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Cost Avoidance? What is it and how is it determined.

During SFY 2018, the Utah Office of Inspector General’s (UOIG) management team and their data scientist developed a cost avoidance methodology that captures changes in provider billing behavior as well as impacts of less tangible Office activities like audit recommendations and training.

The Inspector General defines cost avoidance, as any action the Office takes that will reduce Medicaid costs in the future.

The cost avoidance methodology establishes a baseline to determine the changes that occur after a sentinel event. The UOIG calculates the baseline by first, determining how much the procedure or policy is costing the Medicaid program over a specified period, usually no more than 36 months. The Office then takes some action (sentinel event) and monitors the baselines for changes in trends. The Office then calculates the difference between pre and post event to calculate cost avoidance.

The Office usually observes trends over an equal amount of time pre and post event and forecasts cost avoidance no more than three years into the future. During the post event period, the Office monitors the trend lines for changes. This step is necessary since new policy or new providers can cause the previous behavior to resurface.

The following example illustrates the UOIG’s cost avoidance methodology:
Providers use Bilirubin Lights as in-home treatment for jaundice, most often in newborns. When the UOIG reviewed policy that outlined the use of Bilirubin lights they discovered providers left the lights in homes longer than necessary and billed for that additional time. The Office conducted three reviews of bilirubin lights and recovered approximately $70,000 dollars. Prior to the UOIG’s review there were 12,400 claims submitted over a three-year period to Medicaid, equaling $652,288. After the review, the claims dropped to 1478 over the subsequent three years and cost the state $240,704. The Office’s action resulted in a behavioral shift of $411,584 and resulted in annual savings to the Medicaid program of $137,194 or $411,584 projected over three years. The Office continues to monitor bilirubin lights and the behavioral change remains consistent. However, if there was a spike in claims submitted for the lights the Office could conduct an audit to determine the cause.

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