May 20, 2018

Lisa Hannusch: UR Nation: A Tale of Two States and Their Quest to Control Medical Costs

By Lisa G. Hannusch, CEO, UniMed Direct & Founder, UR Nation

Lisa HannuschFrom coast to coast, workers’ compensation payors have used utilization review (UR) as a tool for cost containment for more than two decades. You would think this approach would be accepted across our UR Nation by now, but no – the value of UR is still being debated; whether it is how to do it properly, should it be mandated, or even if we should be doing it at all.

Two states with high medical costs, Texas and California, pioneered strong regulatory approaches to utilization review. This two-part “Leaders Speak” article examines each state’s experience and the lessons learned that should be applied to a national best practices approach to UR.

A Brief History of UR in Texas

In the beginning…
In the 1980’s, Texas was reeling from some of the highest workers’ compensation costs in the U.S. To remedy the situation, legislation which is still called the “New Law” took effect in 1991, initiating the concept of fee schedules, second opinions for spinal surgery, impairment ratings, treatment guidelines, state reporting – and yes, utilization review. It was now mandatory for providers to seek pre-authorization for certain treatments. Carriers had to respond within three days or else forfeit any right to retrospective payment denial. Pre-authorization decisions were to be made based on negotiated guidelines adopted by the appointed Medical Advisory Committee.

These early UR rules required pre-authorization for both traditional services that providers recognized as needing approval and some non-standard services whose efficacy was debated. Included in the first category were traditional pre-certification items such as hospitalization; PT for more than eight weeks; DME; psychological testing; and repeat diagnostic tests. Into the second category were experimental or non-standard treatments for workers’ compensation, like chemonucleolysis; video fluoroscopy; weight loss; chemotherapy; discograms; surface EMG; and dental services.

Fine-Tuning UR
Despite the New Law and the cost controls it introduced, workers’ compensation expenses in Texas remained comparatively high and continued to increase. The New Law’s changes were challenged, fought, accepted, and challenged again. Frustrations arose over cumbersome administrative processes for both payors and providers. Although treatment guidelines were in place, research found that 16 percent of the top 75 insurance companies didn’t even have copies of these guidelines in their offices, indicating the value of using these guidelines was not evident or they were simply not being used.
Those who did use the guidelines found them so broad and permissive that questionable treatments were repeatedly approved, circumventing the desired cost control. Payors were also reluctant to deny pre-authorizations because they believed the state’s dispute process would overturn any denial. Various changes in payors’ use of internal standards caused wide variations in approval and denial rates, confusing providers treating patients from multiple payors.

Adjusting the Experiment
Eventually, changes were made to the pre-authorization rule. For example, providers and payors both agreed to remove PT from the pre-authorization list. When PT was included, payors thought that providers believed they would ‘get’ eight weeks of PT automatically, and providers felt that pre-authorization for PT as a “low dollar” procedure was an unnecessary burden. So, the medical necessity determination of PT was shifted from a prospective process to a retrospective process.

With PT only approved after the fact, few payors were willing to spend the time to address medical necessity on a bill by bill basis. So now, PT visits considered low dollar items, flew under the auto-approval process radar. In effect, utilization review for PT became non-existent or diluted.

Yet another lower cost service that no longer required pre-authorization was repeat diagnostic testing below a threshold of $350.

Removing mandatory authorization of PT and repeat diagnostic testing is an example of how the rules did not work in practice because the utilization of these treatments continued to rise. These changes created a laboratory environment in which to test one of the major questions raised about UR: was it worth the effort and the incremental costs to review low cost, high frequency services?

1999…Research Began
Texas’ Research and Oversight Council oversaw several studies, including a major report conducted by MedFX and published in 2001, which revealed that costs in Texas were out of control, with two percent of the CPT codes driving 80 percent of the costs, and eight percent of the providers driving 80 percent of the costs.
Guess which low dollar CPT codes were within the high frequency cost drivers? That’s right – PT and diagnostic tests. These two treatment categories were among the key drivers still pushing costs upward. These low unit-priced services were the very same items pulled from pre-authorization and shifted to retrospective review. The indication was clear: ignore reviewing these low-cost, high-volume items, and frequency will go up, increasing costs unnecessarily.

Reforming the Reforms
So it was back to the legislative drawing board to fine-tune the system with HB 2600. This bill introduced a major shift in policy by switching the fee schedule to a percent of Medicare reimbursement and requiring the use of Medicare payment policies. The permissive treatment guidelines were abolished and the only direction for treatment came from Medicare payment policies providing limited evidence-based guidance.

In addition, decisions on pre-authorization disputes shifted from the non-medical agency to an independent review organization process, and voluntary UR was allowed if both provider and payor agreed to review treatments.

However, dissatisfaction continued about the efficacy of pre-authorization and whether the treatments requiring pre-authorization really needed to be mandated. State-reported data continued to reveal wide variations in determination outcomes for these treatments. Some treatments had a high rate of approval across all payors, while other treatments would have wide outcomes among the top 10 carriers. For example, overall denial rates for all treatments varied among carriers between 23-49 percent. On the other hand, home health and external bone growth stimulators were approved over 80 percent of the time by all carriers.

More Reforms
The good news was that costs were finally getting under control. For example, utilization of non-hospital care in Texas significantly decreased over this time. However, Texas was still one of the most expensive states for workers’ compensation. Many participants remained unhappy with the agency’s performance, so more changes were introduced with another reform bill, HB7.

