Reducing health care costs using claims adjudication software

An important area for reduction in health care costs is incorrect coding of physician services. Current software systems provide high-volume, consistent claims review with substantial savings for payers. The third generation of such systems offers comprehensive coverage across clinical disciplines, across individual claims, and across an entire history of claims. It is likely that these systems will be useful to both nontraditional payers, such as physician groups and hospital-based networks, and traditional payers seeking to reduce costs and enhance competitiveness.     

Capitation and informatics

When physicians, hospitals, and allied health professionals bill for services they render, their information processing requirements are relatively simple, at least compared to those of capitated organizations. When payers (insurers or employers) accept financial risk for the health care services of beneficiaries, they have usually invested in claims processing, membership tracking, and, under managed care, utilization review and provider profiling systems. But payers, for the most part, have not invested in electronic collection of clinical information about beneficiaries, nor have they tended to keep all claims they have processed in electronic form for study after accounts are settled and payments disbursed. In this article, we will explore why informatics is so important to capitated organizations and why payers that have traditionally taken financial risk for insuring the health care costs of populations are also learning about the importance of informatics.     

Economic credentialing is here to stay

Health care organizations are being scrutinized by payers for the efficiency of their processes to render health care. Organizations must offer alternative avenues to satisfy health care needs that are less resource consuming and have a reasonable chance of success. This presents an enormous challenge to U.S. health care. In the past, while in training, physicians were conditioned to ignore costs in the provision of care. We cannot afford that behavior today. Physicians must be reeducated and their behavior reconditioned to alter the teachings at medical school and residency with respect to resource utilization. To be effective, this education and behavior modification must be done in a nonpunitive fashion.     

Of orphans and balloons

Technologies with significant implications for expenditures continue to reach the health care system. These technologies range from orphan drugs/biologicals used to treat rare diseases to balloons used to treat the common occurrence of benign prostatic hyperplasia (BPH) in aging men. Because payment for these technologies can represent a serious financial drain on third-party payers, utilization has to be carefully evaluated, monitored, and controlled.     

The role of the coordinator of care

Regardless of the specific outcome of the current health reform debate in Washington, it is likely that major changes to the health care system are in the offering. These changes, many of which are already in place or imminent in some locations, will have a major impact on the evolving relationships between physicians and hospitals. Most expect that these changes will accelerate the development of integrated health care delivery systems that will compete in the marketplace for a mixture of public and private health insurance dollars. In this system of "managed competition," health care dollars will flow to those systems that can ensure the best clinical outcomes while using the least economic resources. In this scenario, competing collaborative health networks that can manage the continuum of care will be central to the health care delivery system. The economic and political ties between physicians and hospitals will become more closely linked as government and private payers of health care services foster the development of these integrated, value-based health care delivery systems.     

The rise and fall? Of mental stress claims in the USA

Occupation-related mental stress has been associated with significant loss in terms of diminished productivity, higher absenteeism, and increased workers' compensation claims. The Liberty Mutual Group workers' compensation data were analysed for the years 1984-93 for mental stress-related claims. This represented over 7 million claims, over 17000 of which were identified as mental stress-related. The proportion of all stress claims was estimated for each year. The proportion by gender, age and occupation (job classification code and occupation name) was also described. Stress claims increased during the late 1980s, peaking in 1991, accounting for 0.48% of all claims and 1.69% of all claims costs, and has declined since. Even at its peak, mental stress claims were not a major portion of workers' compensation losses. However, they are expensive. The average costs of a stress claim in 1993 was about $13000. The state of California accounts for 60% of the claims reported to Liberty Mutual over this 10-year period. In 1993 women accounted for 51% of the stress claims and about 30% of all claims. The mean age of workers with stress claims was 39.3 years, with most stress claims from 30 to 34 year-olds. High-risk occupations and industries include banks, insurance companies, general labourers, management, salespersons, and drivers. The current decline in stress claims can largely be explained by a combination of changes in unemployment, increasing litigation, and changes in law in California and other states that made more stringent the requirements whereby a mental stress claim can be considered work-related. While the data presented are helpful for comparing stress claims to all claims reported to Liberty Mutual and for identifying high-risk occupations and industries, because of the uniqueness of the stress claim selection algorithm and the uncertainties with cost estimates, the cost figures are not directly comparable to other claims reporting systems.     

