Disease management


Disease Management: A Special Report

Snapshot of a growth industry

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

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

Reprinted with permission from the Disease Management Purchasing Consortium & Advisory Council. Copyright 1999. For latest information contact DiseasMgmt@aol.com


Disease Management: A Special Report

Disease Management: A Special Report

Some Medical Groups Prefer To Grow Their Own DM Programs

Naturally, doctors are more likely to buy into a physician-led DM program. Rewarding them for resulting lower medical costs keeps them in the game.

If a patient whose physician works for Harvard Vanguard Medical Associates ends up in a hospital with congestive heart failure, odds are high that the patient will be enrolled in the group's disease management program. The goal: never repeat that hospital visit.

The congestive heart failure program is run by three nurse-practitioners employed by Harvard Vanguard, a 550-provider group based in Boston. The nurses, who work closely with primary care physicians and cardiologists, see patients regularly, assessing their medications, aiding their rehabilitation, and educating them about CHF and how best to take care of themselves.

It's a success, says Diane Gilworth, R.N., clinical manager of the program. From 1997 to 1998, patients enrolled in the CHF program had 92 percent fewer emergency room visits and 40 percent fewer disease-related hospital admissions than those hospitalized for CHF before the program started.

Those numbers are strong, even better than commercial disease management programs might produce, says Al Lewis, president of the Disease Management Association of America. He's not surprised. When a disease management program has its roots in a medical group or other provider organization that includes physicians, he says, the savings are almost always multiplied.

"It's possible to do disease management without physician involvement, but it is more successful if you do have physician involvement," Lewis says. "And the extreme of that is when the physician group is actually undertaking the program."

Disease management is growing fastest within provider organizations, consultants say. Some insurers, too, are turning over more disease management responsibilities to physicians and provider groups. It makes sense for providers to do disease management, experts say. Physicians see the patient as a whole and are able to apply protocols from hospitalization through home care. In addition, doctors and other providers can care for coexistent medical problems.

The biggest reason for provider groups to lead disease management efforts, though, is that doctors are much more likely to participate if the program is coming from within, Lewis says. "A decent disease management program will get physicians covering 50 percent of its patients to take an active role in the program. When the physician group does it, that figure is very close to 100 percent," he says.

Challenges exist whenever a medical group undertakes formation of a disease management program. Compensation is an issue, especially when physicians are providing services that aren't typically covered by a health plan, such as education.

But many organizations are forging ahead, and they say their patients will benefit.

"If you're going to change a system," says Tamara Lewis, M.D., medical director for community health and prevention at Intermountain Health Care in Salt Lake City, "you have to do it internally."

Charlotte's success

The Sanger Clinic in Charlotte, N.C., is one group practice giving disease management a go. The 60-member group of cardiovascular specialists has programs targeting several conditions, including adult cases of congenital heart disease, lipid management, and congestive heart failure.

Physicians designed protocols for the programs, and on designated clinic days they work with a team of nurses, physical therapists, and pharmacists to help patients get better control over their health problems, says Stephen L. Wagner, Ph.D., CEO of Sanger Clinic.

"The disease management programs tend to be multidisciplinary and include a lot of patient education," Wagner says. "We are trying to get patients to understand the issues related to their disease so that they can do the right things to keep from getting into trouble. We want to keep their quality of life up and keep them out of the emergency room."

Physicians take the lead in all of the disease management efforts, Wagner says. Physicians work within the protocols, but decide for each patient how much exercise, what types of therapy, and what medication changes he or she should have.

"We think it is best if the physicians are at the front of this and really directing traffic," Wagner says. "They have the best overall understanding of the patient's condition, so they can integrate all of the care."

Treating the whole patient

Such close physician involvement is what makes medical-group efforts stand out from those of independent companies, says Jon Mayer, R.N., a health care management consultant at Milliman & Robertson Inc., the actuarial and consulting company. "In provider-run disease management programs, physicians really know the patients. They understand all of the medical problems the patients are facing, and they can address them. In comparison, an outside company sometimes finds it difficult to define what it is and is not supposed to be managing."

Congestive heart failure patients in Harvard Vanguard's program often have primary care problems other than CHF, Gilworth says. Because she and the other program nurses communicate often with the primary care physicians, they can expedite all kinds of care for patients in the heart disease program.

