Disease management


Cost Containment

Disease Management, Medicaid Mix Like Oil and Water in Florida

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

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
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
John Carroll
Contributing Editor

Population-Based Care

Predictive Modeling Holds Promise of Earlier Identification, Treatment

Proponents see it as the step beyond disease management. Why wait until a patient becomes part of a chronically ill group?

The 80/20 rule, or some variation of it, often pops up in financial matters. In philanthropy, it holds that 80 percent of a not-for-profit organization's funds will be contributed by 20 percent of its supporters. Yet, perusing the list of top contributors to the college's annual fund drive won't necessarily help you pinpoint the people inclined to cough up seven-figure contributions.

In fact, the guy who's ready to drop a few million bucks in your lap might not even be on the annual fund list — but he's out there.

Likewise, a simple chart review may not help an HMO predict which members will suffer catastrophic (and expensive) events, but those patients are out there, too. In many cases, the clues are waiting for the astute fund-raiser or health plan to discover.

In addition, intuition or decades of on-the-job experience might not be sufficient to unearth the clues. Humans, alas, seem to be overly confident in their decision-making skills.

That's where predictive modeling comes in. The models help people grapple with mountains of data and make decisions about what to do, or not to do, to maximize outcomes.

Such models are, of course, mathematical. They range from relatively simple linear equations to sophisticated software that uses neural networks to accommodate intricate nonlinear relationships. In other words, the working definition of predictive modeling is imprecise, varying from vendor to vendor.

However, in one version or another, predictive modeling seems to be cropping up everywhere now. It's actually late to come to health care, having long been used in financial services, meteorology, and air traffic control.

"Predictive modeling is hot, hot, hot," says Al Lewis, executive director of the Disease Management Purchasing Consortium. "We've done more bids in predictive modeling this year than in any other category."

American Healthways, the nation's largest provider of disease management services, likes to use the phrase "care enhancement" to differentiate its strategy and comprehensive service offering from plain old, pure "disease management."

The company's president, Richard Rakowski, says the overarching premise behind care enhancement is that the market is evolving to fill in the gaps in health care, including using predictive modeling to better identify patients who need additional health care resources.

"Disease management has made some inroads, but now we have to expand to a broader population with broader tools as we shift from a focus on utilization management to a focus on outcomes improvement," he says. "Utilization management has run its course."

$40 billion market

Whereas disease management programs tend to focus on patients already diagnosed with specific high-cost conditions such as heart failure, diabetes, and asthma in an attempt to control utilization, predictive modeling often casts a broader net, focusing on patient populations and outcomes, not a handful of diseases.

The market still has a need for disease-specific products, Rakowski says, but now it's time to look at whole populations. Instead of just focusing on chronically ill patients with comorbid conditions and chronically ill patients who have yet to develop comorbid conditions, this broader approach encompasses patients who are at risk for chronic illness as well as those who are not currently at risk.

American Healthways says it has identified 30 "impact conditions" that affect people's lives but can be prevented, or at least ameliorated, by timely interventions. American Healthways calculates that these 30 conditions accounted for half of the $1.4 trillion spent on direct medical expenses in the United States last year.

Rakowski figures that predictive modeling, combined with care enhancement programs, could save 20 percent of these costs, or $140 billion. If 70 percent of the savings is kept by health plans, that leaves $42 billion in fees to be garnered by American Healthways and its competitors. No wonder predictive modeling is hot, hot, hot.

Of course, there's the all-important matter of demonstrating that those fees are justified.

American Healthways is so cognizant of the need to validate the outcomes attributed to predictive modeling that it is underwriting an Outcomes Verification Program at Johns Hopkins University, involving the schools of medicine, nursing, and public health.

American Healthways is providing $6.2 million in cash and stock over five years to support the program, whose first assignment will be to evaluate the company's predictive modeling products. In time, other companies' products will be evaluated, too.

"True predictive modeling needs to be validated on data sets and reportable performance measures, such as sensitivity and specificity," says Jeffrey Rice, MD, American Healthways' executive vice president.

Rice says positive financial results from the implementation of a predictive modeling program generally can be seen in 12 to 24 months.

Clinical literature

The approach to predictive modeling at Active Health Management (AHM), based in New York City, is different from most others, says the company's CEO and president, Lonny Reisman, MD. "We make predictions about individual patients on the basis of extrapolations from the clinical literature," he says. "We're applying existing knowledge, not creating new knowledge."

AHM maintains a panel of 50 specialists nationwide to review the medical literature. The specialists convene quarterly to decide which published findings should be incorporated into the AHM software.

"Within days, we can identify the patients who would benefit from newly published information," says Reisman. This process vastly accelerates the time needed for a new finding to move from the research bench into widespread clinical application — commonly thought to require 7 to 10 years.

For example, AHM was quick to make use of the results of Heart Outcomes Prevention Evaluation (HOPE) soon after they were published last year in Lancet and the New England Journal of Medicine.

The study showed that an ACE inhibitor, ramipril, is beneficial in a broad range of patients who are at high risk for cardiovascular events but who lack evidence of left ventricular systolic dysfunction or heart failure. The benefits observed were in addition to those achieved via proven secondary prevention measures, such as aspirin, beta blockers, and lipid-lowering agents.

Not living up to potential

In the course of working with an employer coalition interested in improving the quality of health care, Reisman discovered for himself that HMOs weren't living up to their promise and potential, especially with respect to prevention and caring for the chronically ill.

This became apparent, he says, when quality was assessed via measures that were more clinically robust than the standards used by the National Committee for Quality Assurance and HEDIS.

Reisman also observed that HMOs have collected lots of potentially useful data. Unfortunately, the data tend to be siloed, and an HMO's goal usually is to reduce costs within each silo. Reisman saw the possibility of integrating the data from all the silos and then applying evidence-based standards to the data.

"This is a concurrent dynamic approach. It's not just data mining. We're coupling aggregated data with advances in medical knowledge."

AHM strives to identify high-risk patients who otherwise might fall through the cracks. This occurs in two ways. First, by breaking down silos and aggregating the data, AHM can help physicians reduce the medical errors that result from communication breakdowns among the many physicians who may be treating a single patient.

Second, AHM helps physicians bridge the knowledge gap resulting from the difficulty every physician has in keeping up with the advances reported in the literature, be they the use of beta blockers to treat heart failure (which until relatively recently was believed to be contraindicated) or the newest biologic agents for treating rheumatoid arthritis.

Once a patient at risk has been identified, AHM generally has provided a specific recommendation to the health plan, which passes it on to the physician. Some of AHM's newer contracts call for AHM to communicate directly with physicians.

"Predictive modeling significantly enhances the possibility of doing good," Reisman says. "We're saving lives and we're saving money."

Its product doesn't focus on utilization, but what Reisman calls "bread-and-butter therapies." One difference between it and the traditional approach of case management for potentially high-cost patients is its application of evidence-based standards. "Most other models suggest that high-risk cohorts be offered case management services, which is fine, provided there's a mechanism to ensure that clinical aspects of care are addressed."

Reisman says AHM's product has been best received by large employers who are frustrated by what they perceive as managed care's failure to deliver fully on its promise. MCOs, he says, are open to the idea of predictive modeling, but with reservations: Some are concerned it may be intrusive, despite the fact that physicians generally appreciate the input because of its clinical value. Others claim they are developing similar systems themselves.

The federal government also has expressed interest, and AHM has two pilot programs under way with the Federal Employee Health Benefits program and Medicaid.

Finding high-risk candidates

In Wisconsin, Wausau Benefits, a third-party administrator serving commercial populations under age 65, has adopted AHM software and its own proprietary algorithms to develop a "high-tech, high-touch" predictive modeling program, a component of its comprehensive service encompassing utilization management, case management, disease management, and population health services.

Elaine Mischler, MD, Wausau Benefits' medical director, says the company uses computer software — the high-tech aspect — to identify those patients who can be helped by disease management in eight conditions: asthma, COPD, congestive heart failure, coronary artery disease, depression, diabetes, hypertension, and low-back pain.

