Disease Management

Health Plans Are Ill-Prepared for Looming Diabetes Epidemic

MANAGED CARE May 2006. ©MediMedia USA

The problem is outpacing insurers' resources and perhaps even their commitment. Can the chronic care model help?

Martin Sipkoff

Contributing Editor

Diabetes is creating an escalating economic crisis for our health care system. Health plans use a handful of approaches, but "many insurers remain unaware of the scale of the problem," says Thomas Bodenheimer, MD, MPH, an adjunct professor in the department of family and community medicine at the University of California, San Francisco and a leading authority on the management of chronic disease. "Health plans need to step up to the plate. Their active involvement is absolutely critical."

Some plans are making efforts. Aetna has implemented what the company calls its "Integrated Comprehensive Diabetes Program," designed to coordinate care between the large insurers' various departments to encourage patient self-management and physician recognition of the disease's dangerous comorbidities, including depression and heart disease. Cigna has a similar program.

Kaiser Permanente's Care Management Institute emphasizes care coordination, a key to managing diabetes, in its staff-model practices. The plans shared America's Health Insurance Plans' 2006 Innovation and Excellence Award for Chronic Care in the large/affiliated category.

Intensive management required

"The key to success is placing the patient at the center of care," says Paul Wallace, MD, former executive director of Kaiser Permanente's Care Management Institute and currently Kaiser's medical director for health and productivity management programs. "Complex comorbidities require intensive management."

The AHIP Innovative Award winner for smaller/independent plans was Rocky Mountain Health Plans (RMHP) for improving diabetes outcomes in Mesa County, Colo. RMHP's truly innovative program combines pay for performance with a physician practice redesign at the primary care physician level for patients with diabetes.

Their plan is based on the chronic care model, which pays doctors directly for improved outcomes. The model is similar to pay for performance except that it rewards physicians for managing the overall care of their patients' chronic illness, including making community referrals and planned nurse visits to patients' homes. Unlike disease management, it rewards physicians, not a third-party vendor.

"Traditionally, physicians are not trained in management techniques to deal with ongoing chronic conditions," says David Herr, MD, chief medical officer. "We wanted to address that problem."

These are meaningful efforts, and they are plan-based. But the national plans fail to address the needs of the large majority of their populations. Aetna's program only enrolls 6 percent, for example. Medicare has waited until just this year to implement pilot studies on chronic disease management. That's despite the fact that the program has by far the highest incidence of diabetes of all health plans.

Study after study shows that people with diabetes are not getting the help they need. A survey by researchers at the University of Michigan, the results of which were published in the April issue of the Journal of General Internal Medicine in an article titled "Indications for and utilization of ACE inhibitors in older individuals with diabetes," found that less than half of all people with diabetes 55 or older were receiving ACE inhibitors. Endocrinologists have long advocated that almost all people with diabetes in this age group take the medication.

Insurers and Medicare simply do not pay enough for what is needed to treat patients with diabetes, says Irl B. Hirsch, MD, a professor of medicine at the University of Washington Medical Center in Seattle, in an editorial in the journal Diabetes Care. "Our system rewards physicians doing procedures, and diabetes care is classically a matter of evaluation and management," he said. "The current system is nonfunctional, if not dysfunctional."

It is a problem of enormous urgency, says K.M. Venkat Narayan, MD, chief of the Centers for Disease Prevention and Control's Diabetes Epidemiology & Statistics Branch in the Division of Diabetes Translation. According to the CDC, about 18.2 million Americans (6.3 percent of the population) have diabetes, a four-fold increase in the last 50 years. Of those, more than 5 million are unaware they have the disease.

And more than a million new cases are diagnosed every year, which predicts that the number of diagnosed cases of diabetes will increase by 165 percent by the year 2050. Without preventive care, 1 in 3 children born in 2000 will develop the disease.

"There has been some improvement in treatment and management, so we know we can make things better, but the disease is reaching epidemic proportions. There is still a great deal to be done," says Narayan. "There are good treatments available, but it's no time for complacency."

"This trend is extremely disturbing," says Robert Rizza, MD, a professor of medicine at the Mayo Clinic and president for medicine and science of the American Diabetes Association, adding that our health care system "isn't set up to address the complexity of chronic disease, especially diabetes."

Five chronic diseases — heart disease, cancer, stroke, chronic obstructive pulmonary diseases, and diabetes — account for more than two-thirds of all deaths and consume 75 percent of the nation's health care cost. Diabetes is the fifth most common cause of death, according to the ADA, but among its most significant comorbidities are heart disease and stroke. And heart disease is the most common killer.

Prevent complications

Says Rizza: "We need to create incentives for patients and within the system to do a better job in preventing the disease and, once you have the disease, preventing its complications."

Tools and information about management techniques are certainly available. The ADA has an extensive database of community resources available to health plans that develop referral systems. Aetna, for example, works with local diabetes coalitions to promote compliance with recommended ADA guidelines. The company recently implemented a pilot project with a collaborative named the Network to Improve Community Health (NICH) in the Mid-Atlantic region by providing regional physician offices and blood lab draw stations with the NICH's Patient Guidelines for Diabetes Care brochure to educate patients.

Chronic care model

The Institute for Healthcare Improvement offers a detailed program to health plans and medical groups that outlines and implements the Chronic Care Model designed by Ed Wagner, MD, director of the MacColl Institute for Healthcare Innovation at the Group Health Cooperative of Puget Sound, Seattle. The model "recognizes that a substantial portion of chronic care takes place outside of formal health delivery settings," says Wagner. "Its purpose is to capitalize on a full array of possible treatment options." It has traditionally been used in staff model HMOs, large group practices, and community health clinics, with positive results, says Wagner. "Yet few provider settings are prepared to execute the model," he adds.

So why aren't more plans more aggressive in managing diabetes? "The main barrier to that involvement is that managing diabetes has yet to establish a return on investment to the satisfaction of many plan leaders," says Bodenheimer.

Health plans may continue to be in the dark about the need for widespread diabetes management, but apparently many payers are seeing the light. Recognizing that employees with diabetes take eight times as many sick says at their coworkers who don't have the disease, it is employers — not health plans — that are taking the most aggressive steps toward managing diabetes.

The University of Michigan, for example, is starting a two-year pilot program to provide no-cost or discounted medications to employees and dependents with diabetes. The program, named "MHealthy: Focus on Diabetes," begins July 1. More than 2,000 university employees and dependents enrolled in the university health plan will receive no-cost generic medications for diabetes and related complications such as hypertension, heart and kidney problems, and depression. And the university will reduce copayments for brand-name medications for diabetes and related complications by 25 percent to 50 percent, and will distribute educational materials about how diabetes patients can manage their health. The purpose is to measure whether reduced copayments for medications for chronic conditions improve access to care and reduce complications.

Huge irony

But in spite of payer initiatives, health plans too often fail to recognize the need for physician and community involvement in efforts to manage chronic disease, say Bodenheimer, Wallace, and many others.

"Taking care of chronic conditions over time is different from the way we, as plans, deliver health care," says Wallace. "It is a huge irony. Health care is really about how we deal with sickness. Disease management is how we pursue health."

Some plans are initiating pay-for-performance programs if their network physicians make the necessary test referrals. Many plans and employers hire disease management vendors to manage the disease. But very few insurers pay their physicians directly for actually getting results, says Bodenheimer.

"The key to effective management of diabetes is the active involvement of the primary care physician, who treats 80 percent of all diabetes cases," says Bodenheimer. "The chronic care model involves the entire community, and is centered on the primary care physician."

Bodenheimer believes the chronic care model offers the most effective management technique and is an improvement over disease management because it compensates physicians directly and emphasizes utilization of community resources.

External DM programs remain the most popular form of diabetes management, however. Sixty-two percent of employers have contracts with diabetes disease management programs, according to Mercer Human Resource Consulting. Every national plan and most regional plans offer an internal or an external DM program, although not always for diabetes management.

Poor cholesterol control

And that has made some difference. DM programs and health plans have reported through HEDIS measures that in the last decade, cholesterol control in diabetics has improved.

However, according to the CDC, blood pressure control and blood sugar control measures have not improved. The agency reports that 2 out of 5 people with diabetes have poor cholesterol control, 1 in 3 has poor blood-pressure control, and 1 in 5 has poor control of blood-sugar levels, according to the CDC.

Some plans are starting pay-for-performance programs for diabetes treatment, which some physicians say can be effective. Blue Cross Blue Shield of Minnesota, for example, recently implemented a P4P program that ties clinical tests and values for diabetes to added compensation. According to Douglas Hiza, MD, BCBSMN's medical director, about 55 clinics signed up for the voluntary program, which includes about 80 percent of BCBSMN members.

Statistically significant comparisons

The P4P program is almost entirely based on outcomes and derives data from chart reviews, not claims data. It is part of the Minnesota Community Measurement Project, which is made up of all of the major health plans in Minnesota and produces statistically significant comparisons of clinics across Minnesota by combining plan data. "We believe we'll find that incentives do make a difference, because when you combine financial rewards with recognition of quality rankings, you get powerful results," says Hiza.

Popularity and hope notwithstanding, P4P and disease management have yet to truly demonstrate their cost effectiveness, say some experts, and that may be in part because they fail to enroll complete populations. Return on investment in DM programs is an especially controversial issue, says Ron Goetzel, PhD, vice president for consulting and applied research at Thomson Medstat, a health care information company. He also serves as director of Cornell University's Institute for Health and Productivity Studies.

"It is a relatively new idea that DM is cost effective, although it has shown good outcomes," says Goetzel. "We have found, however, that little evidence currently exists that clearly demonstrates DM's financial impact. Much of what has been done doesn't really meet standards of being scientifically rigorous."

But as far as KP's Wallace is concerned, it is the chronic care model's emphasis on placing the patient at the center of care coupled with primary care physician and community involvement that has the most potential for addressing the diabetes epidemic.

"Why keep reinventing the wheel?" he asks. "It is simple, complete, and effective. We just need to put our brains into the game."

Chronic care model demonstrates effectiveness

An effective approach for managing chronic disease, including diabetes, is the chronic care model developed by Ed Wagner, MD, MPH, director of the MacColl Institute for Healthcare Innovation at Group Health Cooperative of Puget Sound in Seattle.

"The model recognizes that a substantial portion of chronic care takes place outside of formal health delivery settings," says Robert Mechanic, MBA, director of the Health Industry Forum at the Schneider Institute for Health Policy at Brandeis University.

Patient self-management, delivery system design (including information systems and decision support), and community resources are all critical components, says Mechanic. The chronic care model has been used successfully in staff model HMOs, large group practices, and community health clinics. "However, most provider settings are fully prepared to execute the chronic care model," says Mechanic. "In fact, a majority of large care management programs originate outside of provider systems and are managed by health plans and disease management firms."

Health plans should be aggressively encouraging providers to implement the model because it is highly effective, says Thomas Bodenheimer, MD, adjunct professor in the department of family and community medicine at the University of California, San Francisco. He has written extensively about its implementation. "The model is the single most effective way to manage diabetes, more effective than any other," says Bodenheimer. "It should be adopted by health plans."

