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A cost-benefit analysis of prior approvals for Medicaid services in New York State
A COST-BENEFIT ANALYSIS OF PRIOR APPROVALS FOR MFDICAID SERVICES IN NEW YORK STATE
Sbsbact-Thr* >tud\ In\cctlgdtcs rhe LO\[S dnd henefir~ of J prwr appro\,d mcchatwm m,llrured h\ the Ncu \r orb 90 Hedlrh Depdrtmrnr IO re\ Ieu the need for rhe proilwn of * ii hlLh arc rlrher denied or moddied a J resuh of the prior dppro\al process The an&w mdlLare\ rhdt three t)f the *e\en priilr rlpproial caqwle* dre ~11-1 henelilal ullhtiut regard 10 detcrrenLr hcnzfirc Far the other fr,ur cakgorw the re*uItz of thl> >lud\ hale heen u*ed to propaw na pohcIez
INTRODl’CTION
9ND BUYhCROl~ND
nere Introduced m 1968 m New Iork Slate as a cobf tontamment element of the Ncu I’ark State Medical r\w>rance lhledlcdldl Program 4 prior approval 13 a meshamwl u herebt profewondl mschsal knowledge and eupertlse are emploled fm this case b\ the Neu jerk Qatc Health Department) to re\lw the need for pro\ I,lon of selected I\ peb of costI\ heAh care dnd sm~ccs The ret Ien IS mJde prror IO the pro\lslon of the ser\ ICC and Medicaid pa\ ment for rhe ser\ Ice IS sontrngent upon the result of the re\ieu The pnmari purposes of prior appro\als are to enwe the protwon of appropriate >er\lcez and 10 control costs This m\ol\es the determmaflon of I I ) whether the service requebted IS based on medical need (21 uhether the seri~cc proposed IS a Lommonl) recognized .md accepted form of treatment and. (31 If the first I~$O crlterla hold whether same orher form of cdre uhlch IS less costlv ma\ pro\lde the patient with the \ame benefit Prior dpprotalc are currentI) required for selected ser~ws protIded m weral different prwlder cntegorles These services were chosen for prlar approknl because the\ are cost11 sertices bhlch have the potential to cause unnecebsar) hazard and pam to reclplenrq If they .rre not required 4lro however the\ do not generally need to be performed on an emerpznc) or mimedlate baw Concequentlb patlcnts should not suffer from the \hort dela) InLolLed In securing the necessarl profe\sional apprwal The stud) presented here rwestlgates se\en prior approval categories-Hearing 4lds Dentlstr) MedIcme (mcludmg therapies) Oprometrv Phdrmaci Psbchialr\ and Durable MedIcal Eqwpment/Supphes The seriILes wblect to prior approval for each of these seten categorles are too numerous to be presented here Although the provider categorte\ PodlaIr\ Pwate Duty Nurwg and Out-of-State ‘ierkice> are dlw sub]ecl to prior cupprobal the) have been excluded from the stud) because of either staffing shortages unresolved processmg problems or processmg costs which could not be segregated 4 provldsr who wishes 10 render a ,ertlce requiring prior approval completes d request form (Pnor 4pproial Request or PAR) ‘tnd this form IS sent to the appropriate field office uhere 11 IS reviewed b\ a health professlonal The health professlonal hither dppro\es denies or modifies the request 4 modlfisatlon consists of approlmg a portion of j. proposed treatment regimen Prior
npptwals
The co5ts of the prior approval program to Neu 1 ork State xe consIderable For Instance the costs from August 1979 to Jul\ 1980 were e>tlmated IO be m CYCCSS of 81 m This Includes the cost of professIonal dnd admmrstratlve personnel fwlth fringe benefits and overhead costs), consultants and proce\smg costs The purpose of this stud\ IS to determine how the monetary benefits derived from rhe New Iork State prior approval program compare with the costs of runnmg the program This >tudv focuses upon the measurable monetarl benefits derived from the program There are unquestlonabl) other monetarb benefits derived as a result of pro~ider3 not suhmltrmg P.4R.b (and therefore not pro\idmg a ser\lce) bscau5e of their perception that the P4R mould not be approved This 13 referred to as the deterrent effect Unfortundtelv this effect can be eslimdred onl) b\ conducting ‘1 uvth and wlthout” stud\ Prior approvals uould have to be ehmmated for at least some ser\ Ices m some regions to estimate deterrence on the basis of Increases m rhe pro\lslon of services This process would be ndmml~tratl\elv cumbersome and would probabl\ be quite costI) ds well Consequentlv it was eliminated a\ dn option The benefits obtained are beheied to be sonslderable. hoseber [I] 4nother Important benefit of the prior ,rpproval rbstem 1s the Improved qualIt\ of care resultmg from the ehmmation of unnecessary and harmful serbIces This benefit IS also \lrtually lmposslhle to quantlf) because data relatmg 10 the repercuslons of unnecessarb and harmful ser\lces ullh and Hlthout the prior approval svstem are not arallable 45 m the process of estrmatmg deterrence a controlled stud1 would habe to be conducted and prior approvals \iauld hair to be ehmmated for a subset of service+ in some region5 4s a consequence of the tuo IimItations mentioned aboLe the result\ necessarll) understate the benefit5 of the prior appro\ al 5~ stern Subsequent sectIons of this paper present the methodolog\ emploled the results and the recommendatlons for future pohcles with regard to each of the pro\ lder categorle\ METHODOLOC1 The methodolog) u3ed to assess the fiscal impact of the prior approval program m Nea York State IS costbenefit analysrs ibhlch has been used frequentI\ rn the