Wausau studied its 400,000 lives to find a critical marker for each condition that could place patients in high-cost and low-cost cohorts. Although these markers are proprietary, Mischler revealed the key markers for two conditions: an HbA1c test for patients with diabetes, and the lack of ER visits for patients with asthma.

These markers pointed the way to significant savings: $90 less per member per month for diabetes patients who had the test versus those who did not, and $69 less PMPM for asthma patients who had no ER visits versus those who did. This analysis was done on the population before institution of any disease management programs.

The intent of the program is to help Wausau's customers move patients from the high-cost cohort to the low-cost cohort — and keep them there. "We want these patients to be optimally well despite their illness," Mischler says.

That's where the high-touch aspect of case management comes in — a team of 30 experienced nurses doing utilization management, case management, and disease management over the phone.

"Twenty percent of the patients need 'high touch' — something more than a brochure about a condition or drug information mailed to them," she says.

Wausau is so confident that its predictive modeling product will generate meaningful savings that it will put its fee at risk for a customer with 5,000 employees or more. Because of the difficulties of making predictions on smaller numbers of employees, Wausau will discuss putting a portion of the fee at risk for smaller customers.

A question of ethics?

Ultimately, predictive modeling is aimed at improving outcomes and reducing costs by helping clinicians — over the short term, to recover from bad decisions, be they errors of commission or omission — and, over the long term, to make better decisions.

Although some physicians may object to predictive modeling on the grounds that it intrudes on their professional autonomy, another school of thought holds that, in the presence of a valid predictive model, it's unethical for a practitioner not to use it. A long history of predictive modeling in disparate fields demonstrates its superiority over mere clinical experience and intuition.

Predictive modeling vs. the experts

In each of the studies from disparate fields listed below, predictions based on statistical predictive rules (SPRs) were more reliable than predictions by experts.

Prediction Studied Experts Date Published
Success of electroshock therapy Medical and psychological hospital staff 1941
Academic performance Admissions officers at selective colleges, medical schools, law schools, graduate school in psychology 1957, 1971, 2000
Diagnosing patients as neurotic or psychotic Clinical psychologists 1968
Risk of SIDS in newborns Clinicians 1975, 1977, 1985
Criminal recidivism Criminologists 1982
Credit risk Bank officers 1983
Presence, location, and cause of brain damage Experienced clinicians, prominent neuropsychologist 1983
Progressive brain dysfunction Clinicians 1984
Violence Forensic psychologists 1988
Quality of vintage of red Bordeaux Wine tasters 1995
Available at «http://hypatia.ss.uci.edu/lps/psa2k/fifty-years.pdf».
Jack McCain
Contributing Editor

Disease Management

HMOs Need To Share Gains of DM Programs

Physicians are more likely to buy in if they see better outcomes — and financial rewards that go with them.

Perhaps nowhere in medicine does the friction between physician and HMO translate into lost revenue more noticeably than in disease management, where lack of doctor buy-in is a perennial complaint. The author, a former medical director knowledgeable about all aspects of DM, offers two methods by which health plans can overcome this obstacle.

Physicians inherently want to deliver high quality care, and many want to provide care in a cost-effective manner. Nonetheless, most doctors, and especially primary care physicians, are bombarded with requests (or demands) from multiple managed care organizations related to their disease and care management programs. Growing volumes of faxes, e-mail messages, care plans, requests for authorization of home care, phone calls from case managers, and requests from pharmacies to change prescriptions are a significant burden on physicians who are trying their best to deliver good care.

HMOs obviously can't abandon care management programs or exclude physicians from the care management process — so how do we keep physicians engaged while creating a "win-win" scenario?

The solution is to share some of the financial gains produced by disease and care management programs with participating physicians. Organizations can do this in a variety of ways. Providing "case management fees" to physicians to compensate them for the time they spend supporting the program is one simple and effective approach.

The case management fee is not a referral fee; it is compensation for the time physicians spend interacting with care managers, reviewing care plans, and discussing the program with patients.

Better arrangements

More complex financial arrangements, such as bonus programs based on clinical outcomes achieved by a care management program or "gain sharing" models, can be used to create powerful incentives for physicians to support and participate in these programs.

Finally, providing selected physicians a stipend for creating clinical guidelines or supervising care managers is another reasonable approach to sharing the gains.

When I implemented a congestive heart failure program at HealthNet in Kansas City, we paid primary care doctors a $200 annual case management fee for each patient enrolled in the program after the physician reviewed and signed a care management plan.

This dramatically reduced resistance to the program, as many PCPs now saw the program as a source of additional revenue. Once they learned more about the program, they generally supported it — not just to achieve financial gains, but because of its positive impact on patients with a serious disease.

Doctors as vendors

Another way to share the gains is to share the work. Despite limited experience and infrastructure, physician groups will often refuse to support a disease or care management initiative unless they create and provide the program. While it may seem that talented and intelligent physicians can provide these programs, experience suggests they rarely are successful. This is because care management programs necessitate a complex infrastructure in addition to the clinical protocols that physicians can provide.

For example, a typical disease management program requires the following components in addition to clinical protocols: sophisticated information system, nurse call center, outcomes reporting methodology, claims analysis capabilities, patient education materials, and remote home-monitoring technologies. Few, if any, physician groups have this infrastructure or even realize it is necessary.

"Creating a box" is a strategy that accomplishes three goals:

  • Teaching doctors about the complexities of disease/care management programs.
  • Creating an environment where physicians can be partners with experienced vendors and/or the HMO to achieve rapid implementation and outstanding outcomes.
  • Providing physicians with the opportunity to lead or provide the program as their experience and infrastructure matures.

Creating a box has two basic elements. The first element is to describe what an experienced vendor can provide. Having one or more companies present their programs to the group of physicians easily accomplishes this.

Criteria needed

The second element is to use this information to create a set of criteria that the physicians must meet to provide the program. For example, for congestive heart failure, a capable disease management company should be able to launch a program in 90 days, guarantee a 10 percent to 15 percent savings (net of the cost of the program), and deliver high levels of patient satisfaction. The physician group is then offered the opportunity to be the "vendor" if it can meet these criteria.

In most cases, provider organizations do not initially have the infrastructure to meet these criteria. Often, a compromise is reached where the providers agree to support the initial use of an outside vendor, but receive assurances that they can become the vendor when they develop the requisite competencies.

Initially, several cardiology groups indicated that they could provide the CHF program that I launched at HealthNet.

After they learned of the box of criteria that included guaranteeing savings and demonstrating outcomes, however, the cardiologists were open to working with an experienced disease management vendor. Subsequently, cardiologists from five competing groups were employed as medical directors for the program and supervised the program's nurse practitioners/case managers.

The program was quite successful and when the initial two years ended, the cardiology "network" had the opportunity to bid to become the "vendor" for the program.

It is surprising that more managed care organizations have not embraced sharing the gains and allowing physician groups to be vendors as tools to reduce conflict and engage physicians to actively support their programs.

My experience demonstrates that it is possible to create powerful partnerships between physicians and managed care organizations, if leaders on both sides are focused on quality as well as cost and if physicians are rewarded for their efforts.

These new compensation models do not have to be complicated; managed care organizations simply need to adopt a mind-set that if they want physicians to be involved, they need to "share the gains."

Harry L. Leider, M.D., M.B.A., is principal at Better Health Technologies in Owings Mills, Md. Previously, he served as vice president of health services and corporate medical director at HealthNet, an insurer with several types of managed care products covering about 450,000 patients in Kansas and Missouri.

Harry L. Leider, M.D., M.B.A.

Online Medicine

Disease Management Uses Web To Net Savings

More vendors are turning to the Internet to expand the reach of programs. Cutting-edge technology helps patients help themselves.

As with any dynamic business, disease management is changing as it grows, relying more and more on the Internet as a tool to help lower the costs of caring for the chronically ill. While year 2000 saw about $360 million spent on DM, health plans in 2001 will probably pony up about $510 million, according to the Disease Management Association of America (DMAA), the field's three-year-old trade association.

DM companies are learning more about spinning their healthy ways online, where the same doses of extra care can be delivered at a fraction of the cost. Often, Web technology can reinforce some of the functions of case managers. However, warns Al Lewis, executive director of the Disease Management Purchasing Consortium, a good tool should not be mistaken for a system.

