“If I were responsible for a hospital lab today, I’d be
developing strategies to diversify that business, especially into the
That assessment comes from Andrew Webber who, as executive director
of the American Medical Peer Review Association, is a full-time student of a just-launched Federal effort to shrink Medicare hospitalization
significantly over the next two years.
Webber’s association represents most of the Peer Review
Organizations that have recently contracted with the Federal government
to eliminate an estimated 1.4 million unnecessary or inappropriate
admissions. “The point is to squeeze discretionary hospitalization
out of the system,” Webber explained. “PROs will further
force the unbundling of the hospital industry that was started with
prospective payment. It means that inpatient utilization will continue
to drop, and I don’t see it bottoming out any time soon.
“We’re experiencing a real revolution in health care, and
I don’t think that’s too strong a term.”
Few who have explored the PRO concept would disagree. Prospective
payment, of course, reversed financial incentives for hospitals and left
the results to the marketplace. With PROs, on the other hand, less is
being left to chance. Not only must many Medicare admissions now be
approved, but PROs must set specific targets for improvement in line
with a 300-page Health Care Financing Administration menu of
In Wisconsin, for example, the agency has identified 94 doctors
whose patients’ length of stay exceeded established norms. HCFA wants the state PRO to scrutinize these physicians’ future
admissions, as well as retrospectively review past hospitalizations that
generated a combined 7,000 claims.
In New Jersey, one goal is to cut admissions by 2,936 in 28
hospitals found to have higher-than-average admission rates for 10
diagnoses, including back ailments, bronchitis, pneumonia, and high
PROs are the reborn form of peer review that began in the early
1970s. Congress created Professional Standards Review Organizations in
1972 after deciding that hospital utilization review committees could
not effectively restrain Medicare costs.
Over the next eight years, PSROs couldn’t persuasively
demonstrate that they could, either. HCFA stood by the review groups,
but a Congressional Budget Office report concluded that they cost more
to administer than they were saving.
In 1980, the anti-regulation forces that arrived in Washington with
Ronald Reagan needed no more than the CBO findings to get Congress to
curtail the review panels.
Two years later, however, law-makers listenened to Sen. David
Durenberger (R-Minn.), who claimed PROs were necessary to insure that
Medicare health services are reasonable and medically necessary, meet
professionally recognized standards of care, and are provided in the
most economical setting. Congress passed PROs into law as part of the
Tax Equity and Fiscal Responsibility Act of 1982, the same measure that
spawned prospective payment.
After spending months establishing area and eligibility
requirements, HCFA early last year began accepting bids for PRO
contracts, and most organizations were approved and finally operating by
the close of 1984.
Physicians initially won a major victory by convincing Congress
that their peers should be the ones conducting the reviews through
groups such as a state medical society or foundation. During hearings,
Senator Durenberger agreed that he wouldn’t want “an insurance
clerk deciding whether my mother should be hospitalized for three
But Congress also left HCFA with substantial leverage, giving the
agency the right to decide as the one-year contracts expire whether each
PRO’s performance warrants renewal, or whether to turn the job over
to a fiscal intermediary. And that power has physicians and some PRO
officials nervous. Will the multitude of objectives HFCA has spelled
out prove arbitrary? Will performance be judged simply by the numbers?
HCFA Administrator Carolyne Davis, Ph.D., has characterized the
goals as targets and insists they are not meant as mandatory quotas.
AMPRA’s Webber believes “Dr. Davis understands that it will
be very difficult to meet all the objectives that have been
PROs are assigned both “admissions” and “quality
control” objectives. The first involves monitoring inappropriate
or unnecessary hospitalizations by case type, specific doctor, or
hospital, as well as admissions that could be safely performed on an
outpatient basis. In seeking bids, HCFA provided a list of the 20 most
frequent DRG claims for each state and asked bidders which five they
would concentrate on. In some cases, procedures with the highest annual
growth rate were selected.
“Quality” objectives cover problems such as mortality
risks, postoperative complications, and readmissions due to prior
Typical two-year objectives for PROs:
* New Jersey will try to reduce by 95 per cent (or 8,700
admissions) the number of operations, treatments, or diagnostic tests
that could have been given safely on an outpatient basis. These include
breast biopsy, kidney dialysis, surgical tooth extraction, as well as
procedures to examine the bronchial tubes, digestive tract, and bladder.
* Delaware is to reduce 321 admissions through 100 per cent
retrospective review of physician admitting practices.
* California will attempt to cut by 20 per cent (2,010 cases) the
number of unnecessary readmissions due to “substandard” prior
* Missouri will seek to eliminate 450 complications from nosocomial
* Connecticut will aim to reduce by 30 per cent postoperative
infections resulting from the use of a cathether after six surgical
Depending upon a state’s objectives, physicians will have to
receive a PRO’s permission before admitting a Medicare patient.
According to HCFA’s Office of Medical Review, aggregate objectives
set for the nation’s PROs over two years will result in 600,000
Medicare patients receiving, as outpatients, care formerly rendered in
hospitals. Another 700,000 who might have been hospitalized will
instead receive, upon their physicians’ “reconsideration”
of need, no treatment at all.
Such estimates stem from a variety of sources, including relatively
recent studies on variations in medical practices. Dr. John Wennberg, a
Dartmouth medical researcher, has studied differences in medical
treatment for a decade. One of his investigations found a difference of
2,500 hysterectomies between two comparable Maine cities over the last
10 years. Treatment patterns, not medical necessity, he said, accounted
for the $10 million worth of hospital care for the additional
procedures. Dr. Wennberg has told Congress that his work dispels the
idea that “most medical services are undifferentiated
Another researcher, Dr. Paul Gertman of the Boston-based Health
Data Institute, claims his studies show that 19 per cent of the
nation’s hospital patients were treated there unnecessarily.
If the researchers and HCFA officials are correct, and the PRO
movement functions as anticipated, it undoubtedly means a major
reduction in in-hospital Medicare lab testing. And that, AMPRA’s
Webber points out, is just part of the story.
“The PROs are also actively pursuing private sector
business,” he explained. “Corporations especially are anxious
to study ancillary services in hospital care,” he said. “They
want better information on all sorts of things, such as where health
care dollars go, for which employees, and the frequency of services.
This whole area of private sector review is just in its infancy.”
Webber compares the hospital industry with the auto industry of the
late 1960s and early 1970s. “It fed itself on cheap gas and then
faced a severe change. Hospitals fed themselves on Hill-Burton,
comprehensive health insurance packages, and cost-based reimbursment.
Now they are in the midst of severe change.”