,tnal\s~\ of he&h care programs[!-l) A good ober~lew of the procedure 13 presented b\ Helhnger[~j The colts of the program include I I) the costs of the Neh Iork State He&h Depxtment professlonal clerIcal and admtmstrati\e per>onnel. mcludmg frmge benefits and overhead cost> and (2) the cost of processmg prior Bradford AdapproL& b\ the fiscal mtermedtar) mmlstratl\e Serllces Inc lahlch 15 charged to the New \rork State Department of Socml Services ds the Single State Agent) Costs rssultmg from delabs tn ser\lce III the prior dppro\ al process dre considered to be neghgible bccduse the delays are short dnd the services subject to prior approval do not need to be performed on an Immcdldte bd~is The benefits Include the value of zerblces tihlch have not been pro\lded as cl direst result of the prior approval proces4 This Include\ both denied and modified PAR s 4 denied PAR IS d requested wn~sc L+ hich IS denied In II\ cntIret\ by the prior dpproval process 4 mochfied P -\R I> A reque\t for which onlv a portion of the ser\ Ice> rcquebted 13 npprot ed The\e Lobts and henefit5 uere calculated for each of the selen >elested pro\ lder sdtegortes w that each could be evaluated separateI\ The ttme period nf tntere>t for the \tudv I\ 4ugujt 1979 IO Jul\ 1980 The \tud) uas undertaken tn Neu 1ork Clt\ The NW \1ork CII\ Region aab chosen becduse of the UXS~I~III~~ of Its data and hecause the reelan account3 for the largest porlmn of prior appro\dl \olumc 41~ thl\ region ha3 the onI\ one operational under NW 1ork St.~te 5 Medicaid Management Information S\\tem for the time period of the sudk The follo#mg IS a more detailed description of the data Lollectlon process dnd the manner m which the cost> and benefits were &tamed
DETERMIN4TION
There uere ,ldmtnl\trdti\e co\t~ The,<
OF COSTS
tuo cost components 1I ) the professIonal dnd clerlcal colts. and (2) the processmg co\t\ dre calculated for Optometr\ tn
T,lble I To calculate the tir>t component the percentage of time bpent on prior approtdls b) each emplovee of the Ne\r \ ork Clt\ Area OffiLe u’ds first estimated tColumn -1) These percentages uere then multIpIled by the percentage of the prior dpprotal ttme spent m each prior dppro\al sdtegor) (Column .O to obtam the percent of lot4 time spent on that sategorv of prtor approvals IColumn 0 Thij percentage WAS then multtplted hy the annual 5alarb lo obtain total cost (Column 61 Ne\t. modificatlllns were made to Include fringe benefits and overhead expenses The total value tn Column (61 (the sum for all emploveesl #a\ multiphed bq I 32 IO Include the 32’“r fringe benefits and then multiplied bv I 173 to Include the 47 3ci overhead erpen\es For Optometrb this value was $55,686 The second cost component the cost of processmg the forms uab then added This amounted IO $13,577 for Optometrb and the total cost aas ‘$69 273 Tlus value wab hi lded bb the number of prior approt als (76s) to ohtam the clot per prior approval ($90 55) ESTIMATE
OF BEkEFlTS
Total benefit, for the I2 month period could not be determined eyxtl\ because resource3 were msufficienl
to examine all prior dppro\als >ubmltted Instead sampies of modified and demed PAR’s here taken Modlfisd PAR’s are prior dpprWal> for which the dolldr dmount approved Mered from the reimbursable amount for the seritce requebted Denied PAR’s are prior dppro~dls for whtch all service\ and/or Items nere denied In their entire11 In order IO obtdm \a~iance estimates IO be used In determining final sample sizes, prehmmar~ s‘lmples of 30 modified and 30 denied PAR’s uere collected h\ pro\lder category Smse Pharmxk and Hcdrmg did P4R s are not modlfied. onlk denId #erc collected Variances for the amount denied ,md the amount modified were calculated and then used In s,lmple size formulas to determine the required sample size for edLh provider category The formula used [h ‘1 \sas
mhete N = the total bedrlv number of denied tmndtfiedt P4R’s for the provider sdtegor\ V’ = the \xiance of the amount denied ImodIfied). D = B 1:‘ n here B = the bound on the error of ebtimatton and : = the standard normal variate = I 645 for a 9% one-sided confidence intervdl After the determination of the required sample Size for dented PAR’s and modified P4R s for each pro\tder category modified and denied PAR 5 here randomI\ selected from the dad\ log sheet> For the reciptents m the samples claim detail reports (hsltngs of dll paid claims for care and ser\lceb) were requested for a SIY month follow-up period subsequent to the date that edch prior dippro\‘dl wa\ signed hi the ared office re\ieuer These reports sere used b) professtonal re\lener\ tn the New York State Health Department to determine tf substitute service\ or resubrmttals resulting tn ber\lce were provided to recipients 4 3ubstttute service IS defined to be a service not requtrmg prior appro\dl which IS provided In lteu of a requested \er\Ice u hlch was either denied or modified Substitute bervtceb dnd resubmtttals are Important to note because thev must be subtracted from any sdvmgs re>ulttng from dented or modified requests The average predicted benefit per prior dppro\al (APB) 1s the sum of the average predicted benefit of services modified and the aberage predicted benefit of services denied The value of 4PB and 119 standard error were calculated tn the followmg manner Let m = aterage predicted benefit for modified dpproval requests, d = average predicted benefit for denied of approvals which approval requests, pm = proportion are modified, p, = proportion of approvals whtch are denied, s, = sample standard deLtanon of benefits for modtied approval requests s., = sample standard dc~iation of benefits for denied nppro\al requests n, = number of modified approval requests sampled 11~ = number of denied approval requensts >ampled N,,, = number of modified approval requebts from August l979-July 1980, and hr,, = number of denied approval requests from August 1979-Jul\ I980 Then. APB = Average Predicted Benefit = mp,, + dp,,. Error of Aberage PredIcted dnd sAPH= Standard