Information technology, Part 3. The technology hierarchy

The era of the networked society--and medical care depending on networked intelligence--is dawning. Physicians need to plan for office practice information systems in common, with an eye to conveying data electronically between all the locations of care and all the providers involved in caring for defined populations of people. The shared database will become the most important asset of the collection of providers who make up the delivery system that creates it. This will be accomplished by layering technology on local and wide-area networks of group practices, hospitals, health plans, and payers and developing standards that make data accessible in the same format to all users, no matter where they are.     

A MODEL FOR ALLOCATING LIMITED RESOURCES WHEN MAKING SAFETY-STOCK DECISIONS

This article describes the application of a goal programming model to set safety stocks in a fixed-interval, variable order-quantity inventory system. The firm is constrained by limited storage space and capital in the determination of inventory levels. The costs resulting from the use of the proposed model are contrasted with costs resulting from an alternative method based solely upon a forecasting model. The costs considered are holding costs, stock-out costs, and the costs of acquiring excess resources. Excess resources are required when safety-stock levels, determined by the forecasting model, would utilize more than the available capital and space. The proposed model eliminates the need for acquiring excess resources at the risk of increasing the frequency and size of stock outs. A trade-off occurs between the potential for greater stock-out costs versus the costs of acquiring excess resources-borrowing additional funds or renting additional space. The goal programming model was used to set safety stocks for 15 product groups over a 46 month evaluation period for a multiproduct firm. Significant reductions in costs can be realized if the proposed model is used.     

Health care costs: saving in the private sector

Robeson offers a number of options to employers to help reduce the impact of increasing health care costs. He points out that large organizations which employ hundreds of people have considerable market power which can be exerted to contain costs. It is suggested that the risk management departments assume the responsibility for managing the effort to reduce the costs of medical care and of the health insurance programs of these organizations since that staff is experienced at evaluating premiums and negotiating with third-party payors. The article examines a number of short-run strategies for firms to pursue to contain health care costs: (1) use alternative delivery systems such as health maintenance organizations (HMOs) which have cost-cutting potential but require marketing efforts to persuade employees of their desirability; (2) contracts with third-party payors which require a second opinion (peer review), a practice which saved one labor union over $2 million from 1972 to 1976; (3) implementation of insurance coverage for less expensive outpatient care; and (4) the use of claims review. These strategies are compared in terms of four criteria: supply of demand for health services; management effort; cost; and time necessary for realized savings. Robeson concludes that development of a management plan for containing health care costs requires an extensive analysis of alternatives, organizational objectives, existing policies, and resources, and offers a table summarizing the cost-containment strategies that a firm should consider.     

Optimal Design of a Pharmaceutical Price–Volume Agreement Under Asymmetric Information About Expected Market Size

Price–volume agreements are commonly negotiated between drug manufacturers and third‐party payers for drugs. In one form a drug manufacturer pays a rebate to the payer on a portion of sales in excess of a specified threshold. We examine the optimal design of such an agreement under complete and asymmetric information about demand. We consider two types of uncertainty: information asymmetry, defined as the payer's uncertainty about mean demand; and market uncertainty, defined as both parties' uncertainty about true demand. We investigate the optimal contract design in the presence of asymmetric information. We find that an incentive compatible contract always exists; that the optimal price is decreasing in expected market size, while the rebate may be increasing or decreasing in expected market size; that the optimal contract for a manufacturer with the highest possible demand would include no rebate; and, in a special case, if the average reservation profit is non‐decreasing in expected market size, then the optimal contract includes no rebates for all manufacturers. Our analysis suggests that price–volume agreements with a rebate rate of 100% are not likely to be optimal if payers have the ability to negotiate prices as part of the agreement.     