The Institute for Healthcare Improvement in Boston offers seminars and practice-centered training in the model, which has six components. According to IHI, they are:

Self-management support — Patients are placed at the center of care and are encouraged to manage their own care.

Decision support — Treatment decisions need to be based on explicit, proven guidelines supported by at least one defining study. Health care organizations creatively integrate explicit, proven guidelines into the day-to-day practice of the primary care providers in an accessible and easy-to-use manner.

Delivery system design — The delivery of patient care requires clarifying roles and tasks, making sure that all the clinicians who take care of a patient have centralized and current information about the patient's status. Follow-up is made part of standard procedure.

Clinical information system — A registry, which is an information system that can track individual patients as well as populations of patients, is a necessity when managing chronic illness or preventive care.

Organization of health care — Health care systems can create an environment in which organized efforts to improve the care of people with chronic illness take hold and flourish.

Community — To improve the health of the population, health care organizations make an effort to form powerful alliances and partnerships with state programs, local agencies, schools, faith organizations, businesses, and clubs.

Source: E.H. Wagner, C. Davis, J. Schaefer, M. Von Korff, B. Austin, "A survey of leading chronic disease management programs: are they consistent with the literature," Managed Care Quarterly 7 (1999): (3) 56-66.

Diabetes cost is crushing the system

The cost of diabetes in this country is greater than the gross national product of all but 25 of the world's 192 countries. It is $132 billion a year, including $92 billion in direct medical costs and $40 billion in indirect costs, such as lost work days, restricted activity, mortality, and permanent disability, according to the American Diabetes Association. That was in 2002, when the most recent comprehensive study of diabetes was completed. In the same study, the annual cost of diabetes (in 2002 dollars) was projected to rise to $156 billion by 2010 and to $192 billion by 2020, including $138 billion in direct medical costs. The CDC also reports that people with diabetes miss 8.3 days per year from work, compared to 1.7 days for people without diabetes.

Costs

What is the direct cost to health plans? According research conducted by Pharmerit North America, a company in Bethesda, Md., that specializes in determining the economic effects of health care interventions, the average per-member annual cost for patients with diabetes is between $4,614 and $6,532 in a managed care plan with an external or internal management program. The cost rises to $9,046 for a plan with no disease or case management program. Diabetes itself is neither the most nor least expensive chronic disease. Asthma costs less ($4,604 for patients enrolled in a disease management program), and cardiovascular disease costs more ($8,257). But add a diagnosis of diabetes to CVD and the cost jumps to $13,132.

In fact, it is the complications of diabetes that make the disease so economically devastating. For newly diagnosed patients without complications, overall costs are more than 50 percent lower than for the average patient with diabetes, according to the Pharmerit researchers, who published their findings in the March 2006 issue of the Journal of Managed Care Pharmacy in an article titled "Economic Impact of Antidiabetic Medications and Glycemic Control on Managed Care Organizations: A Review of the Literature."

Inpatient, outpatient

"Within managed care, the top expenditure category for the broad diabetes population is typically inpatient care. For patients newly diagnosed with no complications, top expenditure categories are pharmacy and outpatient services," state the authors. For a patient with no complications and diet-controlled diabetes, the cost is $1,987 for male patients and $2,608 for female patients.

The authors conclude: "The literature to date suggests that improving glycemic control and antidiabetic medication persistence reduce overall medical costs for patients with diabetes in managed care plans." And the ADA reports that a sustained reduction in A1C levels (a decrease of more than or equal to 1 percent) among adult diabetic patients is also associated with significant health care savings, amounting to $685 to $950 per person per year, within one to two years of improvement.

A Conversation with Al Lewis: 'There's Now a Correct Method For Defining ROI in Disease Management'

MANAGED CARE September 2005. ©MediMedia USA

The godfather of disease management talks about how the industry went wrong, and is now going right, in describing its own value

To the degree that one person can be credited or blamed for the very existence of a $1.1-billion segment of American health care, Al Lewis is that person when it comes to disease management. If you doubt that, just ask him. Blunt, funny, and supremely confident of his knowledge of the field, Lewis founded and is a past president of the Disease Management Association of America, and now heads the Disease Management Purchasing Consortium International. DMPC is a consultant and broker with 89 members that include health plans, private and public employers covering 80 million lives, the Congressional Budget Office, and leading accreditation groups.

With a potentially huge boost from the Medicare Modernization Act, disease management could be on the verge of a boom, Lewis argues, but only if it overcomes a major obstacle: Nobody believes its numbers. Many employers won't contract with DM companies because they doubt vendors' claims about how much money their programs save. Lewis says these doubts are legitimate, and traces the problem of inflated savings to a flawed methodology — and to the likelihood (he contends) that some DM vendors are "so stupid they don't know how stupid they are."

He also says that he and two colleagues have solved the problem in a recently published white paper. On DMPC's Web site, Lewis indicates that he'll accommodate those who think he should give that document away — as long as they themselves work for free or are card-carrying members of the Communist Party. Others can pay.

Lewis holds undergraduate and law degrees from Harvard University, and is a visiting scholar at Brandeis University's Heller School for Social Policy. He spoke recently with Senior Contributing Editor Patrick Mullen.

MANAGED CARE: What's wrong with how disease management companies calculate return on investment?

AL LEWIS: I used to pooh-pooh skepticism about ROI in disease management as being a result of people not knowing what they were talking about. It turns out they were right, though they didn't know why. The old industry standard that everybody used — myself included — has a fatal flaw. I would claim to have invented the old methodology, but since we figured out that it was wrong, I went from pride of authorship to admission of authorship.

MC: To be followed by denial of authorship?

LEWIS: Right, though I'm not quite at that point. Here's the problem: A huge percentage of employers who don't do disease management don't do it because they don't believe the numbers. Most of the numbers they don't believe are indeed wrong, especially if the vendor is not on the DMPC-recommended list. Employers are right to be dubious of vendors that claim an ROI of four to one.

MC: Can you give an example of a DM vendor's dubious claim?

LEWIS: Yesterday, somebody sent me ROI numbers that her company's DM vendor — apparently a friend of her company's president — had given her. She knew the numbers were wrong, but she's not a financial person, so she doubted management would take her word for it. She asked me for some ammunition to bolster her argument. Within five minutes, it was clear to me that this vendor had no clue whatsoever what it was doing. One obvious reason was that it said it was saving more money on asthma than its client was spending on asthma. It was disguised and I had to do a couple of calculations to determine that, but there it was. Asthma is the canary in the coal mine with disease management. I can tell in a nutshell whether a DM company is doing the whole thing wrong by whether asthma savings exceed asthma spending. It's an easy mistake to make, because the tendency is to measure a patient's entire claims rather than just asthma claims. If an asthma patient's total claims drop by 20 percent, some DM vendor will say they've produced a 20-percent saving on asthma. The problem is that average asthmatics spend only about 15 percent of their claims on asthma. For this company's numbers to work, asthma patients would have to have been spending about 80 percent of total claims on asthma, which simply doesn't happen.

MC: They took credit for lower claims that had nothing to do with asthma.

LEWIS: Exactly. The vendor had no idea why its numbers were wrong. They were too stupid to realize how stupid they were. That's probably true of 50 small vendors.

MC: Are you describing a two-tier market, with some vendors trying to provide accurate numbers and others more interested in making a quick buck?

LEWIS: It's a three-tier industry. A group of established players does disease management right. A second group of established players does it right under duress when somebody makes them. A very large third group of small companies has absolutely no clue what they're doing. They think they're right, but they're not, and nobody calls them on it because benefits consultants who dabble in this stuff don't have a clue either.

For all I know, these small companies do save their clients a little money, but their reporting is so bad that there's no way to know for sure, which calls their entire performance into question.

MC: What distinguishes one first-tier DM vendor from another? Are there wide strategic differences or is success defined by how well they execute similar strategies?

LEWIS: There are differences in the models, but it's hard to say one model saves more money than any other. It's reasonably easy to say that certain vendors measure their savings more accurately than other vendors.

MC: And the third-tier companies give the entire DM segment a bad name.

LEWIS: Right. A lot of employers are on the sidelines for this reason. I was among the first to figure out what's been wrong with the methodology, but I don't have a monopoly on IQ. A few actuaries at the big actuarial firms know what they're doing, not many, but enough that they can spread the word.

MC: What's the fatal flaw in how disease management companies have calculated ROI?

LEWIS: The fatal flaw is caused by the fact that not all patients with a disease will file a claim during the initial measurement period. This creates a situation where the entire diseased population is not counted in the baseline measurement. As a result, estimated savings for some chronic diseases — asthma and coronary artery disease in particular — will always be overstated. As improvement is measured from an artificially underrepresented baseline, plans will overstate program improvement and report an inflated ROI.

MC: How does your solution fix this measurement flaw?

LEWIS: Ariel Linden, a biostatistician, Ian Duncan, who's an actuary, and I put out a white paper that basically creates the new industry standard for measuring savings from disease management. We now have a proof that fixes this fallacy, which means we have valid measurements of costs pre- and post-disease management. There's now a correct answer for defining ROI in disease management. It can be refined a bit, but the magnitude of what we don't know is likely to be small enough that I'm quite comfortable saying that there is indeed a correct answer.

MC: What's at the heart of the new methodology?

LEWIS: The key to the measurement is that anybody that you find with a disease in any period has to be considered to have the disease in all periods. Let me give you an example. Say you had two asthmatics in your plan. One had a $1,000 claim in 2003 and nothing in 2004. The other one had no claim in 2003 and a $1,000 claim in 2004. Using the industry standard methodology, if you look at claims for 2003, you conclude that your average asthmatic costs $1,000 in that year. You had a prevalence of one and it costs $1,000. In 2004, the vendor finds that prevalence went from one to two, and would claim that the cost-per-asthmatic fell to $500, even after spending $1,000 on one patient in 2004.

MC: Why is the new methodology important?

LEWIS: It puts the whole issue of validity to bed through standards. I'll tell your readers with certainty that if this is the first you're reading about it, then you are not using it. It will be commonplace within one or two years because essentially as soon as people read this article, they'll realize that they're doing it wrong and will change it. So far, only about 15 health plans and employers use this correct answer. Georgia and Wyoming's Medicaid programs use it, and their results are publicly available. Health Industry Research Companies (HIRC), a market research concern in Santa Cruz, Calif., nominates and identifies the best health plans, employers, and states in disease management every year, about 30 in total. I was pleased to see that every health plan and employer that is measuring correctly is on that list. We'll see a big trend away from invalid methodologies.

MC: The concept of disease management is about ten years old. Over that decade, has disease management evolved away from, or more fully realized, its original mission?

LEWIS: It's more fully realized its mission. The definition DMAA put out ten years ago is still pretty good. It could be tweaked, but the mission, charter, and strategy are the same. The tactics and the scope of the industry have increased quite a bit. The industry used to focus on only three or four diseases. While it remains true that the vast majority of savings comes from three or four diseases, there are many other diseases where disease management can improve people's health and keep them at work longer. Employers are willing to pay for that.

