Special Report on Private Health: A hard task to end pain of the payer: Paul Durman examines the increasing tendency of insurers to balance cost effectiveness of treatment with quality

WOMEN who have to have a hysterectomy may be asked to spend anything from three days to nearly three weeks in hospital. The variation may seem surprisingly large. But more surprising and more worrying is that some estimates suggest that one-third of hysterectomies are unnecessary in the first place.

These wide differences in treatment time, and differences in recommended medical practice, present considerable scope for medical insurers to reduce costs and increase efficiencies.

As large buyers of healthcare services, medical insurers have always been in a position to negotiate good deals from private hospitals because of their purchasing power.

But in the last few years, the increasing cost of medical bills has encouraged insurers to go further. This has led to the concept of managed care, an approach whereby insurers seek to exercise tight control over the quality and cost of the benefits they offer.

Mark Burley, market development manager of Cigna Employee Benefits, says controlling costs alone is not enough. 'It's a bit like squeezing a balloon,' he says. 'If you squeeze in one place, the bubble comes out somewhere else.' Peter Garrad-Cole, Bupa's director of healthcare partnerships, said managed care is seeking to balance cost effectiveness and quality.

This more integrated approach requires health insurers to educate their customers, particularly corporate ones, about the range of treatments and the impact upon future costs. Insurers are increasingly requiring notification before giving the go-ahead to someone seeking treatment. They are drawing up benchmarks or protocols which set out model treatments of particular illnesses and problems.

The most important contributor to cost is the length of time spent in hospital. Mr Garrad-Cole says a hospital stay costs an average pounds 400 a day. So medical insurers are keen to encourage treatment that avoids the need for an overnight stay. Bupa says this cuts the cost of the average treatment 'episode' by half.

Earlier notification of potential claims allows insurers to influence the choice of treatment. Mr Burley said: 'Historically, the first thing insurance companies knew about a claim was when it hit the desk. We can't influence, and can't help, that client at all.' Cigna now requires its clients to contact it when their GPs refer them to a consultant.

Mr Burley says the intention is not to dictate the form of treatment: that decision will be left to patients and doctors. Cigna employs 11 nurses to offer suggestions to consultants but, Mr Burley says, 'their first duty is that of being a nurse. If you asked them, they would quite honestly say, 'Cigna is not important enough to us to lose our nurses' licences'.'

In many cases, no real alternative exists: in-growing toe- nails have to be removed, for example. But in others, it is possible to suggest preferable non-surgical procedures.

Bupa spends about pounds 5m a year treating 6,000 children suffering from myringotomy, or 'glue ear', a hearing problem that can cause children difficulty in learning new words or lead to inattentiveness. It is cured by a routine operation, but some medical research suggests that perhaps half the myringotomies performed are unnecessary. Mr Garrad-Cole says Bupa is working with the medical profession to identify which cases require this treatment.

As indicated earlier, the costs of hysterectomies vary widely, from pounds 1,200 to pounds 5,700. Bupa spent about pounds 15m last year on nearly 5,000 hysterectomies, most costing between pounds 1,600 and pounds 2,200. Mr Garrad- Cole says: 'If the average length of stay were to reduce by two days from nearly 8 days to 6 days you would see savings of pounds 4m.'

Mr Garrad-Cole says: 'We want to see consultants being very effective in their use of resources and keeping people in hospital for the appropriate amount of time to deal with the condition.'

As a response to this, Bupa is working with consultants to draw up benchmark treatments in various areas. These include ear, nose and throat; orthopaedics; gynaecology; cataracts; and psychiatric care.

Panels of consultants are examining practice in each field. The results will be shown to 2,500 consultants by later this year. Bupa will then use these benchmarks in its negotiations with hospitals. Mr Garrad-Cole said: 'We will be able to say, 'This group of clinicians, representative of the profession, feel that this is acceptable. We would expect that to be the way people practice.'

Bupa accepts that there will be exceptions, depending on individual circumstances. But these will be the benchmarks that will allow it to judge hospitals' performance.

Mr Garrad-Cole expects similar benchmarking to become common as the health service reforms proceed and more GPs become fund-holders. Bupa estimates that the changes in its business approach saved it about pounds 45m last year. This compares with total expenditure of about pounds 550m.