Clinical practice guidelines: promise or illusion?

The uncertainties about appropriateness and rates of use are unfolding against the backdrop of rising costs and an explosion in new biomedical and technological information. Achieving consensus in this environment is increasingly difficult as payers demand proof of effectiveness, consumers want access to the newest technology, and physicians struggle to assimilate new information. The net result is a drive toward practice standards or guidelines.     

Self‐Selecting Priority Queues with Burr Distributed Waiting Costs

Service providers, in the presence of congestion and heterogeneity of customer waiting costs, often introduce a fee‐based premier option using which the customers self‐segment themselves. Examples of this practice are found in health care, amusement parks, government (consular services), and transportation. Using a single‐server queuing system with customer waiting costs modeled as a Burr Distribution, we perform a detailed analysis to (i) determine the conditions (fees, cost structure, etc.) under which this strategy is profitable for the service provider, (ii) quantify the benefits accrued by the premier customers; and (iii) evaluate the resulting impact on the other customers. We show that such self‐selecting priority systems can be pareto‐improving in the sense that they are beneficial to everyone. These benefits are larger when the variance in the customer waiting costs is high and the system utilization is high. We use income data from the poorest and richest areas (identified by zipcode) in the United States along with the countrywide income distribution to illustrate our results. Numerical results indicate that planning for a 20–40% enrollment in the high‐priority option is robust in ensuring that all the stakeholders benefit from the proposed strategy.     

Information technology enters the doctor's office: Part II--Six lessons about intended ... and unintended ... results

Part I of this article ("Six Design and Implementation Lessons," Physician Executive, Sept.-Oct. 1993, pp. 46-50) described an ambulatory utilization review (AUR) program designed and implemented by Metropolitan Life Insurance Company and reviewed some of the lessons learned over the past five years. Those lessons pertained to the tasks of inventing a new information technology to measure and evaluate ambulatory care and some of the practical implementation issues associated with review of 30,000 small dollar value claims per day in 19 claim offices nationwide. This article turns to the basic purpose of AUR--to review the medical necessity and appropriateness of ambulatory utilization. One lesson learned about AUR in this context is that AUR works: savings from the program outweigh costs by almost 5:1. The more important lessons, however, stem from understanding how the savings are achieved, and what some of the other unintended benefits of the program are.     

An appointment scheduling policy for healthcare systems with parallel servers and pre-determined quality of service

The appointment scheduling problem is well-known in the literature. The use of appointment systems has been adopted widely in many different fields, including service industries and especially healthcare.This research focuses on healthcare systems where patients arrive according to pre-assigned appointments. We consider healthcare systems with several parallel servers, where a given sequence of patients, with randomly distributed service durations and a possibility of no-shows, is to be scheduled. The aim is to minimize the end of day and increase resource utilization while a minimal probability of each appointment starting on time (quality of service) is required.We formulated the problem using mathematical programing and developed a multi-server numerical-based (MSN) algorithm to solve it. We conducted some experimental runs and checked the impact of the problem parameters on the end of day, customers’ average waiting time and the percentage of customers that waited for service. We also show how server pooling improves the above system measures. Finally, once the appointments are set, we develop a methodology to determine the shift length so as to balance overtime costs (costs of overtime hours) against undertime costs (costs of regular, unused hours).     