MC: How fast is disease management growing?

LEWIS: Industry growth was well ahead of expectations in 2004. HIRC is projecting a fifty-percent growth rate over the next three years. I have a feeling that will turn out to be conservative.

MC: The Medicare Modernization Act includes several disease-management demonstration projects. If they go well, what is the potential effect on the DM business?

LEWIS: If it works, disease management could become a $10 billion industry and be as much a part of the landscape as primary care. The beauty of it is that the measurement that CMS is using is as good as you can expect a real-world measurement methodology to be — and they're not a client of mine, as much as I wish they were. So if they say they've saved money at the end of those demonstrations, they've saved money. It cannot be argued. Likewise, if it turns out they haven't saved money, there's very little ground for challenging the methodology.

MC: Do you expect the demonstration projects to succeed?

LEWIS: My concern is that a lot of vendors that contract with Medicare won't meet CMS's goal of five percent net savings, because the vendors will still be using an incorrect methodology. That's the bad news that might put some vendors behind the eightball. But I predict that the good news will turn out to be that even if the five-percent threshold isn't reached, there will be savings in excess of cost, so it will make sense to expand the program. Another trend we're starting to see with the Medicare population is a move toward better medical management of the frail elderly in nursing homes. These folks are in constant potential crash mode. They end up in the emergency room or other acute care setting, which is debilitating to the patient and expensive. Having a doctor walk through and take a quick look at a napping nursing-home resident won't cut it. Doctors and nurse practitioners need to get into these facilities far more often.

MC: How did CMS arrive at the five-percent figure?

LEWIS: A lot of the CMS methodology, for better for worse, is traceable to stuff I had been doing for years. I invented guaranteed savings by accident while working for a consulting firm that was working for Humana, where disease management originated. The consulting firm's fees for Humana had a strong component of guaranteed savings. For the consulting firm to get its money, when we invented disease management, we passed the same model on to DM vendors. That way, we could include their savings in our savings. Guaranteed savings became part of the landscape because it made it much easier for health plan CFOs who were skeptical of disease management to accept it.

MC: What do you see happening with DM as part of Medicaid?

LEWIS: I do a ton of Medicaid consulting work, and the huge mistake that gets made in Medicaid health plans is the failure to distinguish between TANF population — Temporary Assistance for Needy Families — and the disabled population. They're two very different populations that should get very different approaches to disease management. Yet in many cases, plans just think one size fits all. Sight unseen, I can tell any health plan executive that however much he spends on disease management for TANF, he's overspending, and however much he spends for disabled, he's underspending. The reason is that the TANF population has a low disease burden, very high turnover, and is not easily trackable. The disabled population has a high disease burden, is easily trackable, is underserved, and has low turnover. It takes me half an hour to explain this to people, but when I look at programs put in place by non-DMPC members, it's quite common not to distinguish between those two populations.

MC: In this magazine six years ago, you cited consolidation as a coming trend in DM. Any thoughts on what's stalled that trend?

LEWIS: I always think the industry's about to consolidate and it never does. So I'm not only going to deny that I ever made that statement, I'm going to deny that you and I ever had this conversation.

MC: Fair enough. Talk a little bit about DMPC's certification program.

LEWIS: It the only objective assessment of whether a DM company correctly measures what it does. More than forty companies have applied for certification; thirteen or fourteen have received certification to date. Our certification differs from what the accreditation agencies do because they don't look at the integrity of the financial reconciliation. I've received about 100 inquiries from employers looking for health plans that have been certified.

MC: What separates a certified DM program from others?

LEWIS: When a program is certified, their ROI is pretty darn close to what they say it is. There might be five programs in the country that could be certified right now for their ROI, but for whatever reason, haven't asked. There are probably a hundred or two hundred that could not get certified if they asked.

MC: Odds are they won't ask.

LEWIS: I get calls from people who know they're not up to standard but want to apply to figure out how to get there. We don't decline applicants. You just keep getting deferred until you get it right. I don't keep a list of who's flunked or anything like that.

MC: Do you expect that 10 years from now, disease management will still be around as a distinct market segment, or will its functions be absorbed into health plans or whoever is providing health services?

LEWIS: I don't know what's going to happen in ten years. For the next three years, DM programs are not going to get done by health plans. The trend now is toward outsourcing for the simple reason that benefits consultants and employers want name-brand programs. Smaller employers want their health plans to provide DM services. Health plans have a chance to keep small employers from looking elsewhere for those services. Plans can either get disintermediated or be the intermediary. They want to be in the mix, and here's their chance. If they blow it, they basically just become claims payers.

MC: Thank you.

The interviewer, Patrick Mullen, is a former managing editor and editor of Managed Care.

Don’t Forget Productivity Gains When Rating Health Programs

MANAGED CARE April 2005. ©MediMedia USA

Disease management conference focuses on outcomes measures that address issues such as presenteeism that concern most health care purchasers

MargaretAnn Cross

The timing couldn’t have been better when David R. Groves, PhD, vice president for corporate health management at Comerica, the large banking concern, received the findings of a study on the company’s employee health coaching program early last month. He had been preparing a talk for a disease management conference on outcomes, so he tacked the numbers onto the end of the presentation and knew they’d have an impact (see table below).

Comerica banks on savings
By considering indirect costs such as presenteeism, Comerica showed significant results from a disease management program in 2004. The company saves more than $2 for every $1 it spends on the disease management program that includes personal health coaching.
Disease Savings per participant Total savings
Asthma $1,009 $82,699
Coronary artery disease $9,718 $437,332
Chronic obstructive pulmonary disease $2,294 $105,542
Diabetes $1,143 $175,979
Heart failure $6,853 $54,822
Peptic ulcer disease $1,173 $22,599
Source: Comerica Inc. Figures annual, 2004 compared with 2003

In 2004, Comerica reduced medical costs and improved productivity through a telephone counseling program designed to help chronically ill employees manage their conditions. The company reduced its annual asthma costs, for example, by 40 percent — saving $1,009 per employee in the asthma program, for a total of $82,699.

The asthma savings includes a 50 percent reduction in hospitalizations, a 16 percent decrease in physician and clinic visits, and a 64 percent decrease in emergency room visits. It also includes a 43 percent reduction in indirect costs such as presenteeism (having an employee not working to full capacity because of illness) and paying temporary workers to cover for sick employees.

Return of 200 percent

Measuring indirect costs helps Comerica demonstrate that it saves at least $2 for every $1 it spends on its health-coaching program, Groves says. And that was particularly relevant to the conference that Groves had been preparing for. "The goal of the conference was to drill down, look at successful programs, and ask, ‘How can we design disease management programs that we know are going to benefit employers with good functional outcomes?’"

Initiated by the Institute for Health and Productivity Management, the March conference was designed by and for employers, says Sean Sullivan, president and CEO of the institute, a Scottsdale, Ariz.-based not-for-profit organization that works with employers on workplace performance issues. "Employers pay the bills; they should drive the system. Employers are finally beginning to take charge in disease management, and they are telling health plans and other vendors what they really want."

What they want is broader proof of the value of disease management programs, he says. Health plans tend to present savings only in terms of medical costs, Sullivan points out. "You will not hear the providers of disease management programs talking about workplace impact and productivity, but that is what employers really need to base their decisions on."

Not now, but soon

Return-on-investment analyses of medical savings are debatable, Sullivan adds. Late last year, the Congressional Budget Office issued a report stating that the evidence on disease management has not yet demonstrated clear health care savings. The Institute for Health and Productivity Management agreed that the business case for disease management has not yet been made. "But we are convinced that the business case will be there once you start calculating the impact of disease management on productivity in the workplace," Sullivan says.

Lockheed Martin Aeronautics has been striving to educate employees about managing their chronic illnesses since 1991 and has made strides with diabetics in particular, says Pamella Thomas, MD, director of wellness and health promotion. "Quite a few of our employees have been able to manage their condition through diet and activity — and have been able to stop taking medication. Their attendance at work has improved, so overall, it’s making a big difference in terms of their health and productivity."

Until recently, companies relied on anecdotal evidence or "a good feeling" to know that disease management programs were improving productivity, says Thomas. Today, a number of tools have been developed to calculate indirect savings, she says. "Now we can actually measure things like presenteeism and other indices that show us the difference we’re making."

Thomas and others who gave presentations and attended the conference — 320 in all — presented an impressive range of thoughts and ideas, says Jack Mahoney, MD, corporate medical director of Pitney Bowes and co-chair of the event.

One of the key statements made during the conference, he says, came from Catherine Baase, MD, global director of health services at Dow Chemical. "She said that this is a learning process and that we are all learning together to develop these programs. Employers are searching for the right way to implement disease management services in a continuum from wellness to chronic disease management."

Cost shifting in reverse

A major theme that emerged was the need to break through the silo mentality of addressing disease management, benefit design, and medical and pharmacy costs separately, Mahoney adds. That resonated with him. Last year, Pitney Bowes released results of a study in which the company was able to reduce the overall costs of treating diabetics by 6 percent and asthmatics by 15 percent by reducing the copayments.

"We increased our pharmacy costs, but reduced the total cost of care. We looked at the whole thing together," he says.

"Most employers are at the stage where the days of managing cost through cost sharing are over," Mahoney says. "We need to manage total cost. We are getting to the point where instead of managing health care, we want to manage health."

To keep the needs of employers in the forefront after the conference, the Institute for Health and Productivity Management has launched the Disease Management Strategic Advisory Council. Its role will be to serve as an ongoing vehicle for work in this area, setting an agenda and perhaps generating pilot projects that will help make the business case for disease management, Sullivan says.

"This was not just a conference; it was the beginning of an effort to really redefine, focus, and deliver greater value from the whole disease management enterprise."

Employers involved in the council, which has close to 60 members, will meet this month, and a larger meeting with members from the disease management industry will be held in the spring, Sullivan says. "We’d like the council to keep people focused on the employer as the customer, on these larger workplace outcomes as the objective, and on valid, comparable methodologies as the way of proving the case."

MargaretAnn Cross, a Managed Care contributing editor, covers purchaser and other issues from her home in Michigan.

DM Standards Off and Crawling

MANAGED CARE February 2004. ©MediMedia USA

When American Healthways posted a collaborative methodology on its Web site, not everyone in the industry applauded.

John Carroll

Contributing Editor

One year ago, Victor Villagra had good reason to believe the disease management industry was on the threshold of embracing a standard method for evaluating just how well DM programs work.

Villagra, the former president of the Disease Management Association of America (DMAA), had responded to an invitation to join 150 doctors and other health care professionals in Nashville to inspect the "Standard Outcomes Metrics and Evaluation Methodology for Disease Management Programs" assembled by a group of researchers at the prestigious Johns Hopkins University in collaboration with American Healthways.

With some input from attendees, the results were publicly posted on the American Healthways Web site and all were invited to hear Villagra, now president of Health & Technology Vector Inc., give this outspoken blessing: "This document will become an invaluable reference for private and public payers, consultants and disease management organizations seeking both methodological rigor and real-world practicality."