"The most important reason medical groups should take on disease management is that outside companies don't have any inherent responsibility for the patient," she says. "We can actively manage a patient's multiple issues. We can help patients with their diabetes, their hypertension. That is something most outside programs do not provide."

Before Harvard Vanguard launched its heart failure program several years ago, it considered hiring a vendor to operate a disease management program for its patients. The group's decision to run the program in-house has proven to be less expensive, as well as more beneficial to patients, Gilworth says, encouraging other medical groups to do disease management themselves.

Executives at Intermountain Health Care also like to see physicians in charge of DM programs. As an integrated health system, Intermountain designed care management programs to cover all sites of care, from hospitals to patients' homes to outpatient settings.

Integrated delivery networks have a greater ability to control care in all settings, from inpatient to ambulatory to home-health care, says Mayer. "An outside company can really only educate patients and monitor their compliance. It is still up to providers to care for and manage the patient. That is where gaps begin to exist with outside programs."

At Intermountain, care management teams design interdisciplinary protocols that physicians, nurses, therapists, and others follow throughout all stages of care. Most diseases addressed have short- and long-term components, says Jill Hoggard-Green, assistant vice president of clinical support services. Patients with diabetes, for example, can have acute problems that land them in the hospital. But they also have to manage their condition on an everyday long-term basis.

"The only way to make significant behavior change is to work in an interdisciplinary way," she says. "You need to have all the players involved. For instance, you can have a protocol that covers what happens with a diabetes patient in the inpatient and outpatient settings in terms of medication management and treatment, but you'll find that you won't be able to make his blood sugar as stable as you would like it to be over the long term without a tremendous amount of coaching from educators."

Intermountain's own health care plans also have proven to be very helpful to the disease management process, says Intermountain's Tamara Lewis. "When we realized that patient coaching and education were critical components of our programs, we had the health plan representatives there to help put that together. They went back and added that component to the benefit structure."

Intermountain insures about 1 million people through its own health plans and affiliate contracts in which companies lease the Intermountain network. The provider organization has not yet priced its disease management programs for other insurers, Hoggard-Green says.

Reluctant to pay

Physician organizations say compensation for groups that do disease management is a tricky area that needs to be addressed.

Brown and Toland Medical Group in San Francisco scaled back its DM programs because insurers failed to compensate the 2,000-physician multispecialty group, says Michael E. Abel, M.D.

The group began implementing disease management programs in the early 1990s when it launched in-office risk assessments and education sessions for the elderly and a program for HIV patients. Programs for patients with asthma, diabetes, and other diseases followed.

But as the group reduced overall costs by shifting care from the hospital to the physician's office, pressure to reduce the group's capitation rates grew.

"Neither health plans nor employers rewarded us financially for these programs," says Abel. "As we managed these populations effectively and efficiently and our costs went down, the pressure increased to reduce the payments coming to us."

Brown and Toland has repeatedly been commended for the quality of care it provides, but that has not translated into financial support to keep disease management programs going, Abel says. All of the programs today are stripped-down versions of what they were.

"It is impossible to do what we believe is the right thing if we don't get compensated appropriately," Abel says.

Uncodable care

Insurers do not pay Sanger Clinic physicians for their disease management programs, either, Wagner says. Physicians are only compensated if the services they provide can be coded for payment. Education does not often fit that bill, Wagner says.

Some insurers, however, are trying to address the payment issue in hope of gaining the benefits of physician-led disease management.

Gregory Preston, M.D., chief medical officer for managed care at Blue Cross and Blue Shield of Tennessee, looked for medical groups that would provide disease management and found none. So the company is beginning to encourage physicians to provide educational and other pieces of the insurer's disease management programs and get paid for it.

When Blue Cross identifies a candidate for a disease management program, the insurer asks the patient's physician if he or she would like to provide a group of services, such as nutritional counseling sessions. Blue Cross provides all of the material necessary for the program and pays the physician a package fee. If the physician chooses not to provide all of the services, he or she still can get extra compensation for doing telephone consultations with nurses about the patient. Typically, this wouldn't be paid for, says Preston, who used to work for a large medical group that did disease management. "This isn't the same as a group practice doing disease management on its own, but we wanted to give physicians the choice."