"Online access is a great supplement, but a poor replacement for DM," says Lewis. "You still need health care professionals to back up the technology."

Mass customization

Still, the Internet, e-mail, and in-home gizmos that tap ordinary telephone lines add a new element to the delivery of health care. Despite the recent dot-com meltdowns, people and physicians are still signing on to the Internet in record numbers.

Says David Nash, M.D., associate dean of Jefferson Medical College in Philadelphia and editor of the book Connecting With the New Health Care Consumer: "The appeal of online DM is the mass customization of clinical information. About 200 DM companies currently ply their trade. And, tellingly, most can connect with their patients online."

DM gained a bad-boy reputation in the late '80s when the field consisted only of sending pricey newsletters and other patient information mailings to certain health plan members every quarter.

"That did not work," says Wells Shoemaker, M.D., chief medical director of Physicians Medical Group (PMG) in Santa Cruz, Calif. "For DM to be effective, somebody must actively check on and contact patients when their vitals start going south."

Leading the list of health woes better controlled by online efforts is congestive heart failure.

"Controlling CHF symptoms provides an almost immediate payback for managed care companies," says Shoemaker.

According to the Centers for Disease Control, congestive heart failure is the leading cause of hospital admissions for people over 65. Yearly, $30 billion is spent treating the disorder.

Studies show how the Internet can help. For one year, PMG studied 69 elderly people (average age: 79) with moderate to severe CHF. One group was wired and entered their vitals daily on a Web site operated by LifeMasters Supported SelfCare of Newport Beach, Calif.

Another group used a touch-tone phone to enter their vitals or speak with a nurse. A third (control) group received traditional care. When researchers crunched the numbers, the phone group had nearly twice the rate of hospitalization and 73 percent more inpatient days than the Web group. Claims for each patient in the control group increased by $3,600 over the previous year.

Reduced ER visits

Another small study, this one at the University of Massachusetts Memorial Medical Center in Boston, gave 29 moderate-to-severe CHF patients a special scale, blood pressure cuff, and heart rhythm monitor developed by Agilent Interactive Healthcare Services for CHF to measure and transmit their vitals each day to a distant nursing station where software flags weight and blood pressure increases.

If there was a sudden change, the patient received a phone call if he or she was supposed to increase or decrease diuretics. An 18-month study revealed that the wired subjects reduced their emergency room visits by 88 percent while slashing their hospital admissions 92 percent.

John Hoggle, CEO of Heart Alert near Atlanta, gave pilot groups a scale and blood pressure cuff that plugs into an ordinary phone line jack to test 25 patients. A 95-percent reduction in hospitalization rates, compared to a control group, was what Hoggle found.

"A part of what is driving online DM is the evolution of the electronic medical record," says Jim Coffman of Cybernet, the Ann Arbor, Mich., company that produces the $250 smart box used in the Heart Alert tests.

"Computerization in health care is far behind, compared to the banking or manufacturing industries," says Dick Hodach, M.D., medical director of Accordant in Greensboro, N.C. "All the data in scattered medical records will one day become combined into one electronic record for everybody."

Accordant has contracts with about a dozen managed care companies to control about 15 chronic diseases online.

"We've found the Internet is an excellent way to save physician and nurse time in explaining how to treat various conditions," says Hodach. "Altogether, online DM programs have resulted in a consistent 40 percent reduction in hospitalization rates."

According to the DMAA's Lewis, good DM Web sites should first take a health assessment and be as interactive as possible. That means sending e-mail reminders about taking meds and recording vitals. A nurse or other health professional should be easily reachable on the phone and, for people who don't or won't use computers, patients should also be able to report their vitals via a touch-tone phone.

One stumbling block is physician acceptance. For instance, Accordant surveyed its physicians and found that only 68 percent have access to the Internet. On the other hand, PMG researchers in California found that 90 percent of its CHF test group had never used a computer but started eagerly.

In asthma management, a reduction in ER use is a quality-of-life, as well as a cost-control, question. For diabetics, DM companies closely eye the patient's blood sugar and cholesterol levels. They apply various strategies and supply some home-based monitoring devices.

Health plan members benefit because they feel better, enjoy life more, take fewer sick days, and see fewer copayment bills. Most health plans don't do disease management themselves because it is "enormously complicated," says Lewis. "Moreover, your customers' lives are threatened if it's done wrong."

Some companies have picked up the pace of online medicine by installing special gizmos and gadgets in patients' homes that plug into ordinary telephone jacks, sometimes hook up to personal computers, and automatically send health measurements to the DM vendors.

Then, physicians, nurses, and others with one or even two passwords can log on to look for warnings. Many providers, with HIPAA privacy requirements in mind, use the same encrypted technology used in wire transfers between banks.

First Health of Downers Grove, Ill., offers electronic office visits to members enrolled in DM programs, says the company's national medical director, Scott Smith, M.D., M.P.H.

Patients and physicians must already know one another, and the patient must initiate the e-mail. The physician is reimbursed $25. A typical exchange might involve a diabetic asking his physician how to better treat a foot ulcer.

With two other institutions, East Carolina University in Greenville, N.C., studied 10 women who suffered from pregnancy-induced hypertension. Physicians' worst fear then becomes premature delivery that saddles the baby with continuing, expensive ailments. Often, patients with this disorder are admitted to the hospital from the time of diagnosis until delivery — an extremely expensive proposition.

In one trial, the women were ordered to take bed rest in their own homes. A computer was placed in the home enabling a video visit with a nurse several times a week. The computer connects through a phone line. An associated device measures the expectant mothers' blood pressure and transmits prenatal measurements, including fetal heart tones.

Vital signs were recorded twice daily and transmitted to the home care agency. Study results? Researchers found they could safely avert 187 hospital days, saving about $101,000 in medical bills, according to Angela Still, R.N., a perinatal clinical nurse specialist at the University Health Systems of Eastern Carolina.

Three groups

In another study, conducted by Emory University's School of Health and the Shepherd Center, 100 patients with spinal cord injuries, discharged from Shepherd, were divided at random into three groups:

  • Standard discharge, which included a follow-up, out-patient clinic visit eight weeks after being released;
  • Weekly calls from a rehab R.N. for eight weeks following discharge; and
  • Weekly videoconference with a rehab R.N. for eight weeks following discharge. At discharge, the patient was given an Aviva computer that transmits sound and video by telephone but has no keyboard.

Of the latter group, 50 percent were back to work within one year. Usually in the U.S., only 23 percent of spinal cord injury patients are back to work within five years. Also, the video conference group showed fewer hospitalizations and ER visits in the year following discharge than the other two groups.

Another health care problem that creates huge costs can be overcome with an electronic medication dispensing system linked by phone lines to a distant but all-seeing health center.

"Statistics reveal that when people must take four or more medications daily, they tend to lose count, get confused, or forget altogether," says Ralph Kirk, CEO and president of Healthcom in Sullivan, Ill.

Thus, only 40 percent of that group follow doctors' orders and take all their medications on time. That usually leads to worsening of their conditions, missed work, more time in hospitals, and yet more expense to cure more advanced illnesses.

So Healthcom developed an at-home electronic medication dispensing system. The system not only reminds patients when it's time to take their medications and dispenses the medication for them, but it can also alert family, friends, or nurse if the patient is missing medication doses, says Kirk.

The dispenser "speaks" to the patient, in a clear, recorded voice, and flashes a light when it's time for medication.

The patient pushes a button on the dispenser and a plastic cup containing the dosage is dispensed. If this button is not pushed after 45 minutes of voice reminders, the system notifies a 24-hour, health-and-wellness center where trained people can talk with the patient through a microphone/speaker built into the system, says Kirk.

"If problems are detected that are preventing the patient from taking the meds correctly, the family or the patient's home-care provider can be notified," says Kirk.

The system sends in a report every day detailing the times that medications are taken, if any are missed, and how many are left in the dispenser.

"The system also contains a personal emergency response pendant, so that if the patient should have a fall, heart attack, or other emergency, he can push the button on his pendant," says Kirk. "This will allow him to notify the people in the 24-hour center and obtain quick assistance." The system costs approximately $89 per month per patient.

