The Third Party's Secret weapon.       (1/5/90)
                       By GERALD W. GRUMET, M.D.
                  Kindly uploaded by T.A. Dorman, M.D. 
                          (Freeman 93401DORM)

 [This file had several typographical errors, presumably because of
  transmission errors. I have repaired those I saw. In addition, the
  footnote references were unbracketed. I have modified those. There is
  a good possibility there are still errors, as I did all this quickly.
  -- Bob Long]

Many strategies for the containment of medical costs have emerged from 
systems of managed care gatekeeping by a primary care physician, prior 
authorization and utilization review, assumption of financial risk 
through capitation payments to the pro vider with financial 
disincentives for hospitalization or referral to specialists, and so 
forth. But another feature has crept into the managed care formula and 
has been largely overlooked: that of slowing and controlling the use 
of services and payment for services by impeding, inconveniencing, and 
confusing providers and consumers alike. In managed care's arsenal of 
cost-control weaponry, probably none is more potent except for 
restricting hospital admission than superseding the physician's 
autonomy by a managerial review process in which armies of claims 
clerks, administrators, auditors, form processors, peer reviewers, 
functionaries, and technocrats of every description insinuate 
themselves into a complex system that authorizes, delivers, and pays 
for medical service.
Paradoxically, the savings that ordinarily accrue to an efficiently 
managed business are reversed in the case of insurance carriers, whose 
bungling, confusion, and delay impede the outflow of funds. For 
carriers, inefficiency is profitable. The result is a mounting number 
of dysfunctional bureaucracies with eye- catching logos and slick 
marketing techniques that contrast sharply with the difficulties 
encountered each time medical services are used. Such problems are not 
the exclusive province of managed care systems but are found as well 
in other third party carriers, especially those that are 
governmentally based and use public funds. Some of the mechanisms used 
by carriers to impede the delivery process are examined here.

The unnecessary elaboration of simple procedures may explain in part 
why each visit to a physician's office is estimated to generate 10 
pieces of paper. Take, for example, the procedure required to obtain a 
nebulizer through the New York State Medicaid program:
When physicians or clinics write a iiscal order for this appliance, 
they are required to complete their portion of a prior authorization 
form #3706, for the item ordered, along with the requested recipient 
information. The ordering provider will retain one copy of the form 
and the recipient will present the remaining three copies to the 
dispensing provider of their choice. The dispensing provider will 
retain one copy of the order and forward the remaining two parts of 
the form to the New York State Department of Social Services. The 
Bureau of MMIS [Medical Management Information System] will review the 
request and return to the dispensing provider a copy of the document 
with an assigned prior authorization number. That prior authorization 
number must he entered on the MMIS claim form. [2]
The complexity of this particular Medicaid system is reflected in the 
huge procedure manuals sent to physicians: the instructions for filing 
a one page billing form run for I 35 pages, followed by 260 pages of 
procedural codes.[3] But New York is not alone. Former Governor Richard 
Riley of South Carolina has reported that his state once required 
pregnant women to fill out a 43 page questionnaire to gain eligibility 
for Medicaid.[4] Nor can the word "simplicity" be found in the Medicare 
lexicon. The tendency of the federal Medicare program to complicate 
the simple is evident in this excerpt from a "general information" 
message accompanying a benefit statement:
Where the hospital collects the charges in full and the intermediary 
later finds the deductibles were fully or partially met, you will 
receive payment, along with this notice, for 80% of the paid hospital 
in excess of the cash deductible and any charges for the Part B blood 
The marriage of the federal military and medical bureaucracies is seen 
in the "CHAMPUS/ CHAMPVA [Civilian Health and Medical Program of the 
Uniformed Services/Civilian Health and Medical Program of the Veterans 
Administration] UB82/HCT-A-l450" claim form for hospital services, 
which manages to include 96 "form locator" items on a single billing 
The hindering effects of procedural complexity are reflected in the 
statistics of those denied Medicaid or welfare: 59.7 percent of the 
denials occurred because of problems with paperwork or documentatton, 
whereas only 21.4 percent occurred because of excess income.[5]