Blue Cross and Blue Shield of Florida also is working in new ways with physicians to operate disease management programs. In one program, the insurer has authorized nephrologists to act as the primary care doctor for patients with end-stage renal disease. This way, the nephrologist can treat the main disease, as well as assess and either treat co-existing conditions or refer the patient to other specialists. Blue Cross has authorized additional treatments and medications for people in the program.

"Most people who have end-stage renal disease have more than one major condition that affects their overall health status," says Larry Reynolds, director of Blue Cross's Advanced Renal Options program. "Nephrologists can look at total body systems in a way that optimizes the renal care a patient receives, as well as other ongoing conditions."

Patients with end-stage renal disease often have diabetes, cardiovascular disease, and high blood pressure, says Robert P. Geronemus, president of South Florida Nephrology Associates and consultant medical director for the Advanced Renal Options program. "You need to have one person coordinate things, and the nephrologist is ideal, because the nephrologist is the person who is seeing the patient most frequently."

Physician involvement early on helped form the disease management program so that it would best benefit patients, Geronemus says. That's unusual, he adds.

"The practice of medicine has been very much influenced by what is paid for; rarely do physicians get asked what they really think ought to be done," he says. "But in this program, that's what happened. Blue Cross and Blue Shield wanted to get a high degree of physician involvement from the beginning."

Because nephrologists act as primary care physicians, that involvement has continued, Geronemus says. "The physician is in the middle of this on a day-to-day basis, managing care with the encouragement of the insurance company and for the benefit of the patient. Everybody wins."

MargaretAnn Cross is a freelance writer based in Allentown, Pa. She specializes in health care.

Disease Management: A Special Report
MargaretAnn Cross

Disease Management: A Special Report

Attention to Detail Crucial in Designing A DM Program

Steps used in creating a system that markedly improved asthma outcomes and cut costs at Hartford Hospital are typical of what's involved.

Some argue that the extreme health problems in urban areas result from inability to deliver care. Others feel this inequality is inherent in the population's attitude toward seeking appropriate services. The so-called urban health penalty, the confluence of such circumstances as poor nutrition, poverty, and unemployment — with deteriorating housing and violence — has created a deepening health crisis.

Jessie Wing, M.D., from the Centers for Disease Control, wrote: "To begin addressing some of the issues that affect the health of our inner city communities, we must be willing to develop solutions that are timely, culturally sensitive, and acceptable to these communities. These complex health problems will require thoughtful, multidisciplinary approaches and interventions at multiple levels. Partnerships between inner city community leaders, health officials, and policy makers need to be fostered to develop successful interventions."

Potential solutions must account for reality. To operate effectively in the emerging "managed lives" environment, hospitals must redesign themselves as providers of effective, efficient care with predictable and beneficial outcomes — not only in the hospital setting, but wherever care is given — and emphasize prevention and health maintenance rather than treatment of disease or disability.

As the complexity of health problems increases, it will mandate a thoughtful, multidisciplinary, team approach with access to interventions at various levels of intensity. If costs are to be controlled and better-quality care is to be provided, there must be a focus on market-based-system management for a particular disease. Disease management is a comprehensive, multidisciplinary, collaborative, approach to health care delivery and prevention.

There are three main components of DM:

  • A knowledge base that defines the natural history and economic structure of a disease for each particular juncture in the disease process and includes guidelines regarding the care to be provided, by whom, and in what setting;
  • A health care delivery system of partnerships between primary care providers, subspecialists, social organizations, and others that provide coordinated care throughout the disease process, breaking down the traditional boundaries that fragment our system; and
  • A continuous-improvement process that measures and evaluates clinical, financial, satisfaction, and health-status outcomes; refines treatment standards; and continuously ensures the highest quality of care.

DM and hospitals

Hospitals are the single largest provider of health services in their communities. In 1990, 38 percent of all health care expenditures — $269 billion — was related to hospital care. Not-for-profit hospitals often provide a disproportionate amount of critical care, such as intensive care, to lower-income citizens. Often, these services are not reimbursed.

