7 Challenges, Costs of Utilization Management for Employers
Utilization management strategies may be intended to lower costs for employers and employees, but they can result in restricted access to care and higher member costs.
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- Certain utilization management techniques—such as step therapy and prior authorization—may increase employees’ costs and restrict access to care, especially for employees with chronic diseases, a CancerCare toolkit found.
Employers use utilization management techniques to discern whether a treatment is medically necessary. By extension, this approach is intended to tell employers whether a service is eligible for coverage.
But utilization management can have complex outcomes.
“At its best, UM helps to weed out unproven treatments, evaluate physicians’ treatment recommendations and reduce costs while still delivering quality care. At its worst, UM creates administrative snarls, delays, stress and costly out-of-pocket expenses for patients, and interferes with patient/physician decisions regarding the best personal course of treatment,” the CancerCare toolkit explained.
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“When cost is the dominant factor in guiding employers’ benefits decision making, employee health can pay the price,” Patricia J. Goldsmith, chief executive officer of CancerCare, said in the press release. “Employers must take care to balance cost savings with the real needs of their employees, especially those with serious or chronic illnesses.”
The report outlined seven utilization management practices that can have negative impacts on employees who have chronic diseases.
Prior authorization has long been a controversial tool for managing costs. The toolkit stated that prior authorization increases overall costs for employers, employees, and even sometimes health plans. The tool can be restrictive and costly even if the prior authorization is approved, as 72 to 90 percent of prior authorizations are.
Formulary design is another utilization management tool that can reduce access to care and boost healthcare spending.
Formularies influence utilization and spending by controlling what prescriptions a payer will cover. Pharmacy benefit managers (PBMs) have become more restrictive in their formulary design over time, with at least one of the top three PBMs excluding 34 percent more drugs from their formularies each year from 2014 to 2020.
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Factors influencing the impact of formulary design include formulary restrictiveness, rebates that set a high bar for entry for new drugs, access to generics and biosimilars, mid-year formulary adjustments and prescription changes that are not related to clinical factors, and the exclusion of patients’ voices from value assessments.
Step therapy is the third utilization management tool. Step therapy requires employees to try lower-cost drug options before receiving approval for specialty drugs or drugs outside of the formulary. In practice, this tool can delay a patient’s return to health by forcing them to try and even re-try drugs that do not work before receiving the drug that is best suited for their needs.
“There is no empirical evidence that step therapy reduces overall healthcare costs and [offers] improvements in patient outcomes short or long term,” Robert Popovian, senior health policy fellow at the Progressive Policy Institute, said in the toolkit.
While one study found immediate reductions in cost, the long-term effects of step therapy resulted in higher spending, the toolkit shared. The toolkit advised employers against using step therapy to control costs.
Specialty pharmacies can also negatively influence the price of care and may restrict employees’ access to needed prescriptions.
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“While some specialty pharmacies offer expert personalized service, a growing number of insurer-designated pharmacies operate entirely through the mail. Patients report difficulties refilling prescriptions, suffer long waits to reach customer service representatives and experience life-threatening shipment delays and dosage errors for critical drugs,” the toolkit explained.
When insurers also run PBMs, they can require employees to obtain their prescriptions from the PBM associated with the insurer. There is little incentive in such a system for payers to keep costs low, the toolkit argued.
Copay accumulator programs are newer utilization management tools that exclude copay support from the employee’s out-of-pocket maximum and deductible.
This strategy becomes profitable for payers very quickly. In one year-long simulation, the insurer received $8,550 without the copay accumulator program and $15,160 with the copay accumulator program, while the member—who has an $8,550 out-of-pocket maximum—paid $1,350 and $7,960 respectively.
Instead of driving members to pursue lower-cost treatment options, this approach can drive members to delay or entirely forego treatment.
The appeals process can also create delays in care and do not create savings for employers. Only 0.2 percent of denials were appealed in 2019. The toolkit notes that appealing an insurer’s decision requires time, persistence, and stress.
Lastly, financial non-adherence—or delaying or foregoing treatment due to costs—can have a significant financial impact on a member’s health and healthcare spending. While it may save money for the member, the health plan, and the employer in the short-term, the long-term implications can be dire.
“Making care more accessible from the start improves outcomes by multiple measures, speeding recovery, improving productivity and reducing further medical costs for patients and the health plan,” the toolkit emphasized.
As employers navigate unsustainably high healthcare spending, they should be aware of the downstream impacts that immediate cost-saving measures can have.
