Private Cost Containment. The Effects of Utilization Review Programs on Health Care Use and Expenditures

Utilization review has been regarded as one of the most promising approaches to the containment of health care costs. We analyzed insurance claims data on 222 groups of employees and dependents for 1984 and 1985 to evaluate the effects of utilization review programs instituted by a large private insurance carrier. The utilization review programs we studied were compulsory; patients who did not follow established utilization review procedures were subject to financial penalties. Controlling for employee characteristics, health care market area factors, and benefit-plan features, we found that utilization review reduced admissions by 12.3 percent, inpatient days by 8.0 percent, hospital expenditures by 11.9 percent, and total medical expenditures by 8.3 percent. When only groups that had relatively high admission rates before adopting utilization review were analyzed, it was found that they had a 34 percent reduction in patient days and a 30 percent reduction in hospital expenditures. The savings-to-cost ratio of utilization review for groups overall was highly favorable--approximately 8 to 1. Private utilization review programs of the type we studied appear to be effective in reducing hospital use and decreasing medical expenditures. This study did not address the possible effects of such programs on the health status of patients.