A cost-benefit analyw Table
of pnor approvalsfor Meduld
I Calculahon of cost per pnor approval for optometry ProfesslanaI
(1)
(2)
Annual Title 8 Grade
Ass.1
Dir
Salary
Time Spent on
Total Cost (3, x (4)
(21 x (5)
9
135
8
008
182
05
6
030
338
12,000
01
9
038
96
10,113
115
6
030
303
22,715
25
22,715
14
11,250
II 9
Steno
Time Spent on
Ootometry Category Prior Approvals
(6)
(5)
15
25
AMCA
Sr
(4) Proportion of
01
AMCA
Prlnc Clerk
(3' Prooort1on 01
030
$30,800
Tr
and Admlnlstratlve Personnel
6
38
Res A,st
serwes
05
s
924
3,067
Sr
Clerk
i
8,825
Sr
Clerk
7
8,825
Sr
Clerk
7
8,825
01
Clerk
7
8.825
92
10
020
177
5
9,442
01
10
010
94
SI
Stat
Clerk
01
010
10 9
10
900 Or)8
38 7,943 71
Stenograpner
5
7,932
91
8
008
63
Clerk
3
7,195
91
9
008
58
7,195
02
020
134
002
14
020
132
Clerk
3
M/S Clerk
3
7,195
01
M/S Helper
1
6,580
02
10
1
6,580
01
10
18
14.075
5
M;S Helper MCA
010
66
9
450
6,334
5
9
450
4,268
UA
070
2,834
40,374
NA
‘IA
030
1.211
7,932
NA
NA
030
5
9,484
PhysIcian II
38
40.487
PhysIcIan III 38 5
2
NA
Stenographer
Stenographer
10
238 $28,645
Total Addlnq fringe benefits, we obtain ($28,645) (1 32) = 537.811 AdJuStlng for overhead expenses, ($37,811) (1 473) = $55,696 Consultant Costs = $13.577 Number of P A 's in Optometry = 765 Total cost per P A = 869,273/765 = $90 553 I#, - NOI:Available.
Esttmdtes were only made for Column (5)
Benefits =
RESULTS
~m’srn‘l hL - n, nnl
N,
: pd’sd Nd - nd n,, N,
Also, the 9% lower confidence bound for APB IS APB - &Ape where the value of I comes from the Student’s I dlstnbution with n, + nd -2 degrees of freedom (e g see Mendenhall et al [6] or Cochran[7])
The number of prior approvals processed from August 1979 to July 1980 ranged from 475 for MedIcme to 60, 010 for Dentistry Table 2 presents, by provider category, the number professed, th; number deked and the kmber moddied The Dentatry, Pharmacy and DMEISupphes are the categories wkuch process the most forms It can be seen that the percentages moddied and denied differ substantially by category Table 3 presents, by
EDU~RD L H~NN~N YI ul
Table 4
Mean>
and standard
de\lauons of prior approvals lb\ pro~lder Lategorb In Ncv. 1 ork C~tv I August 1979-lull 1980)
I whlsh
here demed
and moddied
9 cost-benefit
analysis of pnor approvals for MedIcaId
problder category the percentage approved, modified and demed Overall, 22 08% of the prtor approval forms were modified and 6 99% were demed The means and standard devlatlons of the dented and modified approval requests are presented In Table 4 Also presented are the sample sizes from which these means and standard deviations were calculated The sample sizes were chosen by takmg Into conslderatlon the cost of sampling and the magnitude of error associated with a given sample size Table 5 presents, by provider category, the expected benefit per prior approval and a 95% lower confidence bound for the expected benefit per prior approval The 95% lower confidence bound represents a very consereatlve estimate of the true benefit resulhng from the program This value was preferred by declslon makers because they felt that the prior approval process should be clearly cost-beneficidl In order to be lustlfied
Table
The costs per prior approval. by provider categor), are presented In Table 6 It can be seen that for the Medicine category, costs are conslderably higher than costs for the other provider types. and Optometry IS also quite high relative to other categories These high costs nere prlmarlly the result of the high concentration of professional staff involved In the approval process In Table 6 we also present the 95% lower confidence bound for expected benefits for each provider categorv In Dentistry, Optometry and Durable Medical EqulpmentlSupplies, the lower bound for benefits exceeds the cost In Medicine, Psychiatry, Pharmacy and Hearing Alds the cost exceeds the lower bound for benefits Table 6 also contams the cost/benefit ratios for the provider categories The denommators In these ratios represent the monetary benefit derived for each dollar spent The ratios are greater than one for Medlcme. Psychlatrv, Pharmacy and Hearmg Alds The costs for
Expected benefu and lower confidence bound for expected benefit per prior approval
5
95:
Expected Benefit Provider
Hearlnq
Category
Prior
Alds
Medlclne
(lncludlnq
Mealcal
COSI per prior approval
P, 905
25 16
11a 47
111.56L
3 08
/ 60
II 86
9 80
3-l 44
30 4'
vs 95% lower confidence bound for expected category and benefit/cost ratio 95 Per
tiearlng Alds
% 49 84
Dentistry therapies)
237
27
by prouder
Lower
Exoecced
Reneflt
Prior
B
32 '36 (lncludlng
per prior approval
Bound
Per
Approval
Category
benefit
ConfldenCe For
Pnor Provlaer
Bound
Approval
E7 JG
EqulpmentlSupplles
Cost
Aoproval
905
Cost'Beneflt' Pat10
$l!
l?