Glucose readings on the road

The next big buzz in disease management is wireless gizmos that free you from your desktop PC.

Imetrikus, in Carlsbad, Calif., has developed a system that allows readings from any glucose monitor with a cable connection to be uploaded to a computer and then to the patient's health record. Other systems work on personal digital assistants and mobile phones that connect to the Web.

Thus, one patient/pitchman for Imetrikus, a 62-year-old retiree from Auburn, Wash., was fitted with an insulin pump but nonetheless travels the land in a motor home with his wife.

He tests his blood glucose eight times daily and transmits the readings with a PDA to a Web site where his doctor reads it. The nomad-like retiree also maintains his health by bringing up that Web site where all his medical information has been conveniently converted into read-at-a-glance bar graphs and pie charts.

Maybe that's what they meant by "information superhighway."

Charles Downey is a free-lance writer who lives in Big Bear City, Calif.

The future of disease management may look something like this. A user in the top panel has entered his name and password. Now, the system is asking for another password before giving access to the Imetrikus Web site, below. The site contains the patient's data, such as insulin and blood glucose levels.

Charles Downey

Disease Management

Trials Support Chronic Therapy For High-Risk Cardiovascular Patients

HOPE and CURE trials find that significant reductions in major cardiovascular events are associated with ramipril and clopidogrel therapies.

Results from large-scale clinical trials of two agents prescribed for patients at high risk of cardiovascular events suggest benefits with broad implications for managed care. Wide use of either drug, according to experts at the American College of Cardiology's 50th Annual Scientific Session, could prevent expensive or life-threatening subsequent heart attacks, strokes, or surgical procedures.

The first trial was a cost-effectiveness analysis of HOPE (Heart Outcomes Prevention Evaluation) trial results with ramipril (Altace), an ACE inhibitor. In HOPE, 9,541 patients in 267 centers were randomized to up to 10 milligrams per day of ramipril or placebo. An additional 9,540 were randomized to 400 immunizing units (IU) of vitamin E or placebo. All were followed for 4 to 6 years.

These patients were at risk for future problems (see inset). According to lead investigator Salim Yusuf, M.D., Ph.D., of McMaster University in Ontario, there was a 22 percent reduction in the primary composite endpoint of heart attack, stroke and cardiovascular death for ramipril, but no benefits for vitamin E compared with placebo. Taken separately, reductions for cardiovascular death (25 percent), myocardial infarction (20 percent), and stroke (32 percent) were significant in favor of ramipril. Need for revascularization or hospitalization was reduced, and the incidence of heart failure was lower. Among diabetics, reductions in the primary endpoint and in mortality were greater. "There is clear evidence for separate benefits among the young, the old, in men and women, in those with and without hypertension or coronary artery disease, and in people with histories of cerebrovascular disease [either TIA or strokes]," Yusuf says. An estimated 5 percent of the U.S. population would be eligible for treatment with ramipril.

"The results, I think, are of enormous clinical and public health importance," says HOPE co-chair Peter Sleight, M.D., professor emeritus at University of Oxford. "The number of people you need to treat over a four-and-a-half year period to reduce one of these significant events is only six. If you treat a thousand individuals over this period, you will reduce about 170 events with ramipril."

In a cost-effectiveness analysis by Iqbal S. Malik, M.D., of London's Hammresmith Hospital, investigators estimated the cost per life-year gained of ramipril therapy over five years and with lifetime therapy. Net cost of the therapy was the savings made from reduced health care needs subtracted from the cost of drug treatment. The estimated cost for treatment was $1 per day for 10 milligrams of ramipril. To help determine cost efficacy, the HOPE trial population's mortality rate was measured, and determined to be 2.44 percent per year overall (1.5 percent per year for low-, 4.5 percent for medium-, and 7 percent for high-risk groups.

Cost efficacy for ramipril therapy was $20,100 per life-year saved at 5 years, and $6,100 per life-year for lifetime treatment ($32,800 and $8,300 with discounting, respectively). Lifetime cost efficacy for low-, medium-, and high-risk groups was $11,000, $1,000, and $1,400 per life-year, respectively. The figure generally considered acceptable per life-year saved with medical therapy is $50,000 or less.

"Ramipril offers a cost-effective treatment for patients with proven vascular disease or diabetes mellitus plus an additional risk factor," says Malik, adding that lifetime therapy remains cost-effective even for patients whose risk is lower.

The second trial suggesting substantial benefits from chronic therapy was CURE (Clopidogrel in Unstable angina to prevent Recurrent ischemic Events). Yusuf, principal investigator, says that despite current treatments, 6 to 8 percent of those with acute coronary syndromes (ACS) have new MIs and cardiovascular death within 2 years.

CURE was a randomized, placebo-controlled, double-blind trial of 12,562 patients with ACS or MI at 482 clinical centers (see inset). Patients received either placebo or clopidogrel (Plavix, 300 milligrams immediately followed by 75 milligrams once daily) for three months to one year (mean nine months) on top of standard therapy, including aspirin. The primary outcome measure was the combination of cardiovascular death, MI, or stroke.

For that measure, there were significant reductions with clopidogrel (9.5 percent, compared with 11.5 percent for placebo). The death/MI/stroke rates diverged early, with a visible trend on the first day and a highly significant difference by day 30. The therapy "works for aggressive or conservative management, with heparin, and with lipid-lowering therapy," Yusuf says.

These reductions, however, came with an increased risk of major bleeding, occurring within 30 days in 2 percent of clopidogrel patients and 1.6 percent of placebo patients — 1 such event for every 10 thousand patients treated for one month.

The benefits, Yusuf concludes, are clinically important. Treating 1,000 patients for nine months, he estimates, prevents 28 vascular events and requires transfusions in four patients. Extrapolating further, Yusuf says that among the 1.5 million heart attacks annually in the U.S., a third are minor and nonfatal, though there are 1.5 million patients with unstable angina, bringing the total clopidogrel-eligible population to about 2 million. Treating members of this group, he says, would reduce their 250,000 major vascular events by one fifth.

Prominent experts were quick to recognize the importance of the CURE findings. Ron Waksman, M.D., an interventional cardiologist from Washington (D.C.) Hospital Center, commented, "It may change the whole management of patients after ACS. Here you have a very potent, simple therapy. It applies to a very large population of patients."

In perspective

Some experts were concerned about the increased bleeding risk, and suggested that patients on chronic clopidogrel therapy might need to discontinue taking it and therefore delay emergency bypass surgery. Others, however, minimize the risks; interventional cardiologist Jeffrey Moses, M.D., of Lenox Hill Hospital in New York, says "the price you pay for the benefit is a higher transfusion rate." He predicts that long-term use of clopidogrel will become standard in high-risk patients, including those with large thrombin or plaque burdens, unstable angina, and in post-bypass patients or those with peripheral vascular disease.

Managed care organizations' coverage of the two products is generally solid, according MediMedia Information Technologies (MMIT), whose InfoScan Formulary Database tracks formulary trends. Using HMOs and point-of-service plans as a general indicator, ramipril (as of May 8) had attained "approved" status by 46 percent of the 1,061 HMO formularies and 47 percent of the 127 POS formularies MMIT tracks, with 46 and 41 percent of formularies, respectively, reporting various degrees of access. Only 8 percent of HMOs and 12 percent of POS plans specifically do not list and do not cover the drug. For clopidogrel, approval status is considerably higher — 73 percent among HMOs and 89 percent among POS plans; only 16 HMOs and one POS plan specifically deny coverage.

The results do not answer the question whether high-risk patients need to be on clopidogrel therapy indefinitely. "It's an obvious consideration, says Spencer King III, M.D., of Cardiology of Georgia. "Many high-risk patients remain so forever, so it could be something you take chronically, like a beta blocker. In some high-risk patients, I have told them to take it and have not told them to stop."

Walter Alexander is a veteran medical writer. He lives in New York City.

HOPE trial participants

Mean age 66 years
Evidence of coronary artery disease: 81%
Prior MI: 53%
Prior stroke or TIA: 11%
Diabetes: 38%
Hypertension: 47%
Hypercholesterolemia: 66%

CURE trial participants

Male: 62%
Unstable angina: 75%
MI without ST elevation: 25%
Abnormal ECGs: 94%

Walter Alexander

Disease Management

Two Accrediting Organizations Prepare To Issue DM Standards

It's probable that one will become the dominant judge: NCQA or URAC. After it happens, will vendors undergo less scrutiny by individual plans?