Some carriers create a unique or exotic system of procedures, terms, 
codes, or acronyms, fostering a sense of alienation and unfamiliarity 
with the insurance plan and its benefits. Sociologist Max Weber, who 
popularized the concept of bureaucracy, noted that professional 
bureaucrats attempt to maintain their power and superiority over the 
general public by keeping secret their motives and technical 
expertise. This tendency can be seen in the rarefied terminology of 
insurance planners "corridor deductibles," "disbursed self funded 
plans," "cost offset effects," "per cause plans," and so forth as well 
as in the alphabet soup of acronyms and buzzwords confected by managed 
care insurers. Besides the familiar HMCs (health maintenance 
organizations) and PPCs (preferred provider organizations), there are 
many hybrid and derivative terms, such as "swing PPOs," "HMO leaks," 
"HPOs" (hospital provider organizations), and "CPUs" (combined 
provider units). These are paralleled by an unending proliferation of 
acronyms that often puzzle the uninitiated. Awkwardness poses no 
barrier to such proliferation, as reflected in the CHAMPUS Program for 
the Handicapped (PFTH), New York Medicaid's Child Teen Health Program 
(C/THP), or its Early Periodic Screening, Diagnosis, and Treatment 
Program (EPSDT). These acronyms join other jargon "retrobilling," 
"claims processing edits," "multisource drugs," "magnetic media," to 
become standard idiom in the health care system. Thus, Medicare's "DME 
patrol" describes the effort to prevent duplicate billing for durable 
medical equipment, and "MAAC monitoring" indicates an eflbrt to ensure 
that providers do not exceed the maximal actual allowable charges. The 
"final outcome" is an abstruse and enigmatic bit of jargon that 
frequently puzzles all but the most thoroughly initiated. An item from 
the champus News exemplifies this tendency: "When the Nonavailability 
Statement is on file in the patient record at the hospital, a rubber 
stamp indicating `DDl25l IS ON FILE' may be stamped on the claim form 
(HCFA l500/CHAMPUS 501 or FORM 500) since, unlike the UB-82, there is 
no item number convoluted billing procedures of Medicare and other 
insurers, private companies have sprung up with workshops and seminars 
to assist providers in coping with "carrier intimidation" and to 
explain esoteric terms like "no pay," "desperation," or "junk" codes, 
"carrier screens," "unbundling," and "blended rates."

There are assorted techniques of slowing down the operations that lead 
to the outflow of funds, including authorizations for care, processing 
of claims, and responses to telephoned or written inquiries or 
appeals. In Great Britain and to some extent Canada, slowdowns in care 
delivery are the result of limitations in facilities, whereas in the 
United States they are operational. By one recent count, 848,246 
people were awaiting treatment in Britain's National Health Service, 
where delays of three or four years for elective surgery are 
commonplace.[6] Similarly, as recently as 1986 there was a wait of 8 to 
l2 weeks for a CT scan in New Brunswick, and elective surgery often 
involved a one  or two year delay.[2] In the United States, slowdowns 
focus on bureaucratic processes that restrain access to information, 
delaying the communications required to authorize care or disburse 
funds. Sometimes exchanges of information that could take a fraction 
of a second take weeks.
The average U.S. hospital waited 67.9 days to receive Medicare 
payments in I986, and 73.2 days in l987. By early 1988, the average 
hospital had to wait 8l days for Medicare and other bills to be paid.[9] 
Such delays have been used in the fiscal cosmetology of budget deficit 
reduction: in July I 988, Medicare adopted a 10 day delay in sending 
out its checks (extended to 14 days in October), deferring an 
estimated $815 million of liability for 1988 into fiscal 1989. A 
slowdown is seen likewise in the strenuous litigating, appealing, and 
delaying tactics of the Department of Health and Human Services and 
the Health Care Financing Administration as they attempt to thwart the 
efforts of hospitals to collect contested Medicare fees; such tactics 
sometimes hold up cases in court for as long as nine years.! Medicare 
providers encounter shorter delays: one otolaryngologist reported that 
half of his claims appeals were never answered, and those that were 
answered were delayed an average of 93 days. Similarly, in early 1987 
the state of Oklahoma was reported to have 400,000 unprocessed 
Medicaid claims,2 whereas in Illinois delay in Medicaid payments led 
to the closing of two Chicago hospitals and the bankruptcy of a 
Among the 36 percent of 460 HMO enrollees who responded unfavorably to 
a survey, many indicated that delays and impediments were a major 
source of dissatisfaction. The complaints included being placed on 
hold on the telephone for as long as 50 minutes and waiting as long as 
four or five months for a physical examination under nonemergency 
conditions.4 Among private carriers, the delaying techniques may 
include the dubious practice of shifting a claims review into a 
clinical review. A newsletter from Group Health Incorporated notes:
When submitting claims for a complete Pulmonary Function Study... 
please attach a copy of the test results to the claim form and a 
statement describing why this particular method was medically 
indicated. This will facilitate handling and assure prompt and 
accurate settlement of your claim.[15]
A potentially lethal form of delay is observed among some HMOs who 
warn their patients that they must obtain authorization before using 
an emergency department or ambulance, unless the situation is 
lifethreatening, or the bill will not be paid. This places patients in 
the predicament of having to decide whether or not they are dying. 
Three critically ill patients in Milwaukee nearly lost their lives 
because of the delays of HMO triage, which circumvented the highly 
effective emergency medical system of that city.