67 46
1'2
85
1' 36
16
10
Optometrv
91 22
106 62
Pharmacy
21 85
2 60
1' 12
Psychratry
36 06
9 80
II 27
17 52
30 4?
Durable
*The not LoI IX No
Prior
I-D
MedIcal
benefits
EqulpnentlSupplies
are
based
the averarle benefit
on a conservative determined
from
95:
lower
samplrng
categor)
BenPflt
73 12
Psychiatry
Medicine
Confidence
Exoected
Per
by problder
9J 06
theraores)
Pharmacy
Table 6
Lower For
6 10 46
Optometry
Durable
Per
Approval
Dentistry
SEPS
44
ser\lcel
confidence
1,‘l
1'1
bound.
17
74
thebe four categones range from three to eight times the magmtude of the benefit5 The vearl! lisc~l Impact of prior approvals for each of the provider types IS presented m Table 7 Based on the
4ND RECOMMEND~TIOiYS
The mdlcatlon5 of ttus stud) are that the provider sdtegorics Pharmacb Pslctuatry Medicine and Hearing L\lds are not cost-beneficial Although there IS certaml\ room for Improvement m all categories the primarb mwal focus has been placed upon these four areas For each co5t-beneficial area II has been recommended that the current requirements and procedures be retained until J more mdepth analws can be performed The proposed re-eialuatlon proses5 for each of the four troublesome categories IS described m the followng narrati\e HE4RINC 41D.S
There are no mochficdtlons to pro\lder requests for hearing aids and accessoTle5 Since such determmatlons can onl) he made after chmcal er;ammation, a procedure which IS not performed In the Nea York State program Ret Ieu of sample denials has revealed that acquwtion of an aId wlthm a recent time period IS the most common reason for denial The office of Health Svstems Management (OHSM) IS In the process of defining specific criteria m order to address this problem Thts will msolve a minimal amount of professional consultation and adrnmlstratlve handling and should reduce ~051s con~iderablq It IS OHSM’s npmlon that prior apprwal remdms the preferred utlhzatlon control mechanism for thts service The alternative IS a pended claims re~ieu process, which plxes the hearing aId dealer at unacceptable risk For this alternatl\e the dealer aould already have provided an espenswe hearing aid and would have no certain way
of knowing that his patient ahead\ aid dispensed bv another dealer
posse5jed
a hearing
PHARM4C1 Records of mo&icdtlons m the Pharmacb area are not mamtamed The prior approval procesb m\olbes a telephone call to the Area Office Pharmacist b\ the prwlchng physician or pharmxist during which time profesSional Interaction may Include staff suggestmg alternatives to the drug which 13 requested With minor exceptions the record of denials m the Phnrmacb ared Has found to represent unnecessari reque>t\ II e prior approval not required) Presentlv, prior approvals are required for all drug4 over $30 The results of this study ha\e mdtsated that the requirement IS too general to be cobt-benefisial ho#e\er and II has been recommended that the regulation be remoted It has also been recommended that request9 for the tnd~~~dual drugs which require prior approval be momtored and that those w luch dre cost-beneficial be retained along with those with a high potential for ahuse Ne\r Items prone to abuse or overuhhzdtion UIII al30 he subjected to prior approral
The effect of a strpulatlon agreed to b\ the Stdtr Departments of Social Services and Health and the American Psychiatric Association has been to se\erel) hmlt the State’s alxht) to modlfv treatment plan5 or den) serbices wthout considerable admmlstratl\e actl~it\ It IS hypothesized that the primarb effect of ps)ctuatnc treatment plan dppro\al has been to contdm the frequency of psychotherap) \ISIIS tpartlcularl\ m NSH York City) to an average of one per week for patients In long term treatment Since this pre-serbwe reweu appears not to be cost-beneficial. II has been proposed that the requirement be rescinded The removal of ttus program requirement ~111 be u5sd as a test of the deterrent effect which prior approval ma\ ha\e upon the scope of Medicaid service provIsion At the end of the study period a recommendation wll be made to srther continue wthout front end utlhzatlon controls. to reinstate previous controls or to institute an alternative mechanism for utdlzntion reLIefi
4 mt-benefit
The
analyst> of prior approvals for MedIcaId sewIces
MEDICINE IINCLUDING THERAPIES) cost per prior approval m this area IS extremely
high compared to other provider types A detalled review of all procedures requlrmg prtor approval has been Inltttated to determme not only which mdlvldual procedures are cost-beneficial and/or likely to be abused but also which requirements should be retained regardless of cost-benefit as a result of the potential negative health Impact on the recipient should the service be dehv-
2 3 3
ered 6 -\tlnokI~~lrtmunr\-The author\ uould hke lo thank Chrl>topher Glmbrone Dr Joseph L GUI Joseph 0 Donnell and Theresa Sc~hpore for rhelr d*tud)
REFERENCES (‘I a/ Benefits and costs of medwal prmr authowahon Unpublished report State of Caldorma 1979 M N Jackson e; a/ Elect& hysterectom) a cost benefit analvsis hourn IS !7V80 ll978) E i Ha&m and J K Graham A so,t-benefit study of a hypertension screening and treatment program at the uork settmg Inyurr\ 15 345-358 II9781 Y Chung. L M Spelbrmg and R Bolssoneau A cost-benefit analysis of fieldwork education In ocLupatlonal therapy lnyurrv 17 216-229 t 1980) F J Hclhnger Cost-benefit analysis of health care past applications and future prospecls Inqurrv 17. !04!I 5 t 1980) W Mendenhall L 011 and R L Schaeffer, Ekmtnrarr Surut\.%tnpl~nu Dukbur) Prcs\ Belmont C4 I 1971 I W G Co&an, Samphng Te~hnrques 2nd Edn Wiley Neti York 11953)
