licensure, board eligibility or certification, medical education 

professional liability coverage, hospital affiliation(s), preference as to participation as either a 

primary care physician or specialist, call coverage and other administrative information. Some 

of these firms also conduct consumer satisfaction surveys. (In contrast, a physician providing 

services to Medicare beneficiares need only be licensed in the State of practice in order to be 

reimbursed. 

One large insurer among these seven firms has an extensive credentialing process for physicians. 

All physicians in an area selected for the development of a network are invited to focus group 
discussions. Their perceptions and attitudes towards MC, PPOs, utilization review and other 

topics are collected. Preliminary screening consists of checks for prior sanctions or disciplinary 

action, board eligibility or certification, malpractice history, and hospital staff privileges. 

addition, provider relations staff visit every provider s office to check for modern and sanitary 

conditions, adequacy of waiting room area, administrative as well as record keeping procedures 

and additional aspects of the physician s practice. This usually takes up to 3 months to complete. 

Following selection, provider relations staff visit every primar care physician in the network at 

least quarterly to discuss any problems, complaints or areas of concern of either party. 

For the most part employers do not get involved in the particulars of quality assurance but 

instead rely on MC firms to perform these duties. The five major employers visited either use 

internal medical staff or QA coordinators to monitor quality, but most of the emphasis is on 

inpatient care. These employers all use survey instruments to determine employee satisfaction 

with their CUITent health plans and as a way to spot poor quality care. 

Comprehensive quality review procedures involving proactive approaches are generally not 

found in MCIUR firms affiliated with PPOs. As PPOs are a recent innovation in the health care 

market, little evidence is available about their effects on health care costs, quality of care or 

patient satisfaction. 

The firs visited rely mainly on contact with the providers through prior authorization of 

specific services, e. , elective surgery, to assure quality and appropriate care. However, HMO 

plans are generally required to have a formal QA program in place, as was the case with four of 

the sample MCIUR firms affiliated with HMOs. 

About 75 percent of nearly 600 active HMO plans nationally meet Federal standards and most 

States also regulate them. These HMOs have QA programs which include some review of 

in-office services. PPOs are exempt from the State and Federal regulations governing HMOs. 

Some of the MCIUR firms visited said that a barer to assuring quality of care was the lack of an 

acceptable definition of quality. In this regard, the Institute of Medicine s (10M) 

Committee to Design a Strategy for Quality Review and Assurance in Medicare, formed at the 

behest of the Congress as a result of OBRA 1986, defined quality of care in its 1990 report as 

the degree to which health services for individuals and populations increase the likelihood of 

desired outcomes and are consistent with CUITent professional knowledge. " The 10M study 

noted with regard to ambulatory care: 

Both overuse and underuse of services are of concern in the physician-office setting ... We 

know far less about methods for reviewing the quality of care in the ambulatory setting 

than those for inpatient care. In the coming years, information from PRO pilot projects, 

HMO experiences, and research and demonstration studies focusing on outcomes 

management in ambulatory care should help to close that gap.... 
HCFA' S INITIATIVES EXPLORE NEW WAYS TO MONITOR SERVICES PROVIDED 

IN PHYSICIANS' OFFICES 

The HCFA's efforts to monitor physician services more effectively and study alternative service 

delivery models have resulted in varous initiatives. Two of five PPO demonstrations planned by 

HCFA are under way and a third is being considered. The Blue Cross Blue Shield of Arizona 

(BCBS/AZ) private business PPO and Capp Care PPO of California are demonstration sites. 

Each is required by HCFA to maintain a strctured QA program. The HCFA also entered into an 

agreement with Blue Cross Blue Shield of North Dakota (BCBS/ND) for the development of 

diagnosis-based patterns of care MRIUR screens. Blue Cross Blue Shield of Indiana (BCBSIIN) 

and Blue Cross Blue Shield of Arkansas (BCBS/AR) have also been funded by HCFA as 

Flexibility Control Carers ; each has been given greater MRR flexibility to find innovative 

ways to improve Medicare operations. Following are brief descriptions of each of these 

ini tiati ves: 

The Blue Cross Blue Shield of Arizona Demonstration 

The HCFA contracted with Blue Cross Blue Shield of Arizona (BCBS/AZ) in 1988 for a 

Medicare demonstration of the PPO concept which marketed a Medigap policy (Senior 

PrefeITed) with lower premiums than usual and added benefits. A panel of 1 100 physicians was 

established from those who met and maintained PPO paricipation criteria set by BCBS/AZ for 

its own PPO. Physician profiling is the key means of exercising utilization control over 

physicians' services. The plan has not emphasized MRIR activity but monitors the physicians 

receiving the largest reimbursement. It relies less on the physician s ability to change behavior 

and more on having chosen efficient physicians in the first place through effective credentialing. 

The entire membership is reviewed according to formalized criteria on a bi-annual basis, 

including review of economic profiles and quality concerns. The contract signed by 

participating physicians can be terminated at any time by either pary. 

The BCBS/AZ has a strctured QA program which includes the Medical Offce Review and 

Evaluation Program (M. R.E). This program, with its onsite visits and evaluations of 

physicians ' office and medical practices , includes reviews of the content of medical records, 

evaluation of offce facilities, safety and hygiene, laboratory and X-ray facilities and procedures. 

The M. E. gives BCBS/AZ useful information for individual and peer quality assessments. 

The visits are conducted confidentially and the findings are shared with the member physician 

along with recommendations to COITect problems noted. Physicians are expected to implement 

the recommendations. 