Some third party agencies shift their procedures,
codes, forms, or policies frequently, leaving providers unable to 
systematize their operations for maximal efficiency. In sharp contrast 
to the rigid procedures typical of older, entrenched bureaucracies, 
modern health carriers typically maintain a state of kinetic chaos by 
frequent mailings of directories, brochures, newsletters, memos, 
bulletins, benefit updates, and fee schedules. The situation is often 
compounded by rapid turnover and efforts to resolve difficulties by 
adding new layers of bureaucracy or shifting organizational 
responsibility. When Preferred Care, an independent practice 
associationQmodel HMO in Rochester, New York, had problems with 
providers' claims, a newsletter announced that a new Provider Services 
Unit, formerly part of the Provider Relations Department, had been 
created within the Claims Administration Department, headed by the 
Policy and Project Administrator, and staffed by Provider Service 
Representatives, to deal with these issues.
On a national scale, widespread chaos can result when changes are 
imposed with inadequate time to adapt. When the Health Care Financing 
Administration approved a new Medicare coding system for U.S. 
hospitals on September 1, 1987, even the most sophisticated hospital 
systems were left scrambling to minimize the economic damage. 
According to one estimate, the new system called for 375,000 changes 
to be made within one month in codes for diagnosis related groups.[7] 
The difficulties encountered by providers in coping with changes by 
carriers were exemplified by the need for CHAMPUS Transition Workshops 
throughout the northeastern United States when the CHAMPUS program was 
shifted from a carrier in Rhode Island to one in Indiana.

The computer programs and protocols of third party payers have a 
strong tilt toward inhibition when approving claims. As with the fail 
safe system for launching nuclear weapons, any one of a large number 
of negative conditions can restrain the system, but a long and 
unbroken sequence of positive conditions is required for its 
operation. Within the insurance organization's claims processing 
mechanism, one envisions multiple subsystem circuit loops able to 
inhibit the claim for any of a myriad of minor errors, such as a one 
letter misspelling of a name. Simple human events Q a change in 
address, employment, or marital status, or the substitution for a 
vacationing physician by a colleague will trip the system to a halt. 
Usually no one takes personal responsibility for an "adverse 
determination,S which is typically ascribed to "fixed policy," a 
"committee decision,S or "computer error."

Warring between carriers may occur in cases of overlapping coverage. 
An obvious example is the client who is covered for mental illness by 
carrier A and for substance abuse by carrier B. If such a client were 
admitted to a hospital in a depressed and drunken state, carrier A 
might refuse payment because "alcoholism was involved," whereas 
carrier B might note that "the primary diagnosis was depression." An 
example of boundary blurring in the obligations acknowledged by 
carriers is seen in the CHAMPUS program: the surgical care of a 
temporomandibular joint problem is handled by one carrier, whereas the 
application of an occlusal splint to stabilize the joint is considered 
dental care and directed to a second carrier. Efforts by CHAMPUS to 
clarify this boundary lead to a pirouette of confusion:
Adjunctive dental care is that dental care which is medically neces 
sary in the treatment of an otherwise covered medical (not dental) 
condition, is an integral part of the treatment of such medical 
condition and is essential to the control of the primary medical 
condition; or which is the result of dental trauma caused by medically 
necessary treatment of an injury or disease. Adjunctive dental care 
requires prior approval and written preauthorization from the Dental 
Fiscal Intermediary. Where adjunctive dental care involves a medical 
(not dental) emergency, preauthorization is waived.

Many health care transactions are divided or disassembled into 
multiple parts, complicating and slowing operations. An example 
familiar to Medicaid providers in New York State is the submission of 
a claim for perhaps seven charges on a single billing form, of which 
three charges are paid, two are "pended,S one is submitted for "manual 
review,S and one is lost. Another example of such fragmentation, often 
observed within the collective evasiveness and anonymity of 
bureaucracy, is the predicament of the provider who must scurry around 
for answers within a multipartite insurance organization, calling the 
Claims Department, the Member Services Department, the Provider 
Relations Department, the Continuing Care Department, and so forth. 
Fragmentation is also exemplified by the tendency of many carriers to 
subdivide levels of service into "minimal," "brief" "limited," 
"intermediate," "extended," "comprehensive," provided to a "new" as 
compared with an "established" patient in the setting of "hospital," 
"office," or "nursing home" even though all these services rest on the 
single variable of professional time.