Sense of urgency

Adding to the urgency of the metrics summit was a deep-seated belief (subsequently justified by Medicare reform) of many of the attendees that if DM companies weren't able to seize the high ground on methodology, an inquisitive Medicare agency that had already begun to probe the workings of disease management would wind up doing the job for them — which could present a host of unexpected challenges.

A year later, though, DM vendors around the country remain deeply skeptical of the jointly developed standard and even less likely to identify themselves with an industry standard than in the months leading up to that meeting in Desert Springs, Calif., where Villagra made his hopeful statement.

The one point everyone now seems ready to agree on is that the American Healthways' meeting marked an important milestone along a still unmapped journey to industry standardization. Who will lead the way forward, and what direction they will take, remain to be seen.

"I'm not sure that the industry is at a point in its development in which it can adopt a single standard for how to measure outcomes — largely because we are only now at a point where we have multiyear outcomes on the same populations that we can study and report on," says Christobel Selecky, CEO of LifeMasters Supported Care and the president-elect of the Disease Management Association of America. "There is so much learning going on that it may be premature to adopt one single standard. In addition, we have customers who have their own ideas about how they want to measure standards."

Not on radar screens

Ken Mays, an analyst for Mathematica Policy Research, recently completed an exhaustive survey of DM practices around the country.

"For now, at least, large employers don't have it on their radar screens," says Mays. "From my perspective, we did not get any evidence that employers are aware of this activity. My sense is it's probably too new to have penetrated very deeply."

If a sampling of opinions from around the DM industry is any indication, American Healthways is unlikely to gain much immediate help in promoting the effort. At best, DM officials in a broad range of positions give American Healthways a pat on the back for taking on the exercise, and then start to illustrate either where the methodology goes wrong or tout their own alternatives — or both.

Some who never received an invitation to the California conclave are also in no mood to lend it unequivocal support.

"People were upset that they didn't include us and the rest of the industry," says Derek Newell, vice president for outcomes at LifeMasters. "We would have liked a more collaborative process."

The Hopkins methodology draws its sharpest criticism from those who say that it is still far too inexact in its pre/post approach to measuring outcomes. Without randomized, controlled trials — the gold standard for authenticating any health care product — there can be no undisputed evidence that a DM program works.

And in an imperfect world, many of the biggest DM players in the country are willing to settle for alternative methods that crudely demonstrate or imply bottom-line effectiveness. Also, DM companies still pursue radically different strategies for handling the chronically ill. The American Healthways method of evaluating entire populations may fit in with its own widely touted approach, but it is particularly controversial for outfits that specialize in working with specific disease groups.

"It gives us a starting place," offers Newell, "which I don't think we had before."

And Villagra, for one, thinks that that is a good sign for the future of a methodology that he remains as firmly committed to now as the day it was posted.

"As the industry matures," says Villagra, "my hope is that it sees the benefits of huddling around this document as a starting point, as the best and most explicit and most real-world-friendly method that is available anywhere. If that happens, then I think the methodology will stick."

Not to be outdone, the Disease Management Association of America (DMAA) has also issued a white paper on evaluating methods in disease management (see "The DMAA's Own Approach").

Converting the skeptical

It all started two years ago when Bob Stone, the executive vice president of American Healthways and 2003 president of the Disease Management Association of America, launched an ambitious effort to rally the DM industry around the flag of standardization.

American Healthways, as a major player, has "a responsibility to be constantly raising the bar and increasing the credibility of the entire industry," says Stone. "The skepticism around disease management outcomes is very real. It ranges from health plans to stories in the New York Times and Wall Street Journal. The Congressional Budget Office is skeptical.

"That skepticism is warranted and exists because disease management is a nice-sounding homogeneous term, but disease management is not homogeneous. There are different methods of delivery, different outcomes methodologies. From our perspective, there's no way the industry could address that skepticism without a uniform methodology."

The answer, Stone felt, could be provided by the Hopkins methodology. And, he adds, American Healthways has found support outside the ranks of its own company hierarchy.

"I think we are making progress," adds Stone. "I think we would have been naïve to assume that every disease management provider would immediately leap on a methodology that was not its own. You have to be able to crawl before you walk. Or run. It's better to have something than nothing. Now we have something. The most important aspect of the methodology is that it sets out a framework for the base period population, which is identified and tracked and measured in exactly the same way as the intervention period population. So there is no ability when you follow this methodology to inappropriately shift costs to make the results look better, no ability to subset the population, focusing only on a high-risk subset."

The lukewarm reception from the industry, he says, comes from the fact that the Hopkins methodology has the American Healthways name on it, and from the likelihood that there are "companies that if they use the methodology would not have reportable positive results and therefore didn't want to adopt it themselves."

Villagra thinks that there is more acceptance of the standard than most DM companies are willing to make public.

"I think there may be some reluctance on the part of some disease management companies to acknowledge this particular methodology as a standard," he says. "But I have been told that many people working in the field feel that the contents of the document are superb."

Health plans take notice

Signs of support: The National Business Coalition on Health has endorsed it, says Stone. The Disease Management Journal has published a document on Hopkins. And, he adds, "a number of health plans are at least making reference to this methodology. The methodology has been shared with the Centers for Medicare and Medicaid Services, but it remains to be seen to what extent it will find its way into requests for proposals coming out of the federal government."

Stone may never find many others in the industry cheering for the leadership of American Healthways in this matter, but he does gain approval for taking a very public step by posting the methodology on the company's Web site.

"To say this is a standard suggests that everything you need to know is known," says Barry Zajac, vice president for clinical informatics at Airlogix. And without some testing "in the real world," he adds, "that just can't be proven."

"It's a really good effort," offers Selecky as she cautiously weighs in, "but...."

For starters, she says, there are several issues that need to be taken into account when you do a pre-post evaluation, not the least of which are things like yearly changes in the mix of the population, changes in the physician network, changes in payments to providers, and the introduction of new medical technologies and treatments.

"It's a valid way of doing it," she continues, "but what we have seen is that there are several valid ways of doing it."

One of the most frequently leveled charges against pre/post is that any before-and-after comparison in DM suffers from a regression to the mean. Sick people have a habit of either getting better or dying, which gives DM programs a statistical advantage by showing a return on investment that isn't earned.

"Frankly, I think that the Hopkins methodology does recognize the regression-to-the-mean issue," says Selecky.

Anyone insisting on a rigidly exacting methodology demands a randomized control methodology over a long period.

"Until we do randomized, controlled trials," says Gordon Norman, MD, PacifiCare's vice president for disease management, "it won't be perfect."

The problem, of course, is that randomized, controlled trials take time and money, something a lot of customers don't feel they have nearly enough of. "But you also can't let the perfect be the enemy of the good," insists Norman. "If you have good data that indicates significant improvements, the best way forward now is to get quality DM programs in place and help the chronically ill and let scientifically tested industry standards take shape over time."

Too good to be true?

A threat to everyone, he adds, are programs that wildly overstate the returns they can deliver.

And that's why Stone got started.

Stone cited one DM company that was clearly stacking the deck in its favor. "All the cost of hospitalization went into the base period. And then patients were tracked individually." Stone calls that "gaming the system" — artificially inflating costs for chronically ill patients by including high-cost hospitalizations, and making the comparison costs of those in the program fraudulently low.

Often the numbers don't add up. Just listen to Al Lewis, says Stone. Lewis, the head of the Disease Management Purchasing Consortium, is always warning purchasers against companies that offer returns that are simply too good to be true.

Stone is less likely, though, to share Lewis's thoughts about the Hopkins methodology.

"The enemy of innovation"

Early on, says Lewis, he and Healthways shared many of the same notions on tracking outcomes.

"We both thought that these were the most valid ways of measuring outcomes," he says. "The consortium and Healthways were the first to have the outcomes measured validly."

But Hopkins, says Lewis, just doesn't measure up. Using data sets from two vendors that follow the Hopkins methodology results in "producing outcomes that don't pass the test of possibilities."

In one case the outcome was impossible and in another case the outcome showed a dramatic reduction in cardiac-related cases, whereas the incidence rates actually went up.

"I give Hopkins a huge A for effort here," says Lewis, "but this is an evolving science. Standards are the enemy of innovation. Standards imply that there is a gold standard. Anytime you're in an evolving industry, it's probably not a good idea to bet on any one standard. That's why we use two methodologies in the consortium's RFPs."

But Lewis isn't willing to reveal just what those standards are. "If a whole coalition of people got together, I would put mine out there," he explains, "but right now it's a benefit of membership in the Disease Management Purchasing Consortium."

By advising a large number of buyers on how to contract for DM, Lewis has considerable influence over standards. "If he suggests the methodology is a good idea, it'll show up in RFPs as a requirement," says Zajac.

Stone's response: Lewis can join him in the public spotlight any time he likes.

"I think the difference in perspective between the importance we see for this industry and what the consortium sees is reflected in the fact that we made ours public and he's chosen not to," says Stone. "One of the things that is in these documents is a form for interested parties to provide feedback. I'd be delighted to have feedback to look at, for inclusion in the next version. We meet with Hopkins all the time and when we have enough input or enough perspective to make changes warranted, we convene a steering committee."

As of now, though, there are no immediate plans to convene a new standardization conference — with Lewis or without him.

Accepted principles

Like many in the business, Pacificare's Norman gives the Hopkins methodology high marks for relying on a set of general principles that are widely accepted in DM. "The general principles are probably indisputable," he says. "I think the methodology codified what the people who were doing the best work were already doing."

But there are also plenty of reasons why he wouldn't include the Hopkins methodology in one of Pacificare's RFPs without modifications.

In particular, Norman takes exception to Hopkins's reliance on applying a program to an entire population rather than narrowing it down to simply high-risk members.

Take that principle and apply it to all patients with diabetes, says Norman. "It makes sense from a societal point of view," he says, "but it doesn't necessarily make sense from a business point of view, or a health plan that has 17 percent membership turnover."

Customer always right

Customers want Pacificare to lower cost and control premiums, adds Norman. "They're not necessarily asking us to raise costs now to reduce expenses 10 years off. That's a laudable thing to do. It's an interesting societal debate. But customers don't want us to raise costs for anything" — which is one big reason why managed care companies have been migrating in ever-increasing numbers to DM.

It would be great for a customer to come along and commit to a 10-year contract so Pacificare could do all the things that work in the long run, he adds. But he isn't holding his breath until one comes along, either.

"The crisis of health care today in every survey I see is health care costs," says Norman. "It's 1990 all over again." Businesses want short-term strategies to cut costs and give them some alternative to passing on a greater share of costs to their workers.

So when Norman willingly settles for cruder standards of measurement to judge the outcomes for clients, the critical need is being served: DM, applied properly, works to save money. Just look at CHF, he says, the subject of pioneering DM programs that have been studied repeatedly.

"If we've gotten to the point that doing CHF in a variety of settings and methodologies has returns of 3 to 1 to 5 to 1," says Norman, "is there a need for more compelling proof beyond that? My answer is frankly 'no.'" But on the other hand, "if these results can be replicated by conscientious people using an imperfect but adequate methodology for business purposes, then after a while, you have to believe that ROI is there."