HB7, along with other recent reforms, once again addressed pre-authorization and made multiple other changes:

  • PT was mandated to require pre-authorization without the automatic coverage of eight weeks provisions.
  • A single evidence-based guideline source was mandated and ODG earned the bragging rights.
  • ODG became the standard, mandating pre-authorization of any treatment falling outside of its guidelines, thus finally giving weight to the evidence-based guidelines.
  • Doctors performing peer review services now fell under the state’s regulation and were required to be licensed in Texas.
  • No medical necessity denials can occur on a medical bill without going through UR and offering peer- to-peer conversations. Previously, a peer review report could be used as a basis for medical necessity denial as long as there has been no significant change in the patient’s condition to warrant the use of a potentially stale report.
  • Certified networks became a reality which will be discussed in future articles.

Now that providers were required to get prior approval for any treatment considered outside of the guidelines, they had a reason to pay attention to how their treatment compared to ODG. Consequently, a side effect and welcome benefit from these reforms was that providers were learning more about evidence-based guidelines and modifying their practice patterns to conform to them.

Lessons Learned from the Lone Star State Experience
There’s a saying that if we do not learn from history, we are doomed to repeat it. So, what have we learned from the history of Texas UR?

For UR to be effective, five main principles must be in place:

  • UR must be mandatory, with prospective review required for those services that are drivers for high-cost in frequency or unit cost; items typically subject to abuse; and those items that are rarely supported in workers’ compensation. With prospective UR, payors can control unnecessary treatment before it happens instead of engaging in costly retrospective battles.
  • UR must be an enforceable process. Providers deserve guaranteed payment when they follow the rules and payors deserve to get prospective denials that stick. Otherwise, UR is just more frictional cost.
  • UR must be based upon evidence-based guidelines. If UR is a review against an unknown or ever-changing standard, then providers will not know when to appeal and peer reviewers will use personal opinion, not objective guidelines. These evidence-based guidelines should still consider patient-specific information and conditions.
  • Use medical staff to make medical decisions, not administrative staff or judges. A state run IRO process is a better option where each review is addressed by a peer reviewer who is anonymous/independent. Ongoing data analysis is vital from a research perspective within the state, including publishing outcomes to assist participants in learning and improving from system performance without fear of any punitive action.
  • Administrative processes should be shared by the provider and the payor. If it is too easy for a provider to request UR, then unnecessary requests may be made. Providers should have the burden to identify their treatments and supply medical, objective, and evidence-based support for the treatment. Payors should have deadlines to provide an answer and ensure no delays to care. The process should not encourage unnecessary treatment by making it onerous for payors to complete the process and likewise, should not discourage providers from requesting authorization for truly warranted treatment.

The Texas experience demonstrates that simply offering UR is an incomplete answer for cost control. UR is a systematic approach that can be enhanced by a carefully designed and monitored program. UR with mandated pre-authorization of services that includes low dollar, high frequency items and traditional high dollar or over-utilized services is the balance that must be achieved.

Washington State’s famous study on eliminating MRI’s from required UR showed that having a process in place to review MRIs ensured that unnecessary tests are not automatically ordered. The so-called sentinel effect of knowing that someone is watching really does work.

The three most important lessons to be learned from the Texas experience are that an effective UR program must include:

  • A balanced list of required procedures that go through UR that is fine-tuned through data calls and research.
  • “Teeth” for both providers and payors where authorization is a binding payment agreement; when providers fail to seek pre-authorization for non-emergency services, there is an administrative denial of payment.
  • An evidenced-based standard to apply during reviews and for providers to apply against their own treatment plans.

Next Up… California’s UR experience and more lessons learned.

About Lisa Hannusch
URNationLisa G Hannusch is the founder of UR Nation (, the industry’s only free resource dedicated to UR discussions and regulatory information. She is also the CEO and owner of UniMed Direct (, which provides managed care services to a national customer base including Fortune 100 companies. Under Lisa’s leadership, UniMed Direct has become the leading developer of utilization review workflow software and evidence-based support for managed care operations.

Prior to UniMed Direct, Lisa spent more than 25 years as a health care reformer, insurance executive, and managed care entrepreneur. She has shared her vision and ideas for improving the economics of health care delivery by serving on several boards and committees, including Vice Chair of the American Insurance Association’s Claim Technology Committee. She also serves as an expert witness on health care billing and reimbursement and received national commendation from Louis Freeh, FBI Director, for her work.

Lisa has a unique background over the last 30 years where she has been a part of each facet of the healthcare industry: provider, injured worker, carrier, fraud investigator, software and managed care vendor, insurance regulator and state agency rule and guideline author. She has worked in the medical field within a hospital, urgent care center, pharmacy, and EMS. She has developed drug formularies, fee schedules, UR rules, treatment guidelines and even created the first programs in Texas for compliance audits of health care providers and insurance companies. She furthered her career working at an insurance company managing the medical operations and all back office medical and claim policies, with all supporting technology implementations and maintenance. Her technology background enabled her to design bill review, claim, state reporting, and utilization review systems. She now enjoys putting all of that experience together in supporting her clients at UniMed Direct.

About UniMed Direct
Unimed DirectUniMed Direct, the industry’s most qualified and experienced experts support your managed care operations with software and service solutions that drive efficiency through automation and evidence based decisions. Our software, ReviewStat®, the only end to end medical management software for integrated workflows, automated rules, and dynamic reporting tools keeps you compliant, efficient, and poised with information at your fingertips. URAC accredited since 2007, UniMed Direct’s proprietary national peer review panel ensures you can count on us for comprehensive evidence based Decisions that Stick and the Experts to Back You Up®. To learn more about UniMed Direct, contact us at or visit

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