For years, the pioneers in the disease management business had to back up almost every promise made at the bargaining table with some form of performance guarantee. DM was too new, too experimental, for its practitioners to receive the instant respect granted longtime players in health care.

By the early part of 2002, though, DM companies will have the option of signing up for an accreditation program. Two competing agencies are laying plans for programs that may take some of the heat out of the contract-review process. In this highly competitive field, winning a disease management contract in years to come may be decided by a company's accreditation status.

Or not.

So far, HMOs and employers that contract for DM are taking a cautious approach to accreditation, waiting to see whether the programs will meet or exceed their own internal inspection standards. Some are openly skeptical that the soon-to-be-established standards will satisfy all purchasers.

Early attention is likely to center on the National Committee for Quality Assurance, which recently wrapped up its second round of meetings with an industry advisory committee formed to hammer out the NCQA's accreditation standards. The NCQA will begin to apply these standards to companies seeking accreditation early next year.

"Disease management is pretty ripe for some standardization," says Phyllis Torda, vice president for product development at the NCQA.

There's plenty of support for Torda's belief, including the top ranks of the competing accreditation agency, the American Accreditation HealthCare Commission (still primarily known by its original acronym, URAC, which stood for the Utilization Review Accreditation Commission). URAC is preparing to move into DM accreditation as well, presenting the likelihood that the two agencies will compete.

"It's in the works," says Gary Carneal, president of URAC, who rates the likelihood of creating an accreditation program for DM at "90 to 95 percent. We've been thinking about it for some time."

Carneal says that, until now, he had been unsure that the DM field was mature enough for accreditation. DM "is a relatively new phenomenon," he says, noting that programs still are experimenting with different methods of care. "It was inappropriate to come in and say only this way or the other is appropriate."

That may be changing, says Carneal, who sounds increasingly convinced that the DM business is at an age where a dose of accreditation would be a valuable tonic.

Assessing risks

Industry leaders, meanwhile, see standardization as an important step along the path to widespread acceptance. "Historically, almost every industry has had to pass through a phase of standardization in order to grow," says Richard Vance, M.D., the medical director for CorSolutions and chairman of the Disease Management Association of America's accreditation committee.

The DMAA couldn't be more pleased to find itself being courted by two accreditation agencies. Competition for DM support will keep the accreditation agencies' ears open to industry input and keep the focus on accreditation as an industry plus, rather than simply as a new, costly requirement of doing business.

"There are some positives and some real risks" to accreditation, says Vance. The key to making the whole process work, he asserts, is that the agencies need to get plenty of industry feedback so they can draw up standards that will distinguish accredited companies but won't prove so costly that they barricade the industry against ambitious small or start-up ventures.

"Depending on the nature of the company," says Vance, "the requirements will be written in a way that will not be burdensome." Adds Vance: "For small companies with new ideas, we want them to be in the business."

Accreditation could actually help small companies by letting them know where they need to sharpen their performance. "If you go beyond that, all you're doing is giving the big companies a heavy advantage," says Vance. "It's a balancing issue. If in fact there are parts of the industry that can't meet reasonable standards, they shouldn't be in the industry. You can't have a program run on a shoestring without standards."

The quality of programs varies, points out Scott Weingarten, M.D., CEO of the software-maker Zynx Health and an advisory member to NCQA. Right now, "There's no way to distinguish between those that benefit patients and those that don't. Disease management vendors that are confident in their program results and their ability to improve patient care are extremely supportive."

Anybody else, he adds dryly, is less likely to join the cheering section for accreditation.

Susan Riley Earl, president of the disease management group Airlogix and another member of the NCQA's DM advisory committee, agrees. "There are players in DM that are a mile wide and an inch deep."

In some cases, DM companies specialize in communicating with patients, rather than taking a direct hand in managing a disease. Some of those companies may prefer to be certified simply in communications work, while those looking for full accreditation are likely to be examined on whether their programs prevent emergencies and unnecessary hospitalizations.

For a diabetes program, that might involve making sure that a patient gets a recommended eye exam, checking to make sure that a suggested foot exam was done, and ensuring that the full range of care is provided.

By establishing some common expectations, adds Earl, NCQA can create industry standards that are likely to become the norm. She makes no apologies for wanting to step in and work with the committee:

"It's better to participate than to sit back and wait for someone to tell you what to do," she says.

For companies reluctant to gain accreditation, it may prove impossible to opt out and still stay competitive.

"It's one of those 'If you build it, they will come,' sort of things," says Al Lewis, head of the Disease Management Purchasing Consortium. Lewis is quick to caution against any notion that everyone in the DM business will beat a path to both agencies.

"I'm only going to recommend one or the other," says Lewis. Being accredited by two groups, he adds, would be "a total waste of money." Lewis promises that once the consortium settles on a preferred accreditation program, "We will try to create a stampede toward that accreditation."

The other may well be left out in the cold. Several observers noted that NCQA is the standard for HMOs, while URAC is dominant among PPOs, a factor that may heavily influence which accreditation agency grows most influential.

URAC and the NCQA don't have to create competing programs, says Carneal: "I don't think that one set of standards will capture the variations of the marketplace."

What's its value?

Meanwhile, much of the managed care industry isn't ready to concede that either accreditation program will greatly influence its method of selecting DM companies to work with. Even the most optimistic managed care organization wants to see the ultimate shape of the programs before it makes final judgments.

"We have looked much more favorably on those entities that have some sort of credentialing," says Linda Ruhl, director of quality management at Pittsburgh-based Highmark Blue Cross Blue Shield. The key to the worth of accreditation, says Ruhl, is its potential to eliminate some oversight. "You still have ultimate accountability, but some of the reporting can be less frequent. It may eliminate annual reviews."

Questions, questions, questions

Don't confuse that kind of speculative appraisal as an endorsement. She still has plenty of questions: "How will it help us? What does the certification cover? What's its value?"

Right now, says Ruhl, as the agencies gear up their advisory committees and piece their programs together, "It's all too up-in-the-air to say for certain one way or the other."

Highmark recently completed a reorganization of its DM programs that is likely to make accreditation even more important if other MCOs follow suit.

Like many other managed care organizations, Highmark had contracted for disease management services with a variety of DM companies, each covering a specific ailment. As of April 1, the company rolled its alliances into one contract shared by two companies — Health Dialog and CorSolutions.

Now those two companies coordinate all of Highmark's DM programs. For Highmark, it's a simple way to deliver programs for patients who are likely to suffer from a variety of comorbidities — a common complaint about the limitations of many DM programs.

Some MCOs view DM as an extension of their own management efforts, rather than as independent contractors expected to deliver improved care and reduced costs for their most complicated cases. Many of those health plans aren't convinced that any industry standardization can remove all their doubts about DM's effectiveness.

"I don't think accreditation will help Blue Cross of California or Wellpoint that much," says Jeff Kamil, M.D., vice president and medical director for medical policy and quality at Wellpoint Health Networks.

"First, there are lots of companies that call themselves disease management companies," many of which make dubious claims about how they perform, says Kamil. Wellpoint, he adds, puts them all through a rigorous analysis. "There are a lot of health plans that don't have the resources we do. If they don't have rigorous standards, accreditation will be helpful."

John Carroll
Contributing Editor

A Comparison of Diabetes Patients' Self-Reported Health Status With Hemoglobin A1c Test Results In 11 California Health Plans


Purpose: To examine the relationship between hemoglobin A1c (HbA1c) test rates and values and various self-reported measures of health status within a sample of diabetes patients drawn from 11 California health plans, with a focus on improving diabetes care in this patient population.

Design: The analysis relies on data obtained from medical records of a sample population of 4,747 diabetes patients and a patient survey mailed to a large subsample of patients included in the medical-records analysis.

Methods: Descriptive methods were used to compare the medical records and survey-data results.