The moral to the story, says Norman: "Keep it real."

But experts are quick to add that the day is coming when some sort of uniform methodology becomes standard operating procedure — whether DM companies like it or not. The industry can take a big hand in creating that methodology, or watch the government impose one.

"In fact, the Medicare reform bill that was signed into last year does establish randomized control as the method of evaluation — at least for the first phase," says Selecky. Still, the primary concern for now is about what customers want and patients need.

Further study needed?

Says Selecky: "I'm not going to go to a customer and ram a methodology down his throat. This doesn't mean that at some point down the road, we won't be able to migrate toward a common approach, but that's going to require a lot of further study and education of the market."

Says Norman: "I frankly don't know if it will be any easier 10 years from now. We can't achieve the level of pristine purity that the New England Journal of Medicine would like to see in a peer-reviewed article, nor can we wait to leverage DM until that happens."

But the important goal, he says, is "doing the right thing for the patient." For now, at least, all signs indicate that "doing the right thing" will remain the single most influential — if still hazy — industry standard in the DM business.

The DMAA's Own Approach

Eager to clear up the confusion associated with measuring disease management programs experienced by planners and managers, the Disease Management Association of America has issued new guidance in a paper titled Evaluation Methods in Disease Management: Determining Program Effectiveness. The paper's overall theme is caution, however, as no matter which design planners choose, careful attention needs to be paid to the identification and control of potential biases that may invalidate the results.

Key biases to watch out for include selection bias, regression to the mean, and measurement error.

The paper suggests three methods of evaluation that can measure clinical and financial effects of a DM program while keeping away from statistical biases. The methods are: total population approach, survival analysis, and time series analysis.

Total population approach. This is the most widely used model used in evaluations and consists of a pre-test/post-test that addresses the clinical and financial performance of a DM program administered during a given time period, usually one year. Clinical and financial performance are measured during a comparable baseline period during which no DM program intervention occurred. Although most widely used, this method is a weak research and evaluation technique. The most basic limitation is that there is no control group to compare outcomes with.

Survival time analysis. A better approach than the total population design, this method takes into account the effect of enrollment and withdrawal patterns during the program's implementation.

Time series analysis. This approach controls for the effect of many biases, provides a timeline for changes in outcome patterns, and is more suitable for evaluating changes at the population level, which is what DM programs are intended to do.

The paper also addresses the concern that using cost as the outcome measure for the evaluation is inappropriate. Using cost as an outcome variable can expose the results of the evaluation to measurement bias.

One way to avoid this bias is to determine if a pre-established target is met. Each percentage reduction in utilization is worth a given payment. For example, each percentage point decrease in hospitalizations may be worth X dollars in bonus to the DM vendor above a set fee limit. Conversely, an increase in hospitalizations may lead to reimbursement of fees to the health plan or some other payment penalty.

DM and Medicare: A Marriage Made in Heaven?

MANAGED CARE June 2002. ©MediMedia USA

With a budget of about $230 billion for 40 million patients, many with chronic ailments, is it any wonder that these two forces are courting?

John Carroll

Contributing Editor

The disease management industry has powerful friends inside Medicare. And these insiders are making disease management a leading player in the reform of this monolithic federal health agency.

Just ask Reuben J. King-Shaw Jr., deputy director and chief operating officer of the Centers for Medicare and Medicaid Services.

"My time in Medicare has made me see how far behind Medicare is on this issue," says King-Shaw. "The field is so fertile and the potential opportunities so great. The intensity of my commitment has risen a few notches, because we are so far behind."

If King-Shaw has his way, the agency won't play catch up for long. Medicare has embraced a new round of trial disease management demonstration projects. And as the agency harvests the results, says King-Shaw, he expects to see the numbers back up his belief that DM's approach to chronic illness will deliver better outcomes at better prices.

Adds King-Shaw: "I don't want to commit to a time frame, but sometime over the next two to five years you'll see the most successful programs graduating into mainstream initiatives."

Mother lode of patients

King-Shaw took the same message to Congress April 16, to the House Ways and Means Committee's Subcommittee on Health. "The almost complete absence of disease management services in the traditional Medicare plan is another striking indication of how outdated Medicare's benefit package has become," he declared.

It's hard to underestimate how big an opportunity modernizing Medicare offers the fledgling DM industry. CMS as a whole, which includes Medicare, Medicaid, and federal children's health programs, will spend $360 billion on health services this year. And Medicare's population, suffering from large concentrations of chronic illnesses, offers DM companies a mother lode of target groups.

Some 100 million Americans have a chronic illness, says the National Chronic Care Consortium. That number is expected to hit 157 million by 2020 — and most will be cared for under Medicare.

"It's the Holy Grail," sums up Al Lewis, who heads up the Disease Management Purchasing Consortium.

Cancer rates help illustrate the market potential. For private commercial clients, says Edmund Bujalski, CEO of LifeMetrix, you can expect to see the cancer rate average about 0.7 percent to 1 percent. With the aged population of Medicare patients, the rate is likely to be 10 times as high.

"Medicare has the potential to expand the market for cancer services dramatically," says Bujalski. Today, in the commercial market, it may add up to $400 million to $500 million. Add Medicare, says Bujalksi, it shoots up to $4 billion to $5 billion.

This month, Mike Cox, president and CEO of QMed, will begin his own Medicare crusade with a four-year demonstration project in coronary artery disease management in Northern California. About 2,000 participants will be identified and divided into two groups — one left unsupervised (the control group) and another to be managed by QMed.

Cox has no doubt about what's at stake here. Cardiovascular disease eats up about 30 percent of Medicare's budget. "It's a huge number," says Cox. "If you were to make a 10-percent positive change, that's several cruise missiles." But this isn't just about budgets, adds Cox. "Not only does the cost go down, but if the health status changes as well, then the citizens benefit."

Other demonstration programs include:

A high-risk congestive heart failure (CHF) program in Texas and Indiana that will be handled by CorSolutions Medical. The program includes home assessment, patient education, and physician reports.

Health Quality Partners is designing an urban and rural program that will provide education and coordinated services for a variety of chronic ailments.

And Quality Oncology, a subsidiary of LifeMetrix, is identifying cancer patients in Broward County, Fla., for a program coordinating care between a medical director and the patient's physician.

Incentives offered

More DM demonstration plans are being created for Medicare+Choice programs, with plan participants eligible for increased drug benefits. Participating health plans could earn a bonus for meeting quality goals for patients suffering from CHF.

Under a mandate from the Benefits Improvement and Protection Act of 2000, Medicare is also planning to create a new demonstration project that marries DM programs with outpatient prescription drugs for advanced-stage CHF, diabetes, and coronary heart disease. DM companies will earn a premium for coordinating care and be reimbursed for the cost of medications.

But there is a catch. Any DM company participating in the program has to offer the government a defined set of savings, and post a bond to guarantee performance.

Medicare isn't a complete novice in the field of disease management. In 1993, Congress called on health plans to demonstrate their ability to manage chronically ill kidney patients. As a result, Peter Crooks, MD, director of the Southern California Kaiser Permanente Renal Program, took on a population of Medicare patients suffering from end-stage kidney failure.

"The project was to really show that in a managed care setting, patients could have outcomes that were equal to, or better than, those in fee-for-service," says Crooks.

Kaiser Permanente was paid a capitated rate, with each of the 1,056 enrollees fitting into one of 11 payment "buckets," defined by a list of factors including age and the presence of diabetes. Independent evaluators at the University of Michigan were fed the numbers to crunch over the course of the three-year project.

Those numbers are all in now but not reported. That will come after Medicare signs off on the report to Congress by the end of this year, says Crooks, with peer-reviewed articles to follow.

"It wasn't a financial windfall," says Crooks. "But we were able to provide what the patients needed." Mortality rates were reduced, says Crooks, and patient satisfaction was high.

"We've now taken this successful model of care to the marketplace as Optimal Renal Care," he adds.

DM vs. bureaucracy

DM companies looking to get involved with Medicare patients for the first time may be in for some surprises.

"They tend to need a lot more," says Bujalski. In his Medicare program, a patient will be assigned a care manager, typically a trained oncology nurse who is available at any hour of the day or night and who will help coordinate treatments with primary physicians.

"Medicare patients are more apt to pick up the phone and just chat," says Bujalski. "Oftentimes, the decision maker may be a loved one. That adds more interactions."

But if patients may be more demanding, the client could prove even more frustrating.

Cox was cleared for his demonstration project a year ago, but QMed had to stay on hold until payment arrangements were finally OK'd. Says Cox: "It's the typical bureaucratic standard — which is time."

For all the bold talk among Medicare leaders, disease management companies expect to spend a lot of time sorting out the details of federal contracts.

"The top folks in Medicare, like King-Shaw and [CMS Administrator Tom] Scully and [Special Assistant to the Administrator] David Kreiss, are very authoritative on disease management," says Lewis. "But it's the middle level folks who can be a source of great frustration."

As one of several examples, says Lewis: "Some midlevel bureaucrat defines DM as prepaid health plans, because they put their fees at risk. It's ludicrous to say that DM is a health plan. Absolutely ludicrous. I'm sure when it finally makes its way up the chain, the top folks — who are highly informed and supportive of this issue — will immediately countermand it. Demonstration projects take a long time just to fill out the application. Left to their own devices, top Medicare officials would do a better job procuring as many health plans. But right now, there are just too many people involved, too many lifetime civil servants that just love micromanaging health plans and vendors.

"Leadership has to fast-track this stuff, put out bids, forget about these little pieces," adds Lewis, careful to praise senior-level staffers while expressing his dissatisfaction with career bureaucrats.

But any suggestion that the entire Medicare staff in Washington, D.C., isn't 100-percent behind King-Shaw — and the president's plans to reform the agency — or that the entire Medicare organization isn't proceeding with responsible speed can expect to draw some heavy fire from Medicare's big guns.

"There are very serious and intense discussions about these programs," says King-Shaw sternly. "I would encourage people not to question our commitment at any level. These are serious business discussions, so we need to do this judiciously, with skill and hope."

Some industry observers say that even under the best of circumstances, it will take a lot of patience to crack the Medicare market. Vince Kuraitis, a disease management consultant with Better Health Technologies, expects Medicare could take years rather than months before it moves beyond King-Shaw's lead and adopts DM as a regular partner.

King-Shaw has been careful to note that more than just potential savings is involved here. A skeptical U.S. Rep. Pete Stark (D-California) used his time on the subcommittee last April to question whether DM could really cut costs. "In the aggregate, the costs to Medicare will be the same or lower," King-Shaw reportedly told the congressman. But he conceded that sometimes the cost could go up, especially in cases where medical services were being underutilized.

Disease management has already come a long way in just the past few years, says Crooks, and all the trends indicate that DM's time has come for Medicare.

"My personal opinion is that it's the only way that we're going to improve care for the elderly," says Crooks, "especially with the challenges of ever-increasing pharmacy costs and bringing technology to bear."

Diabetes Disease Management in a Community-Based Setting

MANAGED CARE June 2002. ©MediMedia USA

Gregory D. Berg, PhD

Senior Research Scientist, McKesson Corp.

