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Managed care's emphasis on controlling the cost of health care is increasing the importance of cost-effectiveness in the development and reimbursement of new medical technology.

"If you look at the health care environment over the 1960s, 1970s and 1980s, (the paradigm) was one of better patient care at any cost. Managed care has basically put in a different paradigm, which is better patient care through lower cost," said Patrick Sullivan, president and chief executive officer of Cytyc Corp. in Boxborough, Mass., which develops medical technology.

The challenge is to get improved results at lower overall cost, without reducing quality of care or increasing hidden costs to employers, such as lost time due to employee sick leave or physician office visits.

Meeting that challenge is complicated by several factors, including that the procedure for analyzing the cost-effectiveness of new technology "is still in its infancy," said Dr. Paul Schyve, a senior vp at the Joint Commission on the Accreditation of Healthcare Organizations in Oakbrook Terrace, Ill.

In addition, using cost-effective technology still can increase health care costs because studies show that physicians tend to extend new, less invasive procedures, like laparoscopic surgeries, to patients who might otherwise have received a more invasive type of operation.

In the past, several research studies have shown that "technological change is responsible for half of the rise in (health care) costs," said Daniel Mendelson, a consultant and vp with The Lewin Group in Fairfax, Va.

However, "if utilization is directed properly, new technology should lower the cost of health care," he said.

While most employers don't contract with hospitals and health care providers directly, companies should make sure that managed care organizations are concerned about providing quality care and appropriate reimbursement for cost-effective treatment.

New technology should be able to improve the quality of health care as well as patients' lives through quicker diagnoses and less invasive treatment, thereby reducing recovery time.

For example, "polio was very costly to treat until a vaccine was developed, and then merely cost pennies," said Bill Maloney, a principal and head of health care information practices in the Phoenix office of William M. Mercer Inc.

Technology-including procedures, devices and drugs, experts say-is giving health care providers new options in treating patients.

For example, one of the newest uses for radiological equipment is "magnetic resonance angiography," which lets a physician use magnetic resonance imaging equipment to see blocked blood vessels. This procedure eliminates the need to inject a patient with dye, which sometimes triggers an allergic reaction, said Dr. Carole Flamm, senior consultant with the Blue Cross & Blue Shield Assn.'s Technology Evaluation Center in Chicago. The center advises Blues plans and other health care plans about the efficacy of new medical technology.

Nuclear cameras enable physicians to diagnose malignant tumors more quickly by imaging cancerous cells as the cells consume "radioactively labeled sugar," said Dr. Kenneth Bartholomew, who practices at the Medical Center of Bowling Green, Ky. Implementing that approach, which required purchasing $400,000 worth of equipment, is considered more cost-effective than using a positron emission tomography scanner costing millions of dollars more, he said.

In addition, hospitals and clinics are buying moderately priced ultrasounds, which cost $50,000 to $100,000, along with higher-quality units costing $220,000 to $300,000, said Bill Carrano, marketing director for general imaging with Acuson Corp. in Mountain View, Calif.

Researchers also are analyzing the effectiveness of "minimally invasive coronary artery bypass grafting," in which surgeons use specialized instruments to make a small incision under a patient's rib rather than saw through the breastbone.

Also, a new ThinPrep Pap Test is designed to improve cervical cancer screening. Instead of using the 50-year-old procedures of smearing cells on a slide, the physician uses a tiny, brush-type collection device to collect cells and places them in a vial of preservative solution that is sent to a laboratory for analysis.

The procedure yields a cleaner sample without the mucus, blood and inflammation of conventional smears that can result in inconclusive findings. A cleaner sample also reduces the frequency of inconclusive findings, which make patients anxious and require retesting.

Finally, new drugs, such as those that treat depression, can help a patient avoid an extensive hospital stay and return to work sooner.

When it comes to such medical technologies, "everybody across the board is interested in cost-effectiveness," said a spokesman for the National Committee for Quality Assurance in Washington.

Some payers even are willing to pay more for a better test.

For example, United HealthCare Corp. in Minneapolis announced last year that it would cover the ThinPrep Pap smear test because it has been demonstrated to be significantly more effective than the traditional method.

Depending on a reimbursement arrangement, the new test adds about $15 to $30 to the $6-to-$38 cost of a traditional test, said Cytyc's Mr. Sullivan. However, the more accurate sampling procedure also saves money by reducing costs associated with retesting.

But, even a cost-efficient procedure or test can increase overall costs if physicians use it more often.

A recent study of radiological services, which was prepared last month for Business Insurance, found that "the clear message is that while the unit costs of most imaging diagnostic tests are flat or down over the past few years, the use of such procedures continues to increase every year," according to Tom Billet, vp-national managed care practices in the Stamford, Conn., office of The MEDSTAT Group in Ann Arbor, Mich.

The study, which tracked services provided during 1992-1995 to more than 7 million individuals covered by large employers' health care plans, found that payments for magnetic resonance imaging dropped each year during that period to $666.78 from $795.86, in 1997 dollars. However, the utilization rate increased from 17 to 24 per 1,000 covered lives.

"The tighter health care dollar has caused all health care providers to carefully evaluate the need and pay back for new technology," said Michael Engelhart, a partner with the Deloitte & Touche Consulting Group in Chicago.

Hospitals are making surprising progress, he said.

"Manufacturers are selling a lot less equipment than in the past," said Jeffrey Lerner, vp for strategic planning with ECRI, a non-profit organization that evaluates medical technology in Plymouth Meeting, Pa.

By becoming more efficient,

hospitals boosted their median operating profit margin to 3.88% in 1995, compared with 3.42% in 1994, according to an annual comparison of U.S. hospital operations prepared by ECRI and HCIA Inc., a Baltimore-based health care information company.

Hospitals and clinics are extending that drive for efficiency to include their use of medical technology.

Previously, duplication of services and equipment within a given marketplace was a huge problem, several experts agree.

Health care facilities used new equipment to attract high-quality physicians. That practice continued unchecked after the failure of a public program in the 1980s that required health care facilities to get a certificate of need from a health care regulatory agency before making expensive equipment or other capital improvements.

"Under the old fee-for-service climate, hospitals charged on a cost-plus basis. Now they negotiate to be paid on a per diem basis or per case basis. They often get a fixed fee and they have to control and bring down costs so they can make money," said Mr. Billet.

As a result of the new reimbursement system, most community hospitals and clinics now have a greater incentive to cooperate.

Cooperative efforts by hospitals include mounting MRI machines on tractor trailers and rotating them among small, neighboring hospitals, often in rural areas.

Hospitals also are cooperating to establish and share a specialized unit, such as pediatrics. In addition, hospitals and clinics are continuing to contract for services such as sophisticated laboratory analysis and to lease equipment.

Employers that choose managed care services that deal directly with providers need to make sure that managed care organizations share their goal of providing quality care for employees, including appropriate reimbursement for cost-effective treatment.

"Employers have an obligation to ask more of their managed care organizations than they have in the past. What we see now is more of an interest in quality but not nearly enough," said Lewin Group's Mr. Mendelson.

Employers need to ask for outcomes' information, including reports about lower infection rates in surgery, lower percentage of Caesarean section deliveries and fewer readmissions for illnesses, said Deloitte & Touche's Mr. Engelhart.

"Employers are interested in employees getting well and getting back to work," he said