Many carriers have a tendency to keep the care giver and the care
recipient on tenterhooks with regard to authorization and payment for 
care. This is seen commonly in the delivery of psychiatric services, 
an area in which behavioral and emotional factors exert a powerful 
influence on one's willingness to treat or be treated. If a patient is 
highly apprehensive about a carrier's willingness to pay a medical 
bill or if the patient's physician harbors a high level of similar 
uncertainty, the provision of inpatient or outpatient care may become 
tentative. The problem is exacerbated by concurrent reviewers, who 
sometimes parcel out a series of 72 hour approvals for hospital 
psychiatric care, inconveniencing the physician and maintaining an 
unsettled climate. This may happen regardless of the clinical 
situation Q even at the start of a course of electroconvulsive therapy 
that requires two to three weeks of inpatient care.
The same phenomenon is seen with regard to telephone authorizations 
for care in which written confirmations are promised but slow in 
arriving. When the written approval does arrive, it too may be 
tentative and accompanied by disclaimers, such as these included in 
the Equicor Equitable "Par Services" authorizations:
"PAR authorization does not guarantee payment." "Benefits are subject 
to eligibility  at the time of service and must be verified 
separately." The proposed treatment/surgery may not be covered by the 
patient's benefit plan. The PAR authorization only verifies that a 
hospital stay is medically necessary. You must contact the benefit 
office/claims payer to discuss what benefits will be paid......
Similar phenomena are apparent in the rise in Medicare denials of 
payment for home care services up from 1.2 percent in 1983 to 6.0 
percent in 1986. The ambiguity of definitions of crucial words such as 
"homebound" and the unpredictability of Medicare payments are given as 
reasons for the growing hesitancy of many agencies to accept Medicare 
patients.[9] The same is true for the retrospective denials of payment 
to hospitalized Medicare and Medicaid patients who do not fulfill 
review criteria.
A new, special form of uncertainty arises from the investigations of 
billing errors by physicians or alleged fraud in the treatment of 
Medicare and Medicaid patients. The Committee on Government Health 
Programs of the New York State Psychiatric Association has learned 
that Medicaid investigators posing as patients are furnished with 
hidden recording devices to tape psychotherapy sessions, in order to 
compare the actual length of the session with the length of treatment 
reported on the bill. A former fraud investigator for the Department 
of Health and Human Services has said that to the "Medicops" there is 
no such thing as "an honest mistake."[20]