To thrive in this climate requires identifying patients who cannot manage their needs independently outside the hospital, and helping them obtain the most appropriate level of care. The increasing complexity of health problems requires a thoughtful, multidisciplinary team approach that allows for interventions at various levels of care.

That is what we helped to implement — we think successfully — at Hartford Hospital, an 800-bed tertiary medical center in Hartford, Conn., which provides health care to a culturally and economically diverse population. The Adult Primary Care Practice serves a predominantly inner-city Hispanic population of approximately 15,000 patients. The payer mix is quite diverse. Approximately 60 percent are Medicaid (25 percent of these are managed Medicaid for whom we assume 100 percent risk). The remaining 40 percent are fee-for-service patients. Half of those are Medicare; the other half are "self pay," which is essentially lost revenue.

The initial step is choosing a disease to manage. DM is most applicable to diseases for which much information exists. Evidence-based protocols are easily developed, and outcomes that are sensitive to change can be measured. The diseases should be high volume, high cost, high morbidity and mortality, and a financial risk to the organization.

With these criteria in mind, we chose to target our asthmatic population, thus the name of the initiative, Asthma Control & Education, or ACE.

Once the disease population is identified, careful evaluation of the organization's administrative database on the specific disease is essential. Costs, both direct and indirect, regarding emergency department visits, hospitalizations, physician office visits, and disease-specific charges are a few of the elements one needs to examine. The data should be collected and tracked consistently, according to such modifiers as ICD-9 codes, discharge statistics, or claims data. Whichever you choose, ultimately based on the ease of acquiring data, continue to track the data consistently, preferably monthly or quarterly.

Next, we conducted a survey of benchmark programs and performed an extensive literature search for best practices, accepted guidelines, and thorough disease overview. Numerous resources (Medline and other Internet sites and discussion forums) can provide valuable information on existing programs and clinical-practice models. This information will serve as a guide when designing educational materials and content of specific programs.

We visited regional and national health care centers that had demonstrated success in initiatives with similar populations. We also found national conferences on disease management to be invaluable for obtaining information about programs and allowing us to network and build collegial relationships with others in the field. The National Managed Health Care Congress, the Zitter Group, and the Disease Management Association of America are just a few of the organizations that hold such meetings throughout the year.

We also obtained a lot of valuable information from Lovelace Healthcare Systems, which offers in-depth seminars on disease management.

The resources available are considerable and those that have experienced early success in disease management have been extremely generous with their time and in sharing their experiences and lessons learned along the way.

Key players

Next, we identified the key players, assembling a team that represented all disciplines involved in the disease-fighting process. It is imperative that a well-thought-out vision be articulated, and be incorporated into the mission of the organization. Is the focus to be inpatient or outpatient? Will it be primary-care-based or subspecialty driven? Will it be based in community practices or at a large tertiary center? It is important to define the scope of the program to anticipate the resources that will be needed to execute and maintain it.

ACE is a primary care, outpatient-based educational program targeting high-risk, inner city, predominantly Hispanic patients with asthma. Although focused on the outpatient setting, this comprehensive program begins in the emergency department and continues throughout the hospital stay and into the home with an environmental survey and home assessment. The patients are seen initially for three educational sessions with follow-up at three, six, and twelve months.

A "physician champion" is necessary to lead the charge and provide the clinical expertise in regard to guidelines, best practices, and clinical outcomes. Using outcomes research, our own "champion" identified data that were clinically relevant, as well as feasible to measure. We found that it was important to complement clinical measures with economic and quality-of-life outcomes, while not limiting the patient and burdening the staff with laborious exercises in data acquisition.

Next, we recruited in-the-trenches players who were essential to the success of the program. The foundation of our ACE program is our asthma nurse coordinator. Since more than 90 percent of the patients in our program are Hispanic, we utilized bilingual and bicultural nurse educators.

Other team members necessary to ensure success include pharmacists, social workers, substance abuse and smoking cessation counselors, ER staff, respiratory therapists, inpatient nurses, and subspecialty consultants in pulmonary medicine, and allergy and immunology.

In addition, partnerships with the managed care organizations in which patients are enrolled are important. In our program, case workers representing the HMOs conduct home assessments and environmental surveys on all of our patients enrolled in their plans. They provide outreach services as well as enrollment data.