Principal Findings: There were substantive differences noted between diabetes patients' self-reported health status, their level of satisfaction with the care they received, and the actual care they received. There was a large discrepancy between diabetes patients' perceptions of the care they received for their diabetes, which was overwhelmingly positive, and the HbA1c test-frequency rates observed across the 11 health plans studied, which were low.

Conclusions: Patients' self-reports of health status, satisfaction with care, and extent of control over diabetes — a chronic condition that may have few perceptible symptoms — are associated with significant methodological limitations. Our examination of the relationship between perceived levels of self-management of diabetes and test status indicated that for patients who had at least one HbA1c test, some education during that process may have resulted in behavioral change. Patients who received no tests, however, may remain unaware of their glycemic control and the long-term consequences associated with even mild hyperglycemia. A clear need thus exists to educate diabetes patients about their health status. Health plan and provider group investments in educational efforts aimed at increasing testing rates are likely to lead to improved glycemic control and a reduction in the incidence of diabetes-related complications and related expenditures.


Diabetes mellitus and its complications have a profound effect on the health of our population as well as the U.S. economy. Diabetic retinopathy is the leading cause of blindness in the nation in people between 20 and 74 years of age.1 Diabetic nephropathy is the leading cause of patients' undergoing dialysis for end-stage renal disease.2 Diabetic peripheral neuropathy is the underlying cause of nontraumatic lower-extremity amputations in diabetes patients.3 More than half of lower-extremity amputations occur in people with diabetes,4 who constitute 7.8 percent of adults over 20 years of age in the United States, according to the Third National Health and Nutrition Examination Survey (NHANES III) conducted in 1988-1994.5 The prevalence of coronary artery disease is twofold higher in men with diabetes and fourfold higher in women with diabetes, compared to appropriate nondiabetic controls.6 Strokes are two to three times more common in people with diabetes than in those without the disease.7 Peripheral vascular disease is also much more common in diabetes patients compared to nondiabetic individuals.8

These complications may be avoidable. Although control of glycemia has not been shown to have a marked effect on the macrovascular complications of diabetes,9 there is irrefutable evidence that near euglycemia will delay, blunt, and possibly prevent the microvascular and neuropathic complications of both type 1 and type 2 diabetes.10-12 Unfortunately, however, these beneficial effects are seldom achieved. Studies in both type 1 and type 2 diabetes patients show that the development and progression of retinopathy and nephropathy markedly increased with HbA1c levels >8 percent, increased moderately at HbA1c levels between 7 percent and 8 percent, and increased slightly or not at all with HbA1c levels ¾7 percent.10,11, 13-15

The average glycated hemoglobin level in 4,449 patients who were followed in HMO settings was 9.51 percent, and it was 9.59 percent in 3,140 patients seen in fee-for-service settings.16 Other studies also have revealed similar poor control when evaluated by fasting glucose concentrations17-19 or glycated hemoglobin levels.20-23

One of the barriers to achieving near euglycemia is that patients tend to be asymptomatic until one of the neuropathic, retinopathic, or macrovascular complications manifests. Patients therefore may lack ongoing motivation to do the work needed to attain tight glycemic control. Physicians may communicate the severity of the patient's condition to each individual, recommending specific treatments in every case, yet they and other health care professionals face a significant challenge in motivating their asymptomatic patients to achieve near euglycemia. Moreover, continually growing constraints on physicians' time affect their ability to adequately educate patients on the importance of maintaining near euglycemia. All this suggests a need for diabetes patients to have access to diabetes educators.

In this study, the relationship between HbA1c testing rates and HbA1c test values and various self-reported measures of health status were examined for a sample of diabetes patients drawn from 11 California health plans. The study was undertaken on behalf of the California Collaborative Healthcare Reporting Initiative. CCHRI, which comprises representatives from many of California's leading health care purchasers, health plans, and provider groups, is dedicated to measuring and improving the quality of health care delivered to Californians.

The HbA1c test is a critical indicator of diabetes care. This test, which ideally should be performed at 3-month intervals, provides a measure of plasma glucose control for the previous 3 months. For asymptomatic diabetes patients, HbA1c levels are the most reliable clinical indicators of health status and glycemic control. Nevertheless, studies have shown that many diabetes patients fail to receive this test at least once yearly.21 Good control of blood glucose levels has been shown to prevent many complications that are associated with diabetes.11–18

Previous studies of patient-reported outcomes have tended to focus on conditions that have perceptible symptoms and complications. Patients with depression,24 arthritis,25 and ulcers,26 as well as patients recovering from surgery,27,28 have accurately reported their health status relative to objective clinical information. Evaluations of conditions like diabetes,29 with few detectable symptoms in the early stages, focus on the internal consistency of patient-reported responses rather than correlations with objective clinical anchors. Patients with hypertension, for instance, another condition without symptoms in its early stages, showed no significant differences in self-reported health status when compared to the self-reports of patients with no chronic conditions.30 It is unlikely that patient reports can be a reliable source for detecting asymptomatic conditions. If patients could report adverse health status for asymptomatic conditions, then these conditions would probably not be significantly underdiagnosed in the general population.


The analysis relied on data obtained from two sources: a sample of diabetes patients' medical records and a patient survey that was mailed to a large subsample of the patients included in the medical-records analysis.

Medical-records data

To measure HbA1c testing-frequency rates and values, we analyzed medical records from 11 of the health plans that agreed to participate in the California Collaborative To Improve Diabetes Management Project, or the Diabetes CQI Project. The project was conducted under the aegis of the CCHRI. All participating plans offered commercial plans, and four of the 11 also covered Medicare beneficiaries.

Specifically, we collected information on the frequency of HbA1c tests performed on the patient population during calendar year 1997. We also analyzed data on the results of the HbA1c tests. During the course of our analysis, we abstracted clinical information from a total of 4,747 medical records obtained from 11 health plans, or approximately 431 records per plan. Diabetes patients were identified using the 1998 specifications for the measure "Eye Exams for People with Diabetes," part of the Health Plan Employer Data and Information Set (HEDIS 3.0/1998). These specifications rely on both pharmacy and encounter data: A patient was identified as having diabetes if pharmacy data indicated that the individual was on insulin or oral hypoglycemics, or if encounter data indicated that the patient had at least two outpatient visits associated with a diagnosis of diabetes or one hospitalization associated with a diagnosis of diabetes. We used a systematic sampling approach, as prescribed by the HEDIS 3.0/1998 specifications, to select records for study.

The medical records were abstracted by nurses and medical-records professionals, all of whom attended a training session and received written instructions elucidating the numerator and denominator criteria. A team of clinicians developed a standardized data-abstraction form to collect the requisite data. Abstractors used an electronic version of this form to facilitate data collection and entry. To ensure data quality, record-review supervisors "overread" at least 5 percent of the records assigned to each abstractor, and provided timely feedback on errors and other data-quality issues.

Patient-survey data

As part of the Diabetes CQI Project, we mailed a survey instrument to 3,296 persons with diabetes who were enrolled in the 11 participating health plans. [The sample size was based on power calculations conducted to determine the number of individuals required to measure the effects of a planned intervention to improve outcomes of care for diabetes patients.] The sampling frames used to select patients for the survey were the patient samples that the plans provided for the medical-records analysis. The purpose of the survey was to create a knowledge base of information about persons with diabetes and the professional care they receive, from the patients' perspectives. The details of the patient-survey process were reported by Freeman, Sullivan & Co. (1999).31 The instrument used to collect the survey data was, in many respects, similar to that used in the Diabetes Patient Outcomes Research Team (PORT) project.32


For the most part, descriptive methods were used to compare the medical records and survey data results on the 11 participating health plans. We calculated means and standard deviations for all continuous variables, and compared differences in means using a standard t-test. In addition, we generated frequency distributions for all categorical variables and calculated chi-square statistics.

We also used multivariate statistical techniques to develop a set of weights that were applied to the survey results. We determined that such weights were appropriate to increase the survey's usefulness, as described below.