Sandeep Wadhwa, MD, MBA

Vice President, Population Care Management, McKesson Corp., and Clinical Assistant Professor of Medicine, University of Colorado Health Sciences Center

ABSTRACT

Purpose. The medical cost of diabetes in the United States in 1997 was at least $98 billion. This study illustrates the behavioral change and medical-care utilization impact that occurs in a community-based setting of a diabetes disease-management program that is applied to program participants in a health insurance plan's health maintenance organization and preferred provider organization.

Design. A historical control comparison of diabetes-management participants.

Methodology. One hundred twenty-seven identified diabetes patients are followed from baseline through 1 year. Differences in behavior are compared at program intake and at a 6-month reassessment. Differences in medical-service utilization are compared in the baseline year and the year subsequent to program enrollment. Poisson multivariate-regression models are estimated for counts of inpatient, emergency department, physician evaluation and management, and facility visits, while also controlling for potential confounders.

Principal findings. Behaviors improved between program intake and the 6-month reassessment. From patient reports, the number of participants having a hemoglobin A1c test increased by 44.9 percent (p<.001), and there was a 53.2-percent decrease in symptoms of hyperglycemia (p=.002). From medical claims after program enrollment, a drop occurred during the program year in every dimension of medical-service utilization. Regression results show that inpatient admissions decreased by 391 (p<.001) per 1,000 for each group, while controlling for age, length of membership, and the number of comorbid claims for congestive heart failure. In the analysis of costs that were pre- and post-enrollment, which included disease-management program costs, a 4.34:1 return on investment was calculated.

Conclusion. The diabetes program provides patients with comprehensive information and counseling relative to practicing self-management of diabetes through a number of integrated program components. This study strongly suggests that the implementation of such a program is associated with positive behavioral change and, thus, with substantial reduction in medical-service utilization. In addition, the intervention resulted in a net decrease in direct medical costs.

Disease Management, Medicaid Mix Like Oil and Water in Florida

MANAGED CARE September 2001. ©MediMedia USA

Other states were looking to Florida to lead the way in Medicaid disease management, but now they may want to keep their distance.

John Carroll

Contributing Editor

Three years ago, state lawmakers in Florida fought growing Medicaid costs by backing disease management programs that promise savings and slashing their budgets in anticipation of a payback.

This year, they have upped the ante by $214 million, looking to a controversial new supplemental rebate law that forces drug makers to put up either extra cash or a "value-added" program to get their medications on the state's prized formulary. In the contentious environment of the state capitol in Tallahassee, the row over Medicaid is making some unusual — and distinctly uneasy — bedfellows in the debate about the future of disease management in Medicaid.

As lawmakers were debating the Medicaid law, Pfizer lobbied hard to get a provision that allows the drug giant to provide an innovative DM program and escape paying rebates while getting all of its drugs on the state list. Pact or no pact, though, the new law was quickly targeted in a federal lawsuit brought by Pharmaceutical Research and Manufacturers of America.

Meanwhile, some longstanding DM companies are warily eyeing the pharmaceutical giant's jump into Medicaid DM, afraid its success could generate new competition and a failure would tarnish an industry still working hard to gain acceptance.

Adding to the stress, the state's Agency for Health Care Administration (AHCA) has come under attack from legislative auditors accusing it of taking an ineffective and slow-motion approach to DM that has failed to generate promised savings.

Through all the turmoil runs one clear theme: The Florida legislature and Gov. Jeb Bush are absolutely determined to find creative ways to cut the state's multibillion-dollar Medicaid bill, and DM companies and drug makers alike are scrambling for their piece of a very large pie.

Meanwhile, other states are paying rapt attention to see what they can learn from the Sunshine State's problems, preparing to mimic whatever can help lower costs in their areas.

"There is heightened interest, especially in light of the recent Pfizer project," says Maresa Corder of her colleagues in other states. Corder is a consultant with the state AHCA who runs much of the day-to-day business of Florida's DM program.

The stakes are huge. With drug prices rising at a budget-busting, double-digit pace, states are finding their annual Medicaid bill soaring as a weak economy blunts tax revenue.

Control of drug prices is fiercely contested, and the drug industry has been quick to attack a host of new laws springing up from coast to coast that are aimed at forcing down prices and in at least one case — in Maine — threatening to place caps on costs.

Still, that hasn't stopped Pfizer from breaking ranks and coming up with its own creative solution to state control.

In the deal, Pfizer Health Solutions will hire 60 nurses to deliver a one-on-one DM program to about 50,000 Floridians suffering from four chronic illnesses: congestive heart failure, hypertension, diabetes, and asthma.

Pfizer is also providing a health-literacy program and contributing drugs to the program, and backing it all up with a guarantee of $33 million in savings. The program is being added to a pioneering set of DM contracts that the state signed with a variety of providers more than a year ago.

In return for the guarantee, Pfizer gets all 23 of its drugs on the new formulary. The quid pro quo guarantees that when a doctor wants to prescribe one of Pfizer's drugs — including some blockbusters like Lipitor and Zoloft — the Medicaid patients will get it. Drugs not on the formulary can only be prescribed if doctors get permission.

In early August, the Pharmaceutical Research and Manufacturers of America filed a federal lawsuit in Florida asking to trash the whole supplemental rebate statute.

"They violated federal law in the creation of their formulary," declares PhRMA's assistant general counsel, Jan Faiks. The formulary is being drawn up based solely on which manufacturers paid the rebate, says Faiks, not the quality or safety of the drug under consideration. Also, the only way a state can exclude a drug that's already on the federal formulary is by determining that it lacks a "significant, clinically meaningful therapeutic advantage."

Heading to court

As Managed Care was headed to press, Faiks was headed to court to ask a judge to issue a temporary injunction to freeze the state law and put the old formulary back in play.

Ironically, PhRMA's chairman this year is Hank McKinnell, the CEO of Pfizer and a chief architect of the deal with Florida. Nevertheless, Pfizer executives make clear their opposition to supplemental rebates.

"Pfizer is not in favor of supplemental rebates," says PHS Vice President Nancy Steele. With this collaboration, she contends, Pfizer provides access to its drugs while helping the state control Medicaid expenses.

Steele insists that even though Pfizer is being compensated for its DM efforts by having its drugs on the formulary, the company will go ahead with the plan as a test Medicaid project even if PhRMA successfully scuttles the new rebate/in-kind law.

Asked what she thought of the private negotiations, Faiks says the company cannot offer an opinion, as it could violate federal antitrust rules for a trade association to take a position on what an individual company chooses to do.

As for disease management programs, says Faiks, "We think they're smart." But, she adds, "That is a whole different deal."

Cheering her on in the suit to squash the rebate law and Pfizer's DM deal are executives at other DM companies already doing business with Florida.

"It's unconventional in anybody's book," says Christobel Selecky, the CEO of LifeMasters Supported SelfCare, which has a contract for CHF patients in northern Florida. "Pfizer has really never done this particular program before. I'm concerned that Florida has gone with an unproven program with such a large population."

It's a no-win situation for smaller DM outfits, says Warren Todd, executive director of the Disease Management Association of America. If Pfizer succeeds, mainstream DM companies face a deep-pockets rival. If it fails, all DM programs are likely to see their reputations tarnished by the results.

"They're all worried," says Todd.

Pfizer, for one, dismisses the fears. "I think we should all focus on delivering the best possible results and not worry about a brother or sister program," responds Steele.

Sharpe says no one will be able to judge just how effective Pfizer can be at cutting costs for about 15 months. Nevertheless, it's clear he wants to offer some hard results as soon as possible. Florida's aggressive DM Medicaid program already got one black eye from the state's Office of Program Policy Analysis and Government Accountability, which audits programs for the state legislature.

Thumbs down

In May, that office delivered a failing grade on every important factor that inspired the DM initiative back in 1997. By dividing the Medicaid population into a variety of programs targeting individual acute ailments, the auditors said, the program was made inefficient and inconsistent, unable to deal with comorbidities.

The initiative failed to improve public health, and did little to prove it could cut costs. AHCA was also held up as slow to develop the program, putting in place only five of the nine programs called for by the legislature in 1997 and 1998.

Just in anticipation of DM's ability to cut costs, the legislature went ahead several years ago and sliced Medicaid's budget by $66 million. That, says Sharpe, was a mistake.

"We in no way have achieved that level of savings," he says. "Some disease management organizations, we believe, are saving us funds, though not in the range of the budget reductions."

While the legislature was counting savings before the programs were even put in place, says Sharpe, it failed to recognize that there were administrative costs that had to be paid to the DM companies to get the programs up and running. If he had to do it over again, says Sharpe, he would prefer an invest-now, save-later approach.

Blame on both sides

Some of the DM companies would have liked to have seen AHCA move more quickly, too.

"AHCA took a long time" contracting, says Selecky. Because they were doing due diligence and trying to contract at the same time, negotiations stretched on for far longer than anyone thought. "It took LifeMasters almost a year from the time we were selected to getting a contract signed," she adds.

Earlier this year, another DM company, Coordinated Care Solutions, was handed a bill from AHCA for $7.5 million after state officials concluded that the contractor failed to deliver $15 million in guaranteed savings and was required to return its administrative fee.

The company fired back that by its analysis, it had exceeded its goal for diabetes patients and that the state was measuring its performance against an artificially low baseline. Both sides recently agreed to turn the dispute over to an independent mediator.

Chalk it up to growing pains for a fledgling program.

Formula for disappointment

Florida's DM Initiative started with some ambitious plans to save $112 million in four years. State officials say much of that has failed to materialize. Also, the state health agency has fallen behind schedule on implementing new DM programs.

Year Anticipated savings Plans
'97-'98 $4.2M Implement programs for asthma, diabetes, HIV/AIDS, hemophilia.
'98-'99 $24.7M Continue for four diseases.
'98-'99 $14.7M Expand program to include cancer, end-stage renal disease, CHF, hypertension, and sickle cell anemia
'99-'00 0 No new programs.
'00-'01 $23M Improve efficiency for nine diseases.
'00-'01 $46.1M Expand program to include population-based management and new diseases.

Meanwhile, the Florida legislature had so much confidence in disease management's cost-cutting ability, it sliced Medicaid's budget by $66 million. State health officials say that lawmakers failed to take into account the up-front administrative costs
involved in starting DM programs.

Advance payments
DM program FY '99-'00 FY '00-'01 Through February 2001
Diabetes $8.2 million $5.4 million $13.6 million
HIV/AIDS $2 million $3.1 million $5.1 million
Hemophilia $74,000 $54,900 $128,000
End-stage
renal disease
0 $3.4 million $3.4 million
CHF 0 $1.9 million $1.9 million
Totals $10.3 million $13.8 million $24.1 million
SOURCE: FLORIDA OFFICE OF PROGRAM POLICY ANALYSIS AND GOVERNMENT ACCOUNTABILITY

Health Plans Demand Proof That DM Saves Them Money

MANAGED CARE November 2000. ©2000 MediMedia USA

Can disease management vendors really show a strong return on a health plan's investment, or are the data just too malleable to be useful?

