The impact of private utilization review on hospital use and medical care expenditures among insured groups.

Abstract

The use of utilization review (UR) as an approach to the containment of private health care expenditures has increased rapidly as employers, in their role as purchasers of health care, have sought to control health insurance premium costs. Little is known about the effects of private UR programs. The purpose of this study was to determine the effects of UR on hospital use and medical expenditures. The study used a (means-difference) covariance model to estimate the effects of UR, based on analysis of pooled data representing the claims experience of 223 privately insured groups for the period 1984 through 1986. The study found that UR had a significant negative effect on the utilization and expenditures of insured groups. UR reduced admissions by 12.2 percent (p $<$.001), hospital routine (room and board) expenditures by 14.9 percent (p $<$.001), hospital ancillary expenditures by 10.4 percent (p $<$.10), and total medical expenditures by 6.6 percent (p $<$.05). UR had no statistically significant effect on length of stay, hospital inpatient expenditures per admission, or hospital physician-visit expenditures. Most of UR's impact was found to occur in the quarters immediately after implementation. The pattern of effects over time suggests that patients and physicians may adjust to UR and learn how to minimize the impact of constraints imposed by the review procedure. It is also possible that some patients may delay seeking care at the time UR is implemented. The impact of UR varied across diagnostic areas. Covered expenditures on selected diagnoses in the surgical area were reduced by 15.7 percent (p $<$.10). In contrast, there was no statistically significant reduction in expenditures on diagnoses in the areas of mental health or medical services. UR led to a significant increase (p $<$.05) in expenditures on hospital outpatient department clinical services for the average group. However, it had no statistically significant effect on expenditures on hospital outpatient diagnostic services or physician office services. The overall impact of the substitution effect associated with implementation of UR appears to be considerably smaller than commonly assumed.