Forschungsziele der Betriebswirtschaftlichen Steuerlehre in der Kritik

In this article the understanding of the scientific functions of business taxation represented by Jochen Hundsdoerfer, Dirk Kiesewetter and Caren Sureth is critically analyzed. It is argued that hypotheses on the influence of taxes on decisions, as far as they are based on neoclassical models, are not applicable to explain the actions of tax payers. These arguments at the same time object the realization of a neutral tax system. They further contradict the realization of a tax system, which is supposed to have an impact or which avoids taxes to have an effect on decisions, provided that the criticized hypotheses are used as a basis. Fiscal law standards should rather fulfil the principle of equability of taxation. It is supposed that such fiscal law standards have an effect on decisions of tax payers, which are contradictory to the aim of an equable taxation. Therefore hypotheses from scientific experience of the actual effect of taxes on decisions must be taken into account. Hence the object of this analysis is to investigate the real influence of taxes on decisions detached from neo-classical models.     

Major impact of HMOs still in future.

HMOs and PPOs will still have a cost-reducing impact on the health care field, but their day for maximum effectiveness will come later in the decade. Until then, hospitals have a few incentives for bringing costs under control. As long as third-party payers, particularly insurers, insist on paying for empty beds, health care will consume a disproportionate part of the Gross National Product.     

The Use of Telematics Devices to Improve Automobile Insurance Rates

Most automobile insurance databases contain a large number of policyholders with zero claims. This high frequency of zeros may reflect the fact that some insureds make little use of their vehicle, or that they do not wish to make a claim for small accidents in order to avoid an increase in their premium, but it might also be because of good driving. We analyze information on exposure to risk and driving habits using telematics data from a pay‐as‐you‐drive sample of insureds. We include distance traveled per year as part of an offset in a zero‐inflated Poisson model to predict the excess of zeros. We show the existence of a learning effect for large values of distance traveled, so that longer driving should result in higher premiums, but there should be a discount for drivers who accumulate longer distances over time due to the increased proportion of zero claims. We confirm that speed limit violations and driving in urban areas increase the expected number of accident claims. We discuss how telematics information can be used to design better insurance and to improve traffic safety.     

Applications of neural networks in manufacturing management systems

Abstract. The inherent complexities of modern manufacturing require more sophisticated systems for their management. Neural networks, which are massively parallel interconnected networks, have been shown to have extensive applications in various systems that can be used in manufacturing management. An extensive amount of literature has been published on the applications of neural networks in manufacturing, yet no comprehensive review of this literature to date has been offered. In this paper, we review the concepts and applications of neural networks as they relate to various aspects of manufacturing management.     

Concepts,Theory, and Techniques A JOINT LOT-SIZING RULE FOR FIXED LABOR-COST SITUATIONS

Many American firms are implementing just-in-time production in order to minimize inventories, reduce flow time, and maximize resource utilization. These firms recognize that, in the short run, setup costs really are fixed expenses and it is available capacity which is the critical factor in determining production-run quantities. We propose using available capacity to increase the number of setups and reduce lot-size inventories. This results in improved relevant cost performance. Sugimori, Kusunoki, Cho, and Uchikawa [16] in their paper on the Toyota kanban system developed a relationship for lead time but failed to use it for lot sizing. We use this relationship to develop the joint lot-sizing rule. The efficacy of our proposed rule is demonstrated by applying it to lot-size scheduling problems at the John Deere Engine Works [14]. Extensions of the proposed rule to undercapacity situations with material-wastage costs in the setup processes and to multistate production inventory systems also are discussed.     

Process Innovation Costs in Supply Networks: A Synthesis

This paper provides a synthesis of the literature on the costs incurred by organizations that develop, adopt and use inter‐organizational process innovations in supply networks. A review of the literature in this area suggests that innovation costs influence the pattern of adoption. There is, however, a lack of consensus about what these innovation costs entail. Based on a review of innovation literature in the area of information systems, this paper develops an integrative framework of inter‐organizational process innovation costs. The framework identifies six broad categories of costs (both tangible and intangible) that map onto different stages of organizational innovation: development and initiation costs associated with the generation of an innovation; switching costs and the cost of capital associated with the acceptance stage; and implementation and relational costs associated with implementation. The framework serves not only to organize the existing literature but also to provide the impetus for future research into the role that different categories of costs play in shaping inter‐organizational process innovation in supply networks.