We achieved a 43 percent response rate to the mail survey. The response rate varied substantially by plan and plan type. In general, the response rate was higher from beneficiaries of the Medicare plans (53 percent) than from those covered by the commercial plans (39 percent). We conducted a logistic regression analysis to estimate the effects of the various patient factors on the likelihood of responding to the mail survey. Specifically, the logistic regression analysis was used to estimate response probabilities, which in theory may range from 0 percent to 100 percent. The range of survey response probabilities was found to vary from 22 percent to 76 percent. As recommended by Kalton and Kasprzyk,33 the inverse of these probabilities (1/prob) was used to construct a weighting variable that was applied to all subsequent analyses reported in this paper. The weights were higher for respondents who had lower response probabilities, compared to the weights generated for those with higher response probabilities (e.g., 1/0.22 >1/0.76). By applying these response weights, the results of the statistical analyses reported can be more readily generalized to the underlying population of people with diabetes in the 11 participating plans than would be the case if analyses that were not weighted had been conducted.

It should be noted that some of the analyses that were conducted relied on both the medical records and survey data. That is, responses obtained from various survey questions were compared to test results found in the medical records.


In the subsections below, we report the results of our medical-record reviews and patient survey, respectively. We then report the results that were obtained after we merged the medical records and survey data.

Data from medical records

Table 1 shows HbA1c test-related data for each plan participating in the collaborative. The test rate measures the proportion of a plan's diabetic patients that received at least one test in 1997. The overall test rate was 49.2 percent, ranging from a low of 38.5 percent for Plan D to a high of 58.1 percent for Plan G. None of the plans' test rates were statistically different from the overall mean rate of 49.2 at the 0.05 level.

TABLE 1 HbA1c Test Data by Plan — 1997
Plan HbA1c Test Rates Average Number of HbA1c Tests Change in Average HbA1c Test Values Proportion of Final HbA1c Values >9.5%
A 47.6 1.9 -0.6* 12.2
B 53.6 2.1 -0.6* 23.3
C 51.8 2.0 -0.8* 27.2
D 38.5 1.8 -0.3 17.5
E 56.7 1.9 -0.4* 24.1
F 46.8 1.8 -0.8* 23.9
G 58.1 1.8 -0.7* 25.1
H 41.7 2.0 -0.7* 35.6
I 49.1 1.8 -0.7* 30.8
J 49.3 1.9 -0.9* 26.7
K 48.2 1.8 -0.7* 19.2
* P<0.05

Diabetes patients who had been tested received, on average, two tests in 1997. Moreover, we observed remarkably little variation across plans in this regard, as the mean number of tests ranged from a low of 1.8 for Plans D, F, and, G to a high of 2.1 for Plan B.

In addition to examining the frequency of HbA1c testing, we also calculated average HbA1c test values by plan. Specifically, for patients with two or more tests in 1997, we calculated the average values of the initial and final tests and the differences between the two. Interestingly, the mean values improved for all plans, and all the differences were statistically significant (P<0.05), with the exception of Plan D.

In a further effort to generate insight into how blood glucose control varies across plans, we calculated the percentage of each plan's patients that had HbA1c test values beyond the Diabetes Quality Improvement Project (DQIP)34 threshold of 9.5 percent. [Technically, the relevant DQIP rate also includes people who were not tested.] The results indicate that approximately a quarter of the patients included in the sample had final (for 1997) HbA1c values that exceeded 9.5 percent. The plan-specific rates ranged from a low of 12.2 for Plan A to a high of 35.6 for Plan H.

Survey data

Survey response rates differed by age, health plan, plan type, and treatment patterns. About 52 percent of the survey respondents were male and 77 percent were enrolled in commercial plans.

A number of the questions posed in the survey related to the respondents' perceptions of their health status along with their level of satisfaction with various aspects of the care they received. For example, 73 percent of the respondents reported that they were in good to excellent health. Moreover, just over 84 percent of the respondents indicated that their health status was at least as good as it was a year ago. Overall, respondents reported that they were quite satisfied with the care they received for their diabetes. Specifically, more than 83 percent rated the quality of care between good and excellent.

Three survey questions related to diabetes management. The first asked respondents to comment on how well controlled their disease was. Response categories ranged from "very well controlled" to "not controlled at all." Overall, 44.4 percent of the commercial patients and 60.4 percent of the Medicare patients stated that their diabetes was either "well controlled" or "very well controlled."

Combined data

Using both the survey and medical-records data, we examined the degree of correspondence between patient self-reports of health status behavior and actual tests administered to patients. As shown in Table 2, in both samples, respondents who had an HbA1c test were less likely to say their disease was either well controlled or very well controlled, compared to those who did not have an HbA1c test in the previous year. [The relationship between HbA1c status and perceptions of control over diabetes was statistically significant (P-value of the chi-square <0.05) for those in commercial plans but not for those in Medicare plans. ] This result might seem counterintuitive at first glance, since the purpose of the HbA1c test is to provide definitive information on blood sugar levels and thereby enhance the ability to control diabetes. Only 51.1 percent of the sample received an HbA1c test, however, and these tests may be prescribed more often for those with a history of poor blood-glucose control. Alternatively, the results from the HbA1c test probably came back before the survey was completed, and poor results from that test may have prompted many test takers to report their disease as poorly controlled.

TABLE 2 Relationship Between Perceived Control Over Diabetes and HbA1c Test Status
(weighted n = 2,182)
(weighted n = 640)
Response No HbA1c Test Had HbA1c Test No HbA1c Test Had HbA1c Test
Very well controlled 12.7 8.3 18.9 14.3
Well controlled 35.2 32.8 42.2 39.5
So-so 42.1 48.6 32.0 34.3
Not well controlled 8.1 9.6 5.6 9.2
Not controlled at all 1.7 0.4 0.6 2.7
No answer 0.3 0.3 0.7 0.0
Total 100% 100% 100% 100%

A second survey question asked respondents to describe how well they kept tabs on their disease. As indicated in Table 3, about 54.3 percent of the commercial patients and 68.8 percent of the Medicare patients said they were "always on top" of their disease or "on top of it most of the time." Among the commercial patients, those who had had an HbA1c test sometime during the past year were significantly less likely than those who had not had an HbA1c test to say they were "always on top of their disease" or to say they were "on top of it most of the time" (50.1 percent for those with an HbA1c test, vs. 59.8 percent for those without an HbA1c test.) Again, it may be that the HbA1c test was more often prescribed for patients with a poor history of diabetes self-management or that patients aware of high HbA1c levels were less likely to conclude that they were "on top of their disease." Within the Medicare sample, no relationship was found between HbA1c status and perceptions of self-management. The Medicare sample was much smaller, however, which may explain why no statistically significant results were observed.

TABLE 3 Relationship Between Perceived Levels of Patient Self-Management of Diabetes and HbA1c Test Status
(weighted n = 2182)
(weighted n = 640)
Response No HbA1c Test Had HbA1c Test No HbA1c Test Had HbA1c Test
Always on top of the disease 17.9 13.2 30.3 17.7
On top of the disease most of the time 41.0 36.9 38.5 51.3
Sometimes on top of the disease 25.9 26.6 18.7 17.5
Slip up more than patient should 11.8 18.0 8.8 10.8
Slip up way too much 3.0 4.2 1.5 0.00
No Answer 0.6 1.0 2.2 2.8
Total 100% 100% 100% 100%


The results reported in the preceding section present substantial variations between diabetes patients' self-reported health status, their level of satisfaction with the care they received, and the actual care they received for their diabetes. Specifically, we observed a large discrepancy between the patients' perceptions of the care they received for their diabetes, which was overwhelmingly positive, and the frequency of HbA1c testing observed across the 11 health plans, which was disappointingly low.

The low testing-frequency rates that were observed are in line with the results reported by Peters et al.,21 which, using 1993 data from a major California-based HMO, found that only 44 percent of the medical records reviewed on diabetes patients had a documented glycated hemoglobin test. Unfortunately, as our results indicate, little progress has been made in the interim by California HMOs. Thus, a considerable opportunity for improvement exists.

Our results, however, are encouraging in the sense that those patients who received at least one test actually averaged almost two tests per year. Furthermore, patients who received two or more tests actually showed a statistically significant improvement in their HbA1c test values. The occurrence of multiple tests per year is encouraging because it suggests that physicians who order HbA1c tests, and patients who receive them, understand that routine testing is an important part of their diabetes treatment plan. The significant decrease in test values among patients with multiple tests suggests that the initial test results alerted both patients and physicians of the need to take steps to improve blood glucose levels through education, diet, exercise, and, when necessary, medication.

