Cost management in health care industry
Authors:   , Chiang Bih-Horng , Curatola Anthony Paul , Mackie James J. 
Published: October 2021

With sustained increases in health care costs over the past decade, health benefit costs are now a major cause of rising compensation costs. Providing adequate and affordable health benefits has become an important issue to management. All the parties involved in the health system are demanding more accurate knowledge about the cost of health care services. Facing the rising health care costs, health care insurers and payers have increasingly turned to managed care as a cost-containment strategy. One prominent form of managed care is utilization management. Utilization management programs review, on a case-by-case basis, requests for treatment (usually hospital inpatient care or outpatient surgical care), and certify that the care requested is clinically appropriate and medically necessary. Studies in examining whether a Utilization Management program reduces hospital expenditures have generated mixed results. Much of the controversy relates to the use of UM as a cost-containment strategy in the mental health area. Several key factors that may affect the use of health care services are proposed in this study, and are believed to be one reason for the mixed result of prior studies. These factors are: patients characteristics (gender, age and diagnosis), benefits plan features and contract structure. The possibility of different genders, age and diagnoses resulting in variations in mental health costs and usage can provide the management accountant with important information about the likelihood of such costs, in light of the employee population, and the need to revisit the appropriateness of the benefit package provided to the employee. Another objective of this study was to examine whether costs decreased over time after the UM program was adopted. As a result, the primary research question of this study is: Does utilization management for mental health benefits reduce utilization and cost? In this study, mental health costs are analyzed in two forms: cost per visit and total cost per person per year. Utilization is measured by the number of office visits per person per year. This study found that age and diagnosis were significantly related to total cost and utilization. Gender was found to be significantly related to cost per visit and total cost but not utilization. Regarding benefit plan features, copayment amount was indicated to be significantly related to cost per visit, total cost and utilization. The effect of deductible amounts on cost and utilization was not supported by the findings. In addition, The impact of contract structure on cost/utilization, however, was not supported by the statistical evidence. In sum, Utilization Management programs are not cost effective when applied broadly across beneficiary populations, but can have a significant effect on cost or utilization depending on the demographic characteristics of the population and certain benefit plan design features. These findings would enhance the company's understanding of the basic cost drivers in the mental health area. For management accountants who are trying to predict the future costs of mental health benefits and select appropriate cost control strategies for these benefits, analytical models based on the analysis of age and diagnosis and the adjustment of behavioral health benefit copayment levels are likely to be the most useful.