I B Myers
7
Sbsbact-Thr* >tud\ In\cctlgdtcs rhe LO\[S dnd henefir~ of J prwr appro\,d mcchatwm m,llrured h\ the Ncu \r orb 90 Hedlrh Depdrtmrnr IO re\ Ieu the need for rhe proilwn of *
INTRODl’CTION
9ND BUYhCROl~ND
nere Introduced m 1968 m New Iork Slate as a cobf tontamment element of the Ncu I’ark State Medical r\w>rance lhledlcdldl Program 4 prior approval 13 a meshamwl u herebt profewondl mschsal knowledge and eupertlse are emploled fm this case b\ the Neu jerk Qatc Health Department) to re\lw the need for pro\ I,lon of selected I\ peb of costI\ heAh care dnd sm~ccs The ret Ien IS mJde prror IO the pro\lslon of the ser\ ICC and Medicaid pa\ ment for rhe ser\ Ice IS sontrngent upon the result of the re\ieu The pnmari purposes of prior appro\als are to enwe the protwon of appropriate >er\lcez and 10 control costs This m\ol\es the determmaflon of I I ) whether the service requebted IS based on medical need (21 uhether the seri~cc proposed IS a Lommonl) recognized .md accepted form of treatment and. (31 If the first I~$O crlterla hold whether same orher form of cdre uhlch IS less costlv ma\ pro\lde the patient with the \ame benefit Prior dpprotalc are currentI) required for selected ser~ws protIded m weral different prwlder cntegorles These services were chosen for prlar approknl because the\ are cost11 sertices bhlch have the potential to cause unnecebsar) hazard and pam to reclplenrq If they .rre not required 4lro however the\ do not generally need to be performed on an emerpznc) or mimedlate baw Concequentlb patlcnts should not suffer from the \hort dela) InLolLed In securing the necessarl profe\sional apprwal The stud) presented here rwestlgates se\en prior approval categories-Hearing 4lds Dentlstr) MedIcme (mcludmg therapies) Oprometrv Phdrmaci Psbchialr\ and Durable MedIcal Eqwpment/Supphes The seriILes wblect to prior approval for each of these seten categorles are too numerous to be presented here Although the provider categorte\ PodlaIr\ Pwate Duty Nurwg and Out-of-State ‘ierkice> are dlw sub]ecl to prior cupprobal the) have been excluded from the stud) because of either staffing shortages unresolved processmg problems or processmg costs which could not be segregated 4 provldsr who wishes 10 render a ,ertlce requiring prior approval completes d request form (Pnor 4pproial Request or PAR) ‘tnd this form IS sent to the appropriate field office uhere 11 IS reviewed b\ a health professlonal The health professlonal hither dppro\es denies or modifies the request 4 modlfisatlon consists of approlmg a portion of j. proposed treatment regimen Prior
npptwals
The co5ts of the prior approval program to Neu 1 ork State xe consIderable For Instance the costs from August 1979 to Jul\ 1980 were e>tlmated IO be m CYCCSS of 81 m This Includes the cost of professIonal dnd admmrstratlve personnel fwlth fringe benefits and overhead costs), consultants and proce\smg costs The purpose of this stud\ IS to determine how the monetary benefits derived from rhe New Iork State prior approval program compare with the costs of runnmg the program This >tudv focuses upon the measurable monetarl benefits derived from the program There are unquestlonabl) other monetarb benefits derived as a result of pro~ider3 not suhmltrmg P.4R.b (and therefore not pro\idmg a ser\lce) bscau5e of their perception that the P4R mould not be approved This 13 referred to as the deterrent effect Unfortundtelv this effect can be eslimdred onl) b\ conducting ‘1 uvth and wlthout” stud\ Prior approvals uould have to be ehmmated for at least some ser\ Ices m some regions to estimate deterrence on the basis of Increases m rhe pro\lslon of services This process would be ndmml~tratl\elv cumbersome and would probabl\ be quite costI) ds well Consequentlv it was eliminated a\ dn option The benefits obtained are beheied to be sonslderable. hoseber [I] 4nother Important benefit of the prior ,rpproval rbstem 1s the Improved qualIt\ of care resultmg from the ehmmation of unnecessary and harmful serbIces This benefit IS also \lrtually lmposslhle to quantlf) because data relatmg 10 the repercuslons of unnecessarb and harmful ser\lces ullh and Hlthout the prior approval svstem are not arallable 45 m the process of estrmatmg deterrence a controlled stud1 would habe to be conducted and prior approvals \iauld hair to be ehmmated for a subset of service+ in some region5 4s a consequence of the tuo IimItations mentioned aboLe the result\ necessarll) understate the benefit5 of the prior appro\ al 5~ stern Subsequent sectIons of this paper present the methodolog\ emploled the results and the recommendatlons for future pohcles with regard to each of the pro\ lder categorle\ METHODOLOC1 The methodolog) u3ed to assess the fiscal impact of the prior approval program m Nea York State IS costbenefit analysrs ibhlch has been used frequentI\ rn the