Local agencies can provide community based research, disseminate culturally sensitive educational materials, and help promote change in health and health care policy in the community. We worked closely with the Hispanic Health Council, which helped us identify barriers to care that are specific to our patients, and helped provide resources to overcome those barriers.

The council also provides a nonthreatening environment within which we can deliver effective education. We hold monthly group support sessions where members of the community can convene in a familiar setting and share experiences. The power of patient-to-patient education is tremendous and should be encouraged wherever possible.

Finally, local health departments can provide resources for new initiatives and help collect and coordinate data on the broader determinants of health that inform decision making and resource allocation throughout the community. Once we had assembled our team, we created a flow map of the care provided. We included all of the members of the team and actually walked through each individual's area of responsibility.

The most valuable participant in this process is a patient from the community. Who better to identify process issues than someone who has experience in each segment of the health care environment, from the emergency department to inpatient admission, to the follow-up appointment process in the primary care practice, to the subspecialty referral, and even to the visiting nurse at home? By mapping out these care practices, we were able to identify "critical junctures," or loopholes, in the system with potential for poor outcomes.

Outcome evaluation is an important component of any DM program. Ours came from traditional clinical endpoints — such as mortality and morbidity — as well as from patient-reported outcomes, such as functional-health status, quality of life, and patients' satisfaction with the care they received.

In addition, we incorporated process measures, such as clinical tests and service components, so we could link process to outcomes. The data from the evaluation identified opportunities for improvement and documented successes. We got answers to the questions: "Was this a worthwhile effort? What impact did it make? How can we improve the program?"

What worked

An examination of the literature told us that the advantage of employing widely used measures and tools was the ability to set targets and identify best practices with which to compare our progress. An example of functional health status measures that have been widely used in populations typical of DM programs are the SF-36 and SF-12.

For clinical outcomes, national associations have developed standards for measurements that provide a good starting point. Guidelines for the Diagnosis and Management of Asthma, from the National Institutes of Health Expert Panel Report 2, include a severity rating scale and outline treatment algorithms.

Patient satisfaction surveys are also commonly part of an evaluation of a DM program and again should utilize instruments that at least have been field-tested.

Because of the increased competition for dollars, we were called upon to address financial, as well as quality, issues. Quality improvements need to be converted to dollars saved and the cost of running a program has to be tracked so that an estimate of return on investment can be calculated.

We made projections before implementing the program, using best- and worst-case models. Risk vs. fee-for-service dollars need to be included in this "what-if" tracking.

After identifying the measures to be incorporated into the evaluation, the methods and procedures for implementing the evaluation must be carefully explored. Grand plans that are not feasible only result in failure and frustration. This is particularly so in working with the managed Medicaid population, in which language barriers and complicated lifestyles do not lend themselves to lengthy self-completed surveys or additional attendance at sessions where clinical care is not offered or some other incentive is not provided.

We realized that resources for conducting the evaluation needed to be identified and, if incorporated into existing roles, had to be as simple as possible and follow the vein of the program closely. In designing the evaluation, the population needed to be clearly defined to include all points of entry into the system.

For example, if participants were scheduled to attend a site session quarterly, it seemed sensible to have participants complete surveys while on site.

If telemanagement is the cornerstone of a program, it may make sense to incorporate short data-collection interviews into the phone call. While mailed surveys are less labor intensive, one should not choose them without considering potential difficulties with response rates.

Despite technological advances, clinical data — such as laboratory tests — can be difficult to track unless part of a closed system. Identifying all steps and potential pitfalls up front can save a tremendous amount of time on the back end.

Implementation team

When we were ready to launch our DM program, we assembled an implementation team to help with systemwide communication. In-service workshops regarding the fundamental principles of DM, the care process that was to be implemented, the clinical guidelines that would be followed, and the value of this initiative needed to be delivered to all the clinical areas involved. (You may want to videotape this presentation to ensure that all staff members have a chance to experience it.)

We provided education on the criteria for enrollment to people at all points of contact, and created a customer-friendly process of access for both the patients and the clinical staff. New forms and data-collection tools were kept in visible areas with the necessary information highlighted.