Moreover, in a set of results not reported here, for tested patients we found a high correlation between HbA1c test values and patient reports of their levels of diabetes glucose control and self-management. These results may indicate that patients who received HbA1c tests were aware enough of their results to accurately assess their health status and its relationship to their diabetes management efforts. It is reasonable to assume that the process by which physicians communicated HbA1c results to their patients was also an opportunity for the physician to educate patients on their health status and any need for improved diabetes management practices. These findings, combined with the observation that twice-tested patients improved their glycemic control, confirm the value of routine HbA1c testing as an education- and health-improvement vehicle for diabetes patients.

One troubling finding is that in spite of the low overall testing rates and percentage of patients with exceedingly high HbA1c levels, most patients reported being in good health and on top of their diabetes management. The most ironic part of that finding is that patients with no HbA1c test in the prior year perceived themselves to be in better health and control than did patients who had received at least one test. Because most patients in this sample had no tangible symptoms, patients without an awareness of their glycemic control may have assumed that "no news is good news." Specifically, untested patients may have assumed that they were in good health and good control in the absence of physical discomfort or objective clinical evidence. Patients who had received HbA1c test results, however, may have been more likely to report poorer health status and control because they had spoken with their physicians about their HbA1c results and obtained a better understanding of what it means to be in good control.

In light of these findings, a clear need exists for educating diabetes patients about their health status. For those patients who received at least one HbA1c test, some educational process may have occurred during the physician-patient interaction that resulted in behavioral change. Patients who received no tests, however, may remain unaware of their degree of glycemic control and the long-term consequences associated with even mild hyperglycemia. Health plan and provider group investments in physician and patient educational efforts aimed at increasing test rates are likely to lead to improved glycemic control and have a high pay-off in terms of reducing the incidence of diabetes-related complications and related expenditures.

Based on the observations gained from this study, increased HbA1c testing rates also may have educational value, encouraging physicians and patients to improve glycemic control and secondary prevention of complications.

Finally, our results suggest that self-reports of health status, satisfaction with care, and extent of control over a patient's disease may not be sufficient indicators of quality of care for chronic conditions with few perceptible symptoms. The reliability of patients' self-reports are most suspect when patients have varying levels of awareness about their disease and clinical outcomes. Additional analysis of the differences in self-reported health status between clinically informed and uninformed patients may further elucidate the implications of using patient reports for asymptomatic conditions. Many chronic illnesses, such as hypertension and hyperlipidemia, have few perceptible symptoms until the patient's condition has advanced to the point of developing vascular complications (e.g., heart attack, stroke). Given this fact and the findings presented here, patients with chronic asymptomatic conditions who report good health status may need more targeted outreach and education from their physicians and health plans.


The authors would like to express their sincere appreciation to Bayer Corporation, Bristol-Myers Squibb, the Diabetes Control Program of the California Department of Health Services, Hoechst Marion Roussel, Inc., LifeScan, Parke-Davis, and Pfizer for their generous financial support.


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Corresponding Author:
Jeffrey Wasserman, Ph.D.
The Medstat Group
5425 Hollister Avenue, Suite 140
Santa Barbara, Calif. 93111-2348
Email: jeffrey@rand.org

Jeffrey Wasserman, Ph.D.
The Medstat Group, Santa Barbara, Calif
Gifford Boyce-Smith, M.D.
Blue Shield of California, San Francisco
David S. P. Hopkins, Ph.D.
Pacific Business Group on Health, San Francisco
Vernon Schabert, Ph.D.
The Medstat Group, Santa Barbara, Calif
Mayer B. Davidson, M.D.
King-Drew Medical Center, Los Angeles

Health Plans Demand Proof That DM Saves Them Money

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?

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.

John Carroll
Contributing Editor

Mergers, Acquisitions Afoot In Disease Management Industry

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.

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.

John Carroll
Legal Forum

Despite What You Hear, State Privacy Statutes No Threat to DM

In Managed Care's November 1999 issue, Al Lewis, president of the Disease Management Association of America, wrote about potential pitfalls facing DM. One identified by Lewis was state privacy laws, a topic that merits further attention.

When the Health Insurance Portability and Accountability Act became law in 1996, it was the most sweeping health care legislation in decades. We haven't felt the full brunt of it yet.

HIPAA covers broad categories that include provisions for health insurance coverage portability when employees lose or change jobs. It also expands the scope for fraud-and-abuse investigations.

However, the part of the law that has been simmering on the back burner — "administrative simplification" — is going to envelop the entire health care industry in a little more than two years.

Administrative simplification requires all health care organizations — including HMOs, physicians groups, and clearinghouses — to use specific computer technology that is standard to all.

It standardizes transactions between physicians, payers, and the government — covering such things as health care claim encounter information, enrollment and disenrollment data, eligibility and referral activity, and premium payments.

Implementation will be painful and expensive for all involved. Short-term pain and suffering, however, should yield long-term benefits of reduced costs and improved quality for our health care system.

One pothole along the road to standardization is violations of privacy. On Nov. 3, 1999, the U.S. Department of Health and Human Services proposed a rule containing standards to protect privacy of health information covered under HIPAA.

The proposal includes provisions for security when exchanging the information, and more provisions that would guarantee the privacy of health information.

Information needed

Privacy, insofar as DMAA is concerned, however, is where problems begin to mount. DM programs need access to information, plain and simple. Privacy guarantees that impair such accessibility can have a crippling effect on the process.

DMAA lobbied Congress intensely last summer and its efforts may have paid off. Privacy protections under the proposed rule do not extend to health care management of the individual through risk management, case management, and disease management.

Each of these is considered an extension of patient treatment under the rule. Information, in turn, may be used and disclosed in furtherance of patient treatment.

The rule is proposed, however — not final. HHS is accepting comments from the public right now pertaining to the proposal (the department is being besieged, actually) and it will review those comments before making the rule final with or without modification.

DMAA, rest assured, will do everything in its power to be sure that there is no modification with respect to carveouts.

Enter state statutes

Unfortunately, the proposed federal privacy rule does not preempt more stringent state statutes that relate to the privacy of health information. Preemption is a major issue under the rule, and is likely to be the topic of considerable debate in the future because the rule includes many exceptions to preemption.

Most states have privacy laws. Few, however, address privacy within this context. This figures to change in a hurry. In 1999 alone, lawmakers in 35 states introduced more than 300 bills relating to the confidentiality of medical records.

In 1999, California passed legislation that allows access to patient information by DM programs only after receiving authorization by treating physicians.

DMAA views the physician authorization requirement as a substantial impediment to its purpose and, undoubtedly, hopes that other states choose to follow the proposed federal rule.

Whether states choose to emulate the federal law or enact legislation along the lines of California's law remains to be seen. In making the decision, they'll no doubt be forced to weigh the importance of patient privacy rights against the public need for proactive programs that are designed to improve overall health and reduce costs.

Different ball game

DMAA successfully lobbied Congress, but lobbying successfully at the state level would be a different, more difficult, ballgame. A more likely scenario would have the DMAA hoping that most state legislation falls in line with the federal rule.

The DMAA would then have to resort to lobbying medical societies in those states, such as California, where physician authorization is required for access.

Still, I don't share the DMAA's gloom that state statutes like California's are terrible obstacles. At the present time, most states have broad physician-patient privacy statutes. Patient authorization for access to records is common, however.

For example, physicians — as a condition of treatment — generally require patient authorization to submit patient information to insurers in connection with the reimbursement process.

This is nothing more than formality. Is the DMAA's contention that physicians don't want to deal with the hassle of authorization or that they would rather not provide authorization for financial or other reasons?

Frankly, I don't see either as a viable concern for the DMAA. In any event, it's my hope that this doesn't become a widespread issue and that the majority of states will support disease management and follow the federal rule.

Mark D. Abruzzo, J.D., specializes in health care law at the Berwyn, Pa.-based law firm of Wade, Goldstein, Landau & Abruzzo.

Mark D. Abruzzo, J.D.