Although there are few statistics to document the numbers of patients 
deterred from seeking care or the numbers of physicians discouraged 
from offering it, a discernible pattern of restraint is emerging in 
various sectors of the health care system. There is a frequent 
impression that HMO patients sometimes believe their physicians to be 
less interested and less respon  sive than fee for service doctors.[21] 
During an 18  month period, a survey of 245 California patients found 
that those who subscribed to a prepaid insurance plan became 
disenchanted with the level of access to care, as compared with fee 
for service patients who saw the same doctors.[22] Reduced access to care 
because of financial barriers or the unavailability of medical 
resources within the community has a disproportionate effect on poor
people, who may lack the sophistication, mobility, or assertiveness to 
secure the care they require. Such persons make fewer uninsured visits 
to hospitals or public health clinics if Medicaid  insured visits to 
local doctors are unavailable.[23] In California, physicians fought 
strenuously against "punitive" audits and claims reviews of their 
Medicaid (MediCal) patients; the ultimate outcome was often a reduced 
willingness to continue treating indigent patients. One family 
practitioner who located his ofice in a Los Angeles ghetto and 
established a practice in which 98 percent of the patients were 
indigent reduced his MediCal caseload to 30 percent after audits 
forced him to mortgage his home to pay legal fees.[24]
The inspector general of the Department of Health and Human Services 
imposed 466 sanctions for abuse of the Medicare and Medicaid programs 
in the fiscal year 1988 a 1200 percent increase over the 39 sanctions 
levied in 1981 But a curious contrast is seen when these statistics 
are compared with those on the activities of the Provider 
Reimbursement Review Board, which makes the initial review for large 
Medi  care providers who appeal decisions about reimbursement. In 
fiscal 1984 this board adjudicated 683 cases. By 1988 the number of 
decisions dwindled to 48, and by early 1989 its director estimated 
that he had a backlog of 3000 unheard cases.[26] Even before Medi Care 
cost containment initiatives reached Congress, a report of the 
American Medical Association indicated that 22 percent of American 
physicians had already cut their Medicare patient loads, stopped 
taking new patients, performed fewer procedures, and discontinued 
certain types of care.
Physicians are oriented toward advocacy of patients' interests and are 
trained for clinical rather than economic decision making. Admittedly, 
they have not been in the forefront of cost control efforts, but now 
they must face a "second generation" of impediments to managed care 
that promises further challenges to physicians' autonomy in medical 
decision making. Carl Schramm, president of the Health Insurance 
Association of America, which represents about 350 commercial 
insurers, sees an expanded role for nurses in challenging the 
judgments of physicians raising the specter of internecine conflict 
between fellow professionals. Schramm says, "Many nurses have saved 
people from death by second guessing physicians."[27]
American health care is now controlled haphazardly and is financed by 
multiple cumbersome, poorly integrated bureaucracies in desperate need 
of coordination, simplification, and streamlining. Perhaps the 
emerging Joint Commission on Accreditation of Healthcare Organizations 
can play a part by rewarding insurers who simplify and streamline 
operations, and by penalizing obstructive carriers. The methods of 
medical cost containment that we choose to invoke must be rational, 
explicit, equitable, and free of ambiguity, deception, or harassment.
1.     WoN 5. The medical industrial complex. New York: Harmony 
Books, 1984.
2.     Noonan BJ. Letter no. 880781 to N.Y. State Medicaid providers, 
Albany. N.Y., 1988.
3.     Medical management information system provider manual Q 
physicians. Albany, N.Y.: Computer Science Corporation, 1988.
4.     Richmond I. Comments made on the MacNeil/Lehrer Newshour, 
Septemher 21, 1988. New York: WNET, 1988.
5.     Tolchin M. Many rejected for welfare aid over paperwoik. New 
York Times. October 29, 1988:1.
6.     Hazper T. It Britain scrapping the National Health Service? 
Med lttcon 1988; 65(July 18):23-6.
7.     Robertson D. Is Canadian health care really such a great 
bargain? Med lIcon 1988; 65(1anuarv l8):l7l-8.
8.     Hospitals report slower Medicare reimbursement. Mod Healthcare 
1988; l8(25):60.
9.     Hospitals report modest rise in uncollectible bills. Mod 
Healthcare 1988; 18(37): 104.
l0.    Burda D. HHS antics trying courts' patience. Mod Healthcare 
1988; l8(36):65-6.
11.    watts ID. Mandatory assignment would ltill our practice. Med 
lttcon 1988; 65(July 18):7080.
12.    Lutz 5. `Automated Medicaid claims processing system creating 
a backlog of hospital bills.' Mod Healthcare 1987; 17(10):93.
13.    Bell Cw. Stop the shenanigans. Mod Healthcare. 1988; 18(24): 
14.    Cohn v. HM0 members share their feelings. Washington Post 
(Health Supplement). November lO, 1987:9-11.
IS. Gmup Health Incorporated. l'rofessional News and Notes. Dec. 
16.    Kerr HD. Prehospital emergency services and health maintenance 
organizations. Ann Emerg Med 1986; 15:727-9.
17.    Gardner E. Coding changes delay reimbursement. Mod Healthcare 
1987; 17(25):11.
18.    Blue Cross & Blue Shield of Rhode island. Charipus News. 
January 1988.
19.    Lutz S. Home health denials prompting mergers, reductions in 
services to Medicare patients. Mod Healthcari, 1987; 17(23):l19, 122.
20.    Starks S. To the Medicops, there are no honest mistakes. Med 
lttcon 1988; 65(luly 4):52-7.
21.    Meehanic D. Cost containment and the quality of medical care: 
rationing strategies in an era of constrained resources. Milbank Mem 
Fund Q 1985; 63:453-75.
22.    Murray Il'. A follow-up comparison of patient satisfaction 
among prepald and fee-for-service patients. I Farm l'ract 1988; 
23.    Blendon RI, Aiken LH. Freeman HE, Kirluiian-Liif BL, Murphy 
JW. Un- compensated care by hospitals or public insurance for the 
loor: docs it make a difference? N Engl I Med 1986; 314:1160-3.
24.    Holoweiko M. These doctors turned the tables on Medicaid 
auditors. Med ltcon 1987; 64(Iuoc 27):62-8. 72-80.
25.    Recoid number of sanctions levied in Medicare program. Medical 
Worid News. February 27, 1989:24.
26.     Holthaus D. First step in Medicare appeal can be a long one. 
Hospitals 1989; 63(May 5):40-2.
27.    Schrar'un CI. insurance companies to intensify claims review. 
Hospitals 1988; 63(December 5):58-9.
From The New Eng;land Journal of Medicine Aug 31 1989. Vol 321. pp606-

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