We laminated the clinical guidelines and protocols and placed them in the areas where we knew they'd help improve compliance and consistency of care.

We knew that it was extremely important that all members of the organization were consistent in their interactions and interventions with patients to decrease practice variation and to minimize confusion.

Educating patients and their families was also necessary to ensure success. DM implies a proactive approach. We engaged patients and their families as active participants. We tried to make patients feel confident in managing their illnesses, so that they could recognize a change in status and respond appropriately.

Once all procedures were outlined and the staff trained, we began to collect data. Keeping in mind the culturally specific needs of participants, we employed bilingual interviewers.

Frequent meetings with personnel involved in data collection identified problems and solutions, and made us all more cognizant of the importance of complete data capture and accuracy.

Continuous feedback helped us identify issues early on and kept providers informed. Demographics of the population served, numbers enrolled, individual case studies, and aggregate analysis of key indicators — such as compliance with standards of care and best practices — were all useful.

Analysis of individual case studies helped to identify process problems that were subsequently avoided. Interpretation of the data turned out to be an iterative process that required several meetings between the outcomes research and clinical staffs.

Results were both descriptive (counts or percentages of tests completed) and inferential in nature. In the latter case, statistical significance was carefully interpreted.

How we fared

Our outcomes research initiative is three years old and going strong. To date, we have enrolled more than 500 patients. In this very high-risk population, we dramatically reduced ER utilization and hospitalization by 63 percent and 79 percent, respectively. We have demonstrated a statistically significant improvement in both physical and mental components of the SF-36, reflecting improvements in both functional status and quality of life. Most important, however, is the marked increase in patients' disease knowledge as demonstrated by responses to an open-ended questionnaire addressing key issues in asthma management.

Developing and implementing any DM initiative is a formidable challenge, and success depends on several factors. First, the focus must always be the needs of the patient. There must be organizational alignment with DM woven into its strategic plan. The concept must be endorsed and supported by senior management who are prepared to participate in nontraditional segments of health care.

Success also hinges on the availability of, and access to, sophisticated integrated information systems that must be user-friendly and provide access to clinical, financial, and health status data. Outcomes research staff should support the coordination and analysis of the data with continuous feedback to providers based on disease specific and population processes and outcomes.

Respecting the physician

Physician buy-in and support is of paramount importance to ensure the success of the DM movement. Gaining acceptance from physicians requires their participation in the process from development to implementation. Guidelines must be developed that will endorse, but not impede, medical judgment. Clinical models must be flexible enough to respect individual style but not encourage variation from best practice.

The landscape of the health care environment is ever changing. As DM evolves, a new prodigy is already on the horizon: management of population health. Emphasis on wellness and prevention will result in populations with much broader demands on the health care system. Attention to the psychosocial and environmental aspects of wellness and disease will mandate redesign of existing resources to deal with the challenges these dimensions will create.

Never before has our dependence on integrated networks of health care delivery and information been so strong. The foundation built by the pioneers of DM thus far has us well positioned to face these challenges and ensure the stability and success of our health care delivery system well into the 21st century.

Scott A. Wolf, D.O., is director of clinical operations/ambulatory medicine in the department of medicine at Hartford Hospital in Hartford, Conn. Rose Maljanian, R.N., is director of outcomes research.

Disease Management: A Special Report
Scott A. Wolf, D.O.
Rose Maljanian, R.N., M.B.A

Disease Management: A Special Report

Show Me The Outcomes!

Valid outcomes studies in disease management are elusive. Which are good? Which are not? How do you evaluate what a vendor has to offer?
Out·come (out´·kum), n. 1. A final product or end result; consequence.
2. A conclusion reached through a process of logical thinking.
(Random House Unabridged Dictionary of the English Language, second edition, 1987.)

If you go by the first definition, you'd have to agree that the slew of data touted by the disease management industry to sell itself are just what it says they are: outcomes. Identify your subjects, develop a baseline, intervene, and show your results.

"You can report any outcome you want, but the question is, 'What’s your question?'" says Neal Friedman, M.D., medical director for Albuquerque, N.M.-based Lovelace Healthcare Innovations. "None of those answers are inherently wrong."