,tnal\s~\ of he&h care programs[!-l) A good ober~lew of the procedure 13 presented b\ Helhnger[~j The colts of the program include I I) the costs of the Neh Iork State He&h Depxtment professlonal clerIcal and admtmstrati\e per>onnel. mcludmg frmge benefits and overhead cost> and (2) the cost of processmg prior Bradford AdapproL& b\ the fiscal mtermedtar) mmlstratl\e Serllces Inc lahlch 15 charged to the New \rork State Department of Socml Services ds the Single State Agent) Costs rssultmg from delabs tn ser\lce III the prior dppro\ al process dre considered to be neghgible bccduse the delays are short dnd the services subject to prior approval do not need to be performed on an Immcdldte bd~is The benefits Include the value of zerblces tihlch have not been pro\lded as cl direst result of the prior approval proces4 This Include\ both denied and modified PAR s 4 denied PAR IS d requested wn~sc L+ hich IS denied In II\ cntIret\ by the prior dpproval process 4 mochfied P -\R I> A reque\t for which onlv a portion of the ser\ Ice> rcquebted 13 npprot ed The\e Lobts and henefit5 uere calculated for each of the selen >elested pro\ lder sdtegortes w that each could be evaluated separateI\ The ttme period nf tntere>t for the \tudv I\ 4ugujt 1979 IO Jul\ 1980 The \tud) uas undertaken tn Neu 1ork Clt\ The NW \1ork CII\ Region aab chosen becduse of the UXS~I~III~~ of Its data and hecause the reelan account3 for the largest porlmn of prior appro\dl \olumc 41~ thl\ region ha3 the onI\ one operational under NW 1ork St.~te 5 Medicaid Management Information S\\tem for the time period of the sudk The follo#mg IS a more detailed description of the data Lollectlon process dnd the manner m which the cost> and benefits were &tamed
DETERMIN4TION
There uere ,ldmtnl\trdti\e co\t~ The,<
OF COSTS
tuo cost components 1I ) the professIonal dnd clerlcal colts. and (2) the processmg co\t\ dre calculated for Optometr\ tn
T,lble I To calculate the tir>t component the percentage of time bpent on prior approtdls b) each emplovee of the Ne\r \ ork Clt\ Area OffiLe u’ds first estimated tColumn -1) These percentages uere then multIpIled by the percentage of the prior dpprotal ttme spent m each prior dppro\al sdtegor) (Column .O to obtam the percent of lot4 time spent on that sategorv of prtor approvals IColumn 0 Thij percentage WAS then multtplted hy the annual 5alarb lo obtain total cost (Column 61 Ne\t. modificatlllns were made to Include fringe benefits and overhead expenses The total value tn Column (61 (the sum for all emploveesl #a\ multiphed bq I 32 IO Include the 32’“r fringe benefits and then multiplied bv I 173 to Include the 47 3ci overhead erpen\es For Optometrb this value was $55,686 The second cost component the cost of processmg the forms uab then added This amounted IO $13,577 for Optometrb and the total cost aas ‘$69 273 Tlus value wab hi lded bb the number of prior approt als (76s) to ohtam the clot per prior approval ($90 55) ESTIMATE
OF BEkEFlTS
Total benefit, for the I2 month period could not be determined eyxtl\ because resource3 were msufficienl
to examine all prior dppro\als >ubmltted Instead sampies of modified and demed PAR’s here taken Modlfisd PAR’s are prior dpprWal> for which the dolldr dmount approved Mered from the reimbursable amount for the seritce requebted Denied PAR’s are prior dppro~dls for whtch all service\ and/or Items nere denied In their entire11 In order IO obtdm \a~iance estimates IO be used In determining final sample sizes, prehmmar~ s‘lmples of 30 modified and 30 denied PAR’s uere collected h\ pro\lder category Smse Pharmxk and Hcdrmg did P4R s are not modlfied. onlk denId #erc collected Variances for the amount denied ,md the amount modified were calculated and then used In s,lmple size formulas to determine the required sample size for edLh provider category The formula used [h ‘1 \sas
mhete N = the total bedrlv number of denied tmndtfiedt P4R’s for the provider sdtegor\ V’ = the \xiance of the amount denied ImodIfied). D = B 1:‘ n here B = the bound on the error of ebtimatton and : = the standard normal variate = I 645 for a 9% one-sided confidence intervdl After the determination of the required sample Size for dented PAR’s and modified P4R s for each pro\tder category modified and denied PAR 5 here randomI\ selected from the dad\ log sheet> For the reciptents m the samples claim detail reports (hsltngs of dll paid claims for care and ser\lceb) were requested for a SIY month follow-up period subsequent to the date that edch prior dippro\‘dl wa\ signed hi the ared office re\ieuer These reports sere used b) professtonal re\lener\ tn the New York State Health Department to determine tf substitute service\ or resubrmttals resulting tn ber\lce were provided to recipients 4 3ubstttute service IS defined to be a service not requtrmg prior appro\dl which IS provided In lteu of a requested \er\Ice u hlch was either denied or modified Substitute bervtceb dnd resubmtttals are Important to note because thev must be subtracted from any sdvmgs re>ulttng from dented or modified requests The average predicted benefit per prior dppro\al (APB) 1s the sum of the average predicted benefit of services modified and the aberage predicted benefit of services denied The value of 4PB and 119 standard error were calculated tn the followmg manner Let m = aterage predicted benefit for modified dpproval requests, d = average predicted benefit for denied of approvals which approval requests, pm = proportion are modified, p, = proportion of approvals whtch are denied, s, = sample standard deLtanon of benefits for modtied approval requests s., = sample standard dc~iation of benefits for denied nppro\al requests n, = number of modified approval requests sampled 11~ = number of denied approval requensts >ampled N,,, = number of modified approval requebts from August l979-July 1980, and hr,, = number of denied approval requests from August 1979-Jul\ I980 Then. APB = Average Predicted Benefit = mp,, + dp,,. Error of Aberage PredIcted dnd sAPH= Standard