John Carroll

Contributing Editor

As the chief medical officer for Maryland-based Coventry Health Care, Bernard Mansheim, M.D., has had plenty of opportunity to look into the disease management companies that routinely drop by to peddle their services.

Their basic business plan is simple: Supervision of members suffering from common chronic illness will improve their health habits and reduce your emergency care, which can run into astronomical figures.

Using prenatal case management as an example, the intuitive justification for investing in the program is "if you prevent one premature delivery with its attendant morbidity and cost, which can exceed $500,000, it is easy to justify investment in the program."

Prodding health plans involves more than just dangling the prospect of savings. Accreditation groups are pushing for MCOs to do more than claim a commitment to improving the long-term health of the country's walking wounded. They want proof of zeal for prevention, such as a contract with a DM firm for congestive heart failure or diabetes.

"I've given disease management a lot of thought," says Mansheim. But every time he does the math on the return on investment (ROI), he comes out of it feeling even more skeptical.

No financial benefit that DM companies claim, he says, can be proven. In the often heated debate about the ROI offered by DM, Mansheim has taken a stand squarely opposed to what he calls the "disease-of-the-month club."

"It can take years, if not decades, to see if it's effective," says Mansheim, who has decided that DM strategies are "significantly flawed for a whole lot of different reasons."

Mansheim is engaged now in finding ways to create an effective internal illness-prevention campaign. He disagrees with leaders in the disease management field, many of whom have committed tens of millions of dollars in the sincere belief that they can demonstrate a hard return for the money spent for their services.

Clearly, some managed care executives don't share Mansheim's view. To them, DM companies not only offer them hope for improving long-term outcomes, they deliver hard and verifiable returns in the form of reduced costs.

"Everybody here goes through the exercise with eyes wide open," asserts Gifford Boyce-Smith, director of quality management services for Blue Shield of California. Boyce-Smith has inked deals on two different DM programs, as well as developed five others in-house. After two detailed pilots on asthma were reviewed, he says, Blue Shield found "absolutely dramatic" results, reducing ER visits and other medical expenses by 40 to 50 percent.

Says Boyce-Smith: "It's important to back this up with real numbers. I'm pushing everybody to think hard about it."

Creating a base line

The key to determining ROI, critics and proponents both agree, lies in creating a "base line" for the costs associated with the patients who need to be covered.

It's getting to that base line that provokes some of the strongest arguments for and against disease management.

Health care data, concedes Boyce-Smith, "is just a morass. It's a sea of ICD-9 and CPT codes and so on." Even if the data do come from a swamp, as he puts it, "It's still possible to do terrific reporting in this field" — if you invest in the right kind of people who understand how to mine information through multiple report analyses. "What has to happen for the data to be understood is for the business person and the technical person to be joined at the hip."

Mansheim has taken a look at the same statistical swamp, and couldn't lose the feeling that trying to make sense out of the numbers was a fool's errand, no matter to whom he was joined.

"I've never been secure that developing a base line can be done fairly and accurately," says Mansheim. "Probably at the end of the day, nobody knows who the loser is."

Joel Nitzkin, M.D., M.P.H., agrees. He's a New Orleans-based consultant who often tries to steer MCOs away from DM companies and toward creating internal systems. "Those who advocate disease management are making claims they can't back up," he says, adding that the problem is that everything is constantly changing in health care — thus threatening to skew the data needed to create a base line.

Claims may be delayed months, Nitzkin says by way of example. Definitions of a disease may also change, causing the numbers of people in a health plan that may be covered by any one program to fluctuate.

One of the biggest problems, many say, is the rapid churn of membership, often about 25 percent a year. With that kind of turnover, managed care groups can't always stay focused on long-term care.

"Not to say that there isn't good work being done," says Nitzkin, "but the industry as a whole is in trouble because it can't be backed up."

For most DM companies, the difficulty of demonstrating to health plans and other buyers of DM services that there was a base line created a huge challenge to their acceptance.

Benchmarking, agrees Al Lewis, one of the champions of the field, "is not a process that inspires confidence."

Lewis's guarantees

To help ensure that the health plan comes out a winner, Lewis's Disease Management Purchasing Consortium builds guarantees into contracts, with DM companies offering to return 20 to 100 percent of their fees if they fail to meet preset goals.

There are some simple figures you can rely on, says Lewis. If you're offering a disease management program for congestive heart failure, you can add up all the claims for CHF conditions in a plan for the year before, specify the savings that are being sought, and provide a guarantee of a significant chunk of your fees that you'll hit that mark.

However, he adds, there are some critical points that need to be figured in. For instance:

  • Adjusting for adding new patients to the plan;
  • Health plan-specific inflation for any natural increases in costs;
  • Removing patients excluded from the contract, such as end-stage renal disease patients.
  • Separating patients over and under age 65, as older patients are typically more expensive to care for regardless of preventive measures.
  • Making sure that the extraction methodology is the same before and after. The best practice is to include every eligible person in figuring out a base line and projected savings.

That way, says Lewis, the only real risk a health plan runs is that the DM company goes bankrupt. A very cautious organization can arrange for fee insurance to protect against even that contingency.

A 15-year veteran of HMOs, Christobel Selecky, the CEO of Newport Beach, Calif.-based LifeMasters Supported SelfCare, says her company first asks for the raw numbers from health plans and then runs its own analysis.

"Data being what they are, you have to work with what you have," she says. "It's their data. It isn't like they dump the data on us and we come up with a number. It's a very collaborative process. Until both sides agree, we don't have a base line."

It still takes about 18 months for the programs to demonstrate a true ROI, she says. "We're just starting to see disease management report definitive savings. We're still in the stage when the people buying our services are the innovators."

Selecky is also quick to acknowledge a host of problems in gathering health care numbers. Many of the institutions involved have outdated systems that are hard to work with. There isn't any sign of that changing anytime soon.

"The MCOs are still operating on pretty thin margins and don't have much money to invest in new systems," says Selecky. "I'm not seeing a giant investment in information systems infrastructure being made.

That's a problem, she adds. "For health care to improve quality, there has to be greater focus on data."

Reluctant plans

Until the numbers begin to come in on DM, and the industry starts seeing peer-reviewed material on its effectiveness, plenty of big health plans will be reluctant to buy into her vision.

The view on Wall Street toward start-ups in disease management may have turned slightly chillier in recent months, particularly for DM companies relying on the Internet to deliver services — and success.

"A lot of the people who are paying for DM claim that there is a demonstrable savings," says one New York-based financial analyst who specializes in health care. It's going to take more than a few skeptics like Mansheim to change that impression.

Lewis is even harder to budge on the topic. He insists that anyone who gets a guarantee from a member of the consortium can negotiate a DM contract in good faith.

Mansheim, though, says DM advocates' arguments are riddled with holes. "I have an inherent skepticism," he says, "that anyone can prove that spending $100 to try to reduce morbidity costs of a patient with CHF can save $1,000 in treatments."

Lewis agrees that's ridiculous. "Returns average 1.6 to 1, depending on the disease. Still a 60 percent net return is pretty good, considering that it's guaranteed and, to paraphrase Henry Kissinger, it has the additional virtue of being the right thing to do."

However, Mansheim insists that just because you identify a population of people with a diagnosed chronic condition and reduce its medical costs in one year versus the prior year doesn't mean the disease management program worked in creating savings. Patients may have done better entirely on their own, without any direct benefit from having a separate organization calling on them occasionally to encourage better care.

Where the "disease-of-the-month club" suffers, Mansheim says, is from its extraordinary level of fragmentation. Most disease management companies offer programs for only one or two chronic conditions, which is virtually meaningless when trying to create savings for populations that typically suffer from a high degrees of comorbidity.

"We live in a world of multiple comorbidities," says Mansheim. "People do not have homogeneous problems. They have multiple problems."

If a disease management company is assigned to control only one "discrete disease," he says, the approach is so shortsighted that it is bound to fail in reducing the cost of care.

What makes sense on the medical scene is gaining traction in the financial world as well.

"You have too many people running around doing a little of this and a little of that," says one Wall Street banker. Only when the DM industry undergoes a major consolidation will you see a few big players emerge to offer a broad cross-section of programs covering many comorbidities.

Addressed by DM industry?

Again, Lewis agrees with Mansheim's basic point, but adds that the industry addresses it. "Everyone knows that the leading chronic disease vendors do manage comorbidities as well and have for about two years," he says.

Mansheim, for his part, isn't waiting for DM, or Wall Street, to sort things out.

The foremost job of the health plan, says Mansheim, "is to take care of the sickest people. It doesn't matter if they have AIDS or cancer or MS. Those are the people we need to manage." After that, it is appropriate to reach out to all members.

By creating a complex case management system, says Mansheim, a managed care group can begin to care for the really chronically ill, no matter what disease or diseases they have.

"With the use of computers, we have — for the first time — the opportunity to manage every one" of Coventry's 1.5 million enrollees, he says. "By classifying each member into one of 114 categories using the Ambulatory Care Groups Case-Mix System developed at Johns Hopkins, programs can be tailored to individuals. This would account for disease management in all 14,000 ICD-9 codes, not just a select few like diabetes or asthma."

Again, Lewis has a response. "Some of the best vendors do exactly what Bernie is saying, but they start showing returns in months instead of the years it takes for a health plan to do it."

Still, Mansheim says that while population management has become a trendy concept, physicians have never lost their focus on the individual because you can't easily lump people by discrete illnesses.

Adds Mansheim: "We don't manage statistics. We manage the process of health care delivery to individuals."

John Carroll is a Texas-based free-lance writer.

Mergers, Acquisitions Afoot In Disease Management Industry

MANAGED CARE September 2000. ©2000 MediMedia USA

Within a few years, there may be only 30 DM companies left, says one expert. HMO customers want vendors to handle more than one condition.

John Carroll

At the time L. Peter Smith jumped into the disease management field six years ago, prospective customers in managed care had a simple expectation: Prove what you're pitching. By establishing protocols for handling a chronic illness such as congestive heart disease, companies like Smith's CorSolutions Medical were asking managed care companies to buy into the notion that they could reduce costs. Many disease management companies were willing — and often required — to back that claim with what amounted to a guarantee.

Over the years, though, the demands have grown more complex and the business no longer works on such simple terms.

While most of the DM specialists started by working with health plans and physician groups on a single disease, HMOs began to look for comprehensive help with related illnesses.

Meanwhile, the once slender selection of new companies that were making their pitch suddenly found themselves crowded in a field of some 120 DM companies scrambling for business. Adding to the competition is a host of brash new Internet outfits that have popped online recently. Many players find themselves stranded with one or two contracts and no quick way to build revenue.

Growing trend

Those same market forces have built a pressure cooker for a simmering pot of mergers and acquisitions. For Smith, these led him down a path to an acquisition earlier this year that strengthened his company's diabetes management ability. It's also a harbinger of what many independent observers believe is a trend of acquisitions.

"As the industry continues to grow, you're definitely going to see more consolidation," says Smith. "Probably more than you've seen in the past."

