Preference-sensitive admissions

Managed Healthcare Executive interviewed Milliman principal Bruce Pyenson about how the recession is affecting healthcare. Bruce zeroed in on the topic of “preference-sensitive admissions,” which are a possible source of waste in the system. Here is an excerpt:

Bruce Pyenson, FSA, principal and consulting actuary, Milliman Inc., agrees the financial crisis is hitting providers in several ways. Most hospitals are non-profits and they depend on debt financing, which has been much more difficult lately, he says.

“Perhaps more importantly, the recession is reducing demand for elective treatment, and that reduction might be a permanent change—and a good one,” Pyenson says. “Some elective surgeries are also known as ‘preference-sensitive admissions’ where the decision to use surgery instead of appropriate but less-invasive treatment is the ‘preference’ of the provider or patient.”

This includes some orthopedic, cardiac and gynecological surgery. Milliman estimates that about 12% of admissions or 16% of inpatient cost, which is about $80 billion per year, falls into this category, and that perhaps 30% is avoidable.

“Some of the techniques being discussed to manage this cost are precertification and ‘patient decision aides’ where a patient may need to sign an informed consent form choosing surgery over other options,” Pyenson says. “The economic downturn seems to be making people more cautious about elective surgery. Higher cost sharing is probably one component.”

The accelerating cost controls by Medicare are also putting pressure on hospitals, and some of these techniques are being taken up by private payers.

“While these dynamics will promote hospital consolidation, some of them also will open new tools for private payers to control costs,” he says. “For sure, in tough times, hospitals will find it hard to justify fee increases. In addition, insurance buyers are more interested in limited network products, more aggressive medical management or higher cost sharing.”

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