A cost-benefit analyw Table
of pnor approvalsfor Meduld
I Calculahon of cost per pnor approval for optometry ProfesslanaI
(1)
(2)
Annual Title 8 Grade
Ass.1
Dir
Salary
Time Spent on
Total Cost (3, x (4)
(21 x (5)
9
135
8
008
182
05
6
030
338
12,000
01
9
038
96
10,113
115
6
030
303
22,715
25
22,715
14
11,250
II 9
Steno
Time Spent on
Ootometry Category Prior Approvals
(6)
(5)
15
25
AMCA
Sr
(4) Proportion of
01
AMCA
Prlnc Clerk
(3' Prooort1on 01
030
$30,800
Tr
and Admlnlstratlve Personnel
6
38
Res A,st
serwes
05
s
924
3,067
Sr
Clerk
i
8,825
Sr
Clerk
7
8,825
Sr
Clerk
7
8,825
01
Clerk
7
8.825
92
10
020
177
5
9,442
01
10
010
94
SI
Stat
Clerk
01
010
10 9
10
900 Or)8
38 7,943 71
Stenograpner
5
7,932
91
8
008
63
Clerk
3
7,195
91
9
008
58
7,195
02
020
134
002
14
020
132
Clerk
3
M/S Clerk
3
7,195
01
M/S Helper
1
6,580
02
10
1
6,580
01
10
18
14.075
5
M;S Helper MCA
010
66
9
450
6,334
5
9
450
4,268
UA
070
2,834
40,374
NA
‘IA
030
1.211
7,932
NA
NA
030
5
9,484
PhysIcian II
38
40.487
PhysIcIan III 38 5
2
NA
Stenographer
Stenographer
10
238 $28,645
Total Addlnq fringe benefits, we obtain ($28,645) (1 32) = 537.811 AdJuStlng for overhead expenses, ($37,811) (1 473) = $55,696 Consultant Costs = $13.577 Number of P A 's in Optometry = 765 Total cost per P A = 869,273/765 = $90 553 I#, - NOI:Available.
Esttmdtes were only made for Column (5)
Benefits =
RESULTS
~m’srn‘l hL - n, nnl
N,
: pd’sd Nd - nd n,, N,
Also, the 9% lower confidence bound for APB IS APB - &Ape where the value of I comes from the Student’s I dlstnbution with n, + nd -2 degrees of freedom (e g see Mendenhall et al [6] or Cochran[7])
The number of prior approvals processed from August 1979 to July 1980 ranged from 475 for MedIcme to 60, 010 for Dentistry Table 2 presents, by provider category, the number professed, th; number deked and the kmber moddied The Dentatry, Pharmacy and DMEISupphes are the categories wkuch process the most forms It can be seen that the percentages moddied and denied differ substantially by category Table 3 presents, by
EDU~RD L H~NN~N YI ul
Table 4
Mean>
and standard
de\lauons of prior approvals lb\ pro~lder Lategorb In Ncv. 1 ork C~tv I August 1979-lull 1980)
I whlsh
here demed
and moddied
9 cost-benefit
analysis of pnor approvals for MedIcaId
problder category the percentage approved, modified and demed Overall, 22 08% of the prtor approval forms were modified and 6 99% were demed The means and standard devlatlons of the dented and modified approval requests are presented In Table 4 Also presented are the sample sizes from which these means and standard deviations were calculated The sample sizes were chosen by takmg Into conslderatlon the cost of sampling and the magnitude of error associated with a given sample size Table 5 presents, by provider category, the expected benefit per prior approval and a 95% lower confidence bound for the expected benefit per prior approval The 95% lower confidence bound represents a very consereatlve estimate of the true benefit resulhng from the program This value was preferred by declslon makers because they felt that the prior approval process should be clearly cost-beneficidl In order to be lustlfied
Table
The costs per prior approval. by provider categor), are presented In Table 6 It can be seen that for the Medicine category, costs are conslderably higher than costs for the other provider types. and Optometry IS also quite high relative to other categories These high costs nere prlmarlly the result of the high concentration of professional staff involved In the approval process In Table 6 we also present the 95% lower confidence bound for expected benefits for each provider categorv In Dentistry, Optometry and Durable Medical EqulpmentlSupplies, the lower bound for benefits exceeds the cost In Medicine, Psychiatry, Pharmacy and Hearing Alds the cost exceeds the lower bound for benefits Table 6 also contams the cost/benefit ratios for the provider categories The denommators In these ratios represent the monetary benefit derived for each dollar spent The ratios are greater than one for Medlcme. Psychlatrv, Pharmacy and Hearmg Alds The costs for
Expected benefu and lower confidence bound for expected benefit per prior approval
5
95:
Expected Benefit Provider
Hearlnq
Category
Prior
Alds
Medlclne
(lncludlnq
Mealcal
COSI per prior approval
P, 905
25 16
11a 47
111.56L
3 08
/ 60
II 86
9 80
3-l 44
30 4'
vs 95% lower confidence bound for expected category and benefit/cost ratio 95 Per
tiearlng Alds
% 49 84
Dentistry therapies)
237
27
by prouder
Lower
Exoecced
Reneflt
Prior
B
32 '36 (lncludlng
per prior approval
Bound
Per
Approval
Category
benefit
ConfldenCe For
Pnor Provlaer
Bound
Approval
E7 JG
EqulpmentlSupplles
Cost
Aoproval
905
Cost'Beneflt' Pat10
$l!
l?
67 46
1'2
85
1' 36
16
10
Optometrv
91 22
106 62
Pharmacy
21 85
2 60
1' 12
Psychratry
36 06
9 80
II 27
17 52
30 4?