"The industry is certainly ripe for consolidation, and has been for a couple of years," says Vince Kuraitis, a principal in Better Health Technologies.

The shakeout has arrived.

"Right now it's a terrible business," asserts David Loucks, who recently expanded his online disease education service — InLight — with the acquisition of a web-based disease management company, ProMedex Inc. "There isn't enough money out there to fund all the companies that say they are a disease management company. You're going to see some attrition, some companies going away." (About 40 companies so far, says Smith.)

Loucks's view is endorsed by a group of consultants and brokers who say the trend toward consolidation in the DM field has been gradually gathering momentum over the past two years. Now, buyout deals are beginning to create newly expanded companies that are able to offer health plans disease management services for a range of illnesses.

Some CEOs are re-examining the risk agreements that had dominated the field — and several are pushing into population health management, finding that the opportunities may be greater if you're dealing directly with large employers looking for ways to leverage new savings.

Few people are taking anything for granted right now.

"I think anybody who's standing still at this point is making a mistake," says Al Lewis, who runs the Disease Management Purchasing Consortium and is president of the Disease Management Association of America. "There have actually been several deals that have been made in the last few months, more than at any other time. I put two together myself, but they haven't been announced yet."

Warren Todd, president of Disease Management Resources, says this is all happening very quickly "because there are several things driving it."

First, says Todd, came the rush: Companies scrambled into the market in the mid-'90s, eager to stake a claim on a particular disease and ready to take on risk agreements to win a contract. Instead of seeing a rapid drop in new competition, the Internet fueled a new crop of competitors touting technology that promised a market revolution.

Eventually, says Todd, it started to dawn on all the players that the field was crowded and fragmented, with few companies able to build a large book of business. "The first reaction is to start striking alliances," says Todd. "Then they start working on mergers and acquisitions."

Buyout buzz

As word spread and more and more companies hit the acquisition trail, the buzz about buyouts began to grow increasingly loud.

"After you approach them, they say, maybe we'll talk to a few others," says Richard Friedman, CEO of MIM, which recently announced an acquisition. "The small disease management companies are looking to capitalize. It looks like a good time."

Health plans have played a role in that timing as well.

"Managed care companies are not doing well," Todd says, and as they tighten their purse strings, DM companies start to find it harder to sign a contract. "It takes a hell of a lot longer to close a deal."

Meanwhile, as it gets harder to pump more revenue, the venture capital firms that had romanced DM companies in the '90s with start-up funds are turning cool. As revenue fails to keep pace with expectations and new deals are harder to push through the pipeline, the VC groups are getting restless and looking elsewhere for quick returns.

"Now there's not enough fuel to keep the fire burning," says Kuraitis about the sudden venture capital shift from health care services companies to Internet health companies. In addition, he points out that "clinical folks founded most disease management outsourcing companies, not business people. They developed good technology and software but they didn't get many customers along the way."

What customers they did land often weren't guaranteeing a profit, either.

Lewis, one of the pioneers in the DM field, knows many of the players personally because he helped negotiate quite a few of the contracts managed care companies were pitched back in the "early days" of disease management. With DM companies anxious to prove their worth to HMOs, they often agreed early on to assume risk, essentially backing up their claims that they could reduce the cost of handling a disease by guaranteeing their performance.

Lewis's approach "has become a model for these deals," says Kuraitis. "If you're a health plan, Al's doing you a good service."

Unfortunately for the DM companies, though, the contingent liability associated with these risk agreements puts a crimp on their balance sheets that became increasingly tough to explain to investors.

"For many of these companies, the economic model degenerated into at-risk contracts," says Loucks. "They would go to managed care companies and guarantee savings of, say, 10 percent on the cost of treatment and incur the risk of patient care. The idea was to build up the business with these contracts, and then leverage them into a bigger presence in the market.

"They were putting all their revenue at risk," he adds. "The problem is that it's very costly and difficult to manage." Companies handling a single disease ended up with one or two clients. "You didn't get the efficiencies. That's what's killing many companies. They couldn't make money."

Says Loucks: "You have got to get away from [risk], because you can't make money."

Risk deals

Not everyone agrees. Smith is quick to note that his company has several money-making risk deals.

"From the beginning, Al Lewis laid out that if managed care companies had concerns, risk was a good way to allay fears," says Smith. But Lewis hasn't negotiated every disease management contract in the business, and even some health plans have begun to move away from risk agreements as their relations with mature DM companies have gained a solid footing.

Even with a spate of acquisitions, no one expects to see the crowded field of competitors shrink to a handful of players anytime soon. Lewis expects to see the shakeout cut the field "from a huge number of players down to a large number of players. I think in two years there will be 30 disease management players left."

They'll probably handle a variety of ailments.

"People are getting tired of the single-disease route," says Lewis. "Markets want to address comorbidity. There is a recognition that there are synergies in combining diseases where they are related."

"The future of disease management is to address multiple comorbid chronic illnesses," agrees Kuraitis. "They're migrating together. It's become more patient-based than disease-based."

That move to link DM in different areas was a primary force behind CorSolutions's decision to buy a diabetes management organization earlier this year. Diseases like congestive heart failure and diabetes are often linked, making the demand for dual services more common.

Lewis says that the new attitude by health plans is, "I don't want to deal with two companies when my patient has both" conditions.

And, says Loucks, there's a growing consensus that too many single-disease firms are chasing too few health plans. "There's no need for 50 companies that handle diabetes," he adds.

For Loucks and others, it's logical that the first step of consolidation will follow specialty lines. Diabetes management companies will join forces. Then multispecialty companies will appear, taking on diabetes and heart congestion and other chronic illnesses.

"Then use technology to bring the price points down," says Loucks. And rather than assume risk, DM companies would be better off to share in the benefits of reducing the price of treatment.

In a business where profits are hard to come by, there is a growing emphasis on the Internet to reduce costs and attract new clients.

"With the Internet and the intranets, there's a more effective way to reach employers," says Todd. "The ability to survive is being driven by the Internet."

Lewis, though, remains skeptical of any forecasts that give the edge in this business to pure dot-com DM outfits. "For the most part the Internet will be a complement to disease management companies, not a substitute," says Lewis.

Even after CorSolutions poured $7.5 million into its own web efforts, it remains just part of the company's overall strategy, not a stand-alone operation, Smith says. "There's an awful lot of hype around these companies," he points out. "We don't regard the Internet as something completely different. It is a tool to enable us to do our business better."

An even bigger potential catalyst than the Internet may be found in a new type of client who has, at least up to now, laid outside the realm of disease management. More and more of the companies are looking at expanding their business into total population health management, driven by the same market forces that are pushing many health plans to boost rates.

Why the sudden shift in focus?

"Employers unhappy over the rising rates being handed out by health plans are starting to look at direct contracts with disease management companies," says Todd.

By going direct to DM experts, a big employer with 50,000 workers is in a position to dictate better financial arrangements with health plans. That move, in turn, is helping drive some organizations to pull together complete DM programs.

"Both health plans and disease management companies are going to population management control," agrees Kuraitis.

For Loucks, total population-based care — where disease management companies move away from just providing and promoting protocols for treating chronically ill patients — offers companies like his the chance to strike deals to handle care for large population groups while profiting by slicing overall health care costs.

Time, and an increasingly profit-driven market, will tell who is right and who gets bought out next.

"It's always been an interesting, changing picture," says Smith about the tumultuous, if brief, history of DM. But it won't always be this topsy-turvy.

Says Smith: "Sooner or later, those pieces are going to come together."

State of the industry

Just how healthy is the disease management industry these days? Aetna U.S. Healthcare does all DM in house, a decision that's looking better all the time, says Arthur N. Leibowitz, M.D., the plan's chief medical officer.

"If you look at the success of the independent stand-alone disease management companies, five years ago you could have found 100," he says. "Today, you'll find 10. So, it's a very tough niche to be independent. We have a tremendous investment in our infrastructure through our U.S. Quality Algorithms subsidiary. It's widely regarded as the industry's best data-warehousing organization and it develops for us all the approaches that we need in our disease management programs."

DM industry officials counter that Leibowitz's numbers are off.

"I think it's fair to say that there are 10 substantial DM companies but he's absolutely wrong to say there are 10 stand-alone companies," says L. Peter Smith, CEO of CorSolutions.

"The DM industry is growing very nicely, about 30 percent a year," says Al Lewis, president of the Disease Management Association of America. "There is some consolidation. There are about 30 serious vendors. Any problems are on the bottom line because they're giving out great deals to health plans, not including Aetna."

Thanks, but no thanks, says Leibowitz, who adds that Aetna is doing some innovative things. For instance, the plan is spreading DM into more programs, including one that uses specialists as the principal physicians.

"The other thing that we did, is that we've now incorporated our nurse support line into all of our plans," says Leibowitz. "We've run it as an optional thing for years, but now it's available to all of our members in all of our markets in all of our plans."

John Carroll is a free-lance writer in Dallas.

Snapshot of a growth industry

MANAGED CARE January 2000. ©1999 MediMedia USA

The Disease Management Purchasing Consortium & Advisory Council tracks the growth and success of the industry, based on first-hand information from the roughly 70 percent of all purchases of DM programs that go through the consortium, and from information gleaned about the other 30 percent.

The numbers the organization has gathered suggest that the $340 million DM industry is one of the fastest-growing investments in health care.

Dollars spent on DM, 1997-1999

Of course, each condition within DM represents its own little growth area. Which franchises are most popular? Between 1997 and 1999, the dollars appear to be heading toward cardiology and maternal/neonatal, says the consortium.

Getting a better deal: guaranteed savings by disease category

The consortium is so sure of itself that it tells prospective clients that it can guarantee a certain amount of savings for certain diseases. Al Lewis, the consortium's president, suggests that the savings will be largest by combining multiple diseases into a single program. For a plan with considerable Medicare business, doing cardiac disease, diabetes, and COPD together can reduce medical losses by a combined total of several percentage points, even after the disease management fees themselves.

Mix of RFPs by disease type 1999 vs. 1998: Asthma down, others up

At least among Disease Management Purchasing Consortium members, demand for new asthma programs dipped in 1999, but all other categories showed strong growth in requests for proposals.

Industry trends: market sizes and compositions (1999)

A total of $290 million in contracted disease management programs were in force in 1999. What's interesting is that so many categories are of similar size, says Al Lewis of the Disease Management Purchasing Consortium, which collected the data. Figures are percent of $290 million.

Employers turning toward DM

The purchasing consortium isn't the only one spotting a growing interest in DM. Wyeth-Ayerst Laboratories surveyed 375 employers representing nearly 12 million beneficiaries and found increasing DM use.

SOURCE: 1999 WYETH-AYERST PRESCRIPTION DRUG BENEFIT COST AND PLAN DESIGN SURVEY REPORT

HMOs, POS plans embrace disease management

Disease management showed "remarkable growth" in 1999, according to a survey conducted by the William M. Mercer consulting company. That spurt was evident in both HMOs and point-of-service plans.

SOURCE: WILLIAM M. MERCER NATIONAL SURVEY OF EMPLOYER-SPONSORED HEALTH PLANS, 1999