Fool.com: Go Figure! Doctors Given Final Say on Treatment (News) November 9, 1999

Go Figure! Doctors Given Final Say on Treatment

By Bill Mann (TMF Otter)
November 9, 1999

Sometimes common sense drives a sound business decision.

In a landmark decision that will likely change the basic precepts by which companies provide managed care, No. 2 health insurer UnitedHealth Group (NYSE: UNH) announced today that it was dropping the advance review process on doctor treatments that has become a bane of the health maintenance organization (HMO) industry.

The move will directly affect the 14 million Americans for whom UnitedHealth provides insurance, but it also presents a potential sea change in the fundamental way managed health is provided. This change comes at a time when the managed health companies are being besieged by state lawmakers and consumer-protection groups who have become sharply critical of HMO delays or rejection of treatments recommended by doctors.

This change represents a potential financial and public relations boon for UnitedHealth. UNH reported that they spend in excess of $100 million annually on the review process, and in 99% of the time they agreed to the treatment. After an extended internal analysis, the company has found that it would be cheaper to drop the advance control of doctor-prescribed care but to perform post-treatment reviews instead.

The end result is that UnitedHealth's customers will receive faster care at the sole discretion of a medical professional, doctors will be freed to use their medical judgment, and UnitedHealth believes they will still save money. Couple this with the goodwill that UnitedHealth will receive from consumer and doctor advocacy groups and this switch in policy seems to be beneficial for all sides. All in all, this is quite a savvy move for the company, one that could prove troublesome to competitors that continue to micromanage their costs by denying certain treatments

So what took UnitedHeatlh so long to make a decision that seems so logical? And where are the other HMO's priorities?

The lack of prior change has much to do with the sacrosanctity of HMOs' core rationale that companies could provide more economical service by putting various treatments through a rigid cost/benefit analysis. HMOs have been the dominant healthcare insurance plans in the U.S. since early this decade, but their management of healthcare has been under attack by consumer-advocacy groups and doctor's organizations, such as the powerful American Medical Association.

The HMO approval process has long been highly unpopular with many doctor organizations, which have pointed out the impropriety of a bureaucratic process holding the final say in treatment. UnitedHealth's Chief Medical Officer told the Dallas Morning News that UNH ran a test project in Tennessee finding its overall costs decreased by 8% when they ceased micromanaging treatments.

Under the new policy, UnitedHealth will perform post-treatment reviews of the procedures prescribed by its doctors, but it will pay even if it disagrees with the doctor's decision. By subjecting the doctors to post-treatment review, UnitedHealth believes that it can continue to guide in regard to cost/benefit without denying or delaying treatments that would in any case be approved.

It remains to be seen what this decision will have on other HMOs, particularly Aetna (NYSE: AET), the industry's largest player. Certainly, the goodwill that UnitedHealth should receive from their policy change will further spotlight the management practices of its competitors, though whether they will make similar consumer-friendly moves remains to be seen. UnitedHealth has retained a reputation among many doctors as a less intrusive cost manager compared to other HMOs, Aetna in particular.

As such, there is no guarantee that Aetna and others would realize the same cost savings that UnitedHealth expects. However, it is a certainty that they will be watching developments at their rival quite closely.

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