The Medical Benefits Audit

Health costs are a major problem for most businesses. In a Fortune magazine survey, nearly two out of three chief executive officers called skyrocketing medical costs one of the most difficult problems facing U.S. corporations. One-third said health care costs were the single biggest problem they would face this decade. While there are new opportunities for innovative cost control programs, many CPAs are staying away from medical benefits consulting because of its perceived complexity. The result is that most medical benefit consultants are former insurance agents now interested in brokering health insurance. As their primary objective is to sell insurance products, few consultant-brokers have the CPA's objectivity - or financial training. CPAs who gain more knowledge about health care costs not only will fill an urgent need, but also will better understand how to lower medical insurance expenses in their own firms or companies. While the health care field is complex, there are some basic principles CPAs can use to help dramatically reduce health benefits costs. This article explains the components of the medical benefits audit, whose main thrust is to reduce unnecessary costs that are largely due to overutilization, inappropriate pricing and failure to manage catastrophic care (see exhibit 1, above). EXHIBIT 1 The medical benefits audit Cause of unnecessary costs Audit approach * Benefit design * Utilization review * Precertification Excessive utilization * Financial incentives for providers, including incentive reimbursement * Financial incentives for employees * Preventive medicine programs * Provider contracts Inappropriate pricing * Provider discounts * Provider payment systems * Prenatal programs * Screening programs * Contracts with Centers of Failure to manage Excellence catastrophic care * Wellness programs * Benefit design * Transplant policies OVERUTILIZATION Health benefits now consume 26% of the average employer's net earnings. At current growth rates, health care benefits costs will exceed $22,000 per employee by the year 2000. Questions about the use of more services and products than are needed to treat the patient successfully should be among the first asked in evaluating a medical benefits plan. Common areas of overutilization include * Hospital inpatient days. * Inpatient mental health and substance abuse services. * Emergency center visits. * Diagnostic laboratory and radiology tests. * Prescription drugs. Hospital inpatient days. Retention of patients longer than necessary and admission of patients who could have been treated on an out-patient basis lead to excessive hospital days. Milliman & Robertson, a national actuarial firm, estimates that more than 50% of U.S. inpatient care is unnecessary. In conducting a medical benefits audit, the CPA should * Compare hospital use with regional norms. The best measure of hospital day utilization is patient days per 1,000 enrollees per year (enrollee includes the employee and his or her enrolled spouse and children). This figure can be obtained from the client's insurance carrier and will depend on benefit design, the utilization management program, employee mix and geographic location. Indemnity plans often generate more than 500 inpatient days per 1,000 enrollees per year, while managed care programs can generate as few as 200 per 1,000. With per diem hospital charges running as high as $1,500, the cost difference between these two figures can exceed $37.50 per enrollee per month. * Evaluate the health insurance plan's cost control incentives. What percentage of total premium costs does the employee pay? Does the plan use copayments, coinsurance, deductibles and out-of-pocket maximums to reduce unnecessary utilization (see exhibit 2, below)? …