Patient grevances serve as quality checks; BCBS/AZ is planning a patient satisfaction survey of 

Senior PrefeITed enrollees to assess their reactions to the provider panel and to the service and 

benefits. 
The Capp Care PPO Demonstration 

The CAPP CARE PPO demonstration started in Orange County, California and is due to expand 

to nine counties in Southern California. The pilot demonstration, open to all 188,000 Medicare 

beneficiares in Orange County, began operating in March 1990. Approximately 900 physicians 

participate. Providers must be wiling to accept assignment and comply with all biling 

guidelines and UR procedures. 

These physicians are par of CAPP CARE's private PPO.network and are subjected to a rigorous 

credentialing process, including licensure, liability claims, professional society complaints and 

other disciplinary indicators. In addition, a profie of each physician is gathered containing such 

information as medical school, specialty, board certification and hospital affliations. If a 

sufficient number of claims are available, physician-specific profiles are developed and 

compared to established normative values. Physicians whose practice profile shows a significant 

variation from established parameters are excluded. Physicians whose various profiles conform 

to CAPP CARE standards are eligible to join the network. 

The CAPP CARE demonstration has a quality assurance program for ambulatory services 

similar to the one it uses with its private payers. Ambulatory care review is performed using a 

computerized system that compares physician claims to normative values that are 

specialty-specific. The review is completely automated and data is run through edits that detect 

frequency of use of certain higher reimbursable codes and frequency of injections and laboratory 

tests. The system generates QA reports that detect abeITant biling practices and are reviewed by 

a QA committee. Ambulatory services are also monitored through a formal patient grievance 

system specifically designed for the Medicare PPO. It allows beneficiaries to register complaints 

and sets down guidelines for their effective resolution. 

The demonstration is a non-enrollment model which is fr.ee of risk to Medicare beneficiaries; 

participation is automatic any time they choose to see a plan physician. Marketing of the 

demonstration was limited to a mailing to all Orange County beneficiaries announcing the 

demonstration and providing a directory with the names, addresses and specialties of all 

participating physicians. 

The Blue Cross Blue Shield of North Dakota Patterns of Care Study, 

In March 1988, HCFA entered into an agreement with Blue Cross Blue Shield of North Dakota 

(BCBS/N) for the development of diagnosis-based patterns of care MRIR screens. These 

patterns included the full range of services generally provided to patients with a given diagnosis. 

The carer stared with 8 diagnoses based on volume of claims processed and reimbursed, e. 

cataract surgery. The carer added additional patterns, establishing 63 altogether. Each of the 

patterns was developed with the assistance and review of physician consultants and with general 

provider input. Acceptance by the medical community in North and South DakOta was 

necessar before implementation of the program began. 

Based on an agreement between the AMA and HCFA (Transmittal No. 1290, dated 2/89), the 

carer notified the providers in North and South Dakota that the MRIR system had been 
developed. Meetings were held with peer review organizations and medical associations in both 

States to discuss the project, solicit comments and open a channel of communication with the 

medical community. 

The carer developed and implemented a computerized system for applying the new screens and 

began testing the program. Using the beneficiar histories and paid claims information in the 

system, it found that the screens were successful in identifying claims in need of further review. 

At present, all the carer data concerning this process has been turned over to HCFA for review 

and disposition. 

The Flexibilty Control Carrier Studies 

Blue Cross Blue Shield of Indiana (BCBSIIN) and Blue Cross Blue Shield of Arkansas 

(BCBS/AR) are "Flexibility Control Carers" HCFA is evaluating as part of a controlled study. 

These carers have been given greater MRIR flexibility to find innovative ways to improve 

Medicare operations. For BCBSIIN and BCBS/AR, HCFA has suspended or waived many 

MRIUR requirements other carers must meet, such as relevant CPEP standards, mandated 

screens, the 5 to 1 cost benefit ratio and prescribed postpayment review processes. The HCFA 

wil decide whether greater flexibility can produce a better MRIUR package. The study also 

involves Health Care Compare (HCC), a private sector MC fir performing MRIUR of Part B 

claims for Aetna Life of Georgia, the Medicare carer, under a subcontract. In this case, HCC 

must perform under the standard requirements governing all carers. 

The BCBSIIN, which was included in the study sample, has developed some innovative policies 

and practices to improve MRIUR. The development of medical policy is one such area. The 

carer has offered the State and local medical community an extensive role in the development 

of medical policies and MRIR guidelines. Every effort is being made to thoroughly research 

current literature on prospective policies, meet or otherwise communicate with medical specialty 

societies, the AMA and the CUITent Physician Terminology board for definition clarfication. 

The carer s Medical Director decides on the need for a policy, drafts and circulates it to an 

internal committee to assure conformity with regulations and law and to assess the practical 

aspects of implementation. Copies go to a Physician s Committee callng for a response within 

30 days. All comments are carefully considered and conflcts are resolved by the Medical 

Director by phone. The policy, published in a Medicare B Bulletin, takes effect 30 days later. 

Thus far, 110 new medical policies have been developed under the flexibility study. It appears 

that bringing the State and local medical community into. the policy-making process helps 

maintain better provider relations and makes enforcing policy guidelines more effective. 

The BCBSIIN has hired a programmer/researcher who uses the Statistical Analysis System 

(SAS) program to generate management reports and analyze MRIR data and trends. Part A 

utilization data are merged with Part B data in this program, so that review and analysis of all 

related services is possible. Validation audits are conducted of large Part B expenditures by 

specialty and provider. Refined reports are available to focus on utilization patterns of any 

provider and compare them with their peers. 
The BCBSIIN is building a prototype SAS program that allows claims data from other carers 

and fiscal intermediares to be run through the SAS system and generate the same kind and 

number of management analysis reports. This would assure a consistent format among cariers 

for producing and analyzing utilzation data. 

CONCLUSIONS 

The HCFA appears to be on the cutting edge of activity to improve the monitoring of services 

provided to Medicare beneficares by physicians in their offces, and to explore alternative 

service delivery systems for beneficiares.