Durable
*The not LoI IX No
Prior
I-D
MedIcal
benefits
EqulpnentlSupplies
are
based
the averarle benefit
on a conservative determined
from
95:
lower
samplrng
categor)
BenPflt
73 12
Psychiatry
Medicine
Confidence
Exoected
Per
by problder
9J 06
theraores)
Pharmacy
Table 6
Lower For
6 10 46
Optometry
Durable
Per
Approval
Dentistry
SEPS
44
ser\lcel
confidence
1,‘l
1'1
bound.
17
74
thebe four categones range from three to eight times the magmtude of the benefit5 The vearl! lisc~l Impact of prior approvals for each of the provider types IS presented m Table 7 Based on the
4ND RECOMMEND~TIOiYS
The mdlcatlon5 of ttus stud) are that the provider sdtegorics Pharmacb Pslctuatry Medicine and Hearing L\lds are not cost-beneficial Although there IS certaml\ room for Improvement m all categories the primarb mwal focus has been placed upon these four areas For each co5t-beneficial area II has been recommended that the current requirements and procedures be retained until J more mdepth analws can be performed The proposed re-eialuatlon proses5 for each of the four troublesome categories IS described m the followng narrati\e HE4RINC 41D.S
There are no mochficdtlons to pro\lder requests for hearing aids and accessoTle5 Since such determmatlons can onl) he made after chmcal er;ammation, a procedure which IS not performed In the Nea York State program Ret Ieu of sample denials has revealed that acquwtion of an aId wlthm a recent time period IS the most common reason for denial The office of Health Svstems Management (OHSM) IS In the process of defining specific criteria m order to address this problem Thts will msolve a minimal amount of professional consultation and adrnmlstratlve handling and should reduce ~051s con~iderablq It IS OHSM’s npmlon that prior apprwal remdms the preferred utlhzatlon control mechanism for thts service The alternative IS a pended claims re~ieu process, which plxes the hearing aId dealer at unacceptable risk For this alternatl\e the dealer aould already have provided an espenswe hearing aid and would have no certain way
of knowing that his patient ahead\ aid dispensed bv another dealer
posse5jed
a hearing
PHARM4C1 Records of mo&icdtlons m the Pharmacb area are not mamtamed The prior approval procesb m\olbes a telephone call to the Area Office Pharmacist b\ the prwlchng physician or pharmxist during which time profesSional Interaction may Include staff suggestmg alternatives to the drug which 13 requested With minor exceptions the record of denials m the Phnrmacb ared Has found to represent unnecessari reque>t\ II e prior approval not required) Presentlv, prior approvals are required for all drug4 over $30 The results of this study ha\e mdtsated that the requirement IS too general to be cobt-benefisial ho#e\er and II has been recommended that the regulation be remoted It has also been recommended that request9 for the tnd~~~dual drugs which require prior approval be momtored and that those w luch dre cost-beneficial be retained along with those with a high potential for ahuse Ne\r Items prone to abuse or overuhhzdtion UIII al30 he subjected to prior approral
The effect of a strpulatlon agreed to b\ the Stdtr Departments of Social Services and Health and the American Psychiatric Association has been to se\erel) hmlt the State’s alxht) to modlfv treatment plan5 or den) serbices wthout considerable admmlstratl\e actl~it\ It IS hypothesized that the primarb effect of ps)ctuatnc treatment plan dppro\al has been to contdm the frequency of psychotherap) \ISIIS tpartlcularl\ m NSH York City) to an average of one per week for patients In long term treatment Since this pre-serbwe reweu appears not to be cost-beneficial. II has been proposed that the requirement be rescinded The removal of ttus program requirement ~111 be u5sd as a test of the deterrent effect which prior approval ma\ ha\e upon the scope of Medicaid service provIsion At the end of the study period a recommendation wll be made to srther continue wthout front end utlhzatlon controls. to reinstate previous controls or to institute an alternative mechanism for utdlzntion reLIefi
4 mt-benefit
The
analyst> of prior approvals for MedIcaId sewIces
MEDICINE IINCLUDING THERAPIES) cost per prior approval m this area IS extremely
high compared to other provider types A detalled review of all procedures requlrmg prtor approval has been Inltttated to determme not only which mdlvldual procedures are cost-beneficial and/or likely to be abused but also which requirements should be retained regardless of cost-benefit as a result of the potential negative health Impact on the recipient should the service be dehv-
2 3 3
ered 6 -\tlnokI~~lrtmunr\-The author\ uould hke lo thank Chrl>topher Glmbrone Dr Joseph L GUI Joseph 0 Donnell and Theresa Sc~hpore for rhelr d*
REFERENCES (‘I a/ Benefits and costs of medwal prmr authowahon Unpublished report State of Caldorma 1979 M N Jackson e; a/ Elect& hysterectom) a cost benefit analvsis hourn IS !7V80 ll978) E i Ha&m and J K Graham A so,t-benefit study of a hypertension screening and treatment program at the uork settmg Inyurr\ 15 345-358 II9781 Y Chung. L M Spelbrmg and R Bolssoneau A cost-benefit analysis of fieldwork education In ocLupatlonal therapy lnyurrv 17 216-229 t 1980) F J Hclhnger Cost-benefit analysis of health care past applications and future prospecls Inqurrv 17. !04!I 5 t 1980) W Mendenhall L 011 and R L Schaeffer, Ekmtnrarr Surut\.%tnpl~nu Dukbur) Prcs\ Belmont C4 I 1971 I W G Co&an, Samphng Te~hnrques 2nd Edn Wiley Neti York 11953)
I B Myers
7