It's the second definition that ignites debate. There's little agreement among the 170 U.S. DM companies about the processes used to reach conclusions. Outcomes are many, but results that knowledgeable buyers of DM agree are valid are few.

"As an industry, we're not counting everyone the same way and we're not analyzing the same way," says Bob Stone, executive vice president for American Healthways (based in Nashville, Tenn., and known until last month as Diabetes Treatment Centers of America, or DTCA). "I'm reminded of when New York raised its sales tax from 8 to 9 percent. The debate was, 'Is it a 1-percent increase, or a 12-percent increase?' That's what everyone faces when they use outcomes to evaluate what they buy."

Eventually, meaningful outcomes will define the value that DM brings to medicine. From Benjamin Rush's bleed-'em-healthy philosophy of the 1700s, to neurology's "electric baths" of a century ago, to the all-but-extinct staff-model HMO, the history of medicine is full of well-intended false starts. Whether DM fades as another failed notion may depend on how quickly the industry can produce respectable outcomes on a consistent basis.

The "good" studies

A roster of universally accepted outcomes is short. One study on almost everyone's list was published by DTCA in the Journal of Clinical Endocrinology and Metabolism in 1998. A retrospective analysis of 7,000 patients in DTCA's NetCare program found a $50 per-member, per-month savings in diabetes treatment costs over 12 months. Admissions dropped 18 percent; such interventions as eye and foot exams and hemoglobin A1c tests increased.

Some respectability stems from the fact that the study examined patients in seven health plans. "The DTCA article is an example of what works," says Al Lewis, who, as president of the Disease Management Purchasing Consortium, makes a living picking such things apart. "It's peer reviewed, and the design is as valid as it gets."

Outcomes from Lovelace's disease-specific "episode of care" teams are also often mentioned among the "good ones." Its pediatric asthma team, for instance, documented a two-year, 40-percent reduction in admissions among 4,000 patients, while the low back pain team reported a two-year, 35-percent drop in spine surgery. Two-year data are rare in DM.

Their context adds credibility. Working within Lovelace's integrated health system, the teams follow patients through varying levels of care, assisting physicians in determining the best treatment. "It's part of a health care re-engineering effort, rather than creating partitions within a health care system," says Friedman.

Beyond these, lists become more subjective. Only a handful of peer-reviewed outcomes studies have been published. Humana reported a 60-percent drop in admissions for CHF in Disease Management in 1998. Blue Cross of California touted big improvements in HEDIS screenings for diabetic people in Diabetes Care last year.

The dearth of peer-reviewed literature may be as much about business as Swiss-cheese science. "Some companies that might have data with statistical or scientific validity won't publish it, because they think it gives them a commercial advantage," says Jim Bonnette, M.D., chief medical officer for Nashville-based Health Connections Inc., a DM company. "Why give away your secrets?"

Ah, peer review isn't everything, says Lewis. "It's my experience that peer review is not 100 percent correlated with valid study design. Likewise, there are plenty of valid studies that aren't peer reviewed."

Stone ticks off his own mental list: "Some asthma studies from drug companies are good, but I haven't seen anything good on comprehensive respiratory care. There's nothing comprehensive on total cardiac disease; some CHF analyses are good, but you have to dive behind them to see how big the population is and how the base period is established."

The future holds promise. The U.S. Agency for Health Care Research and Quality put up $2 million to fund the first randomized controlled trial, comparing outcomes for Medicaid patients in asthma DM programs against those outside of DM care. The University of Pennsylvania's Alan Hillman, M.D., M.B.A, is the lead investigator for the study, which will follow patients for three years.

Not proven

Until then, the onus is on the DM industry. "We all have the gut feeling that DM works, or we wouldn't be in the field," says Bonnette. "But I don't think we've proven it yet."

What most DM vendors report are subsets of information, typically, how small groups of acute patients benefited from short-term interventions. Not much science in that, bemoans Bonnette: "Unfortunately, most of the value of that is in marketing."

Stone, at American Healthways, concurs. "We see a lot of studies with very small sample sizes. If I'm a medical director or a CEO at a health plan, I'm not sure I'd have a high degree of confidence in them, particularly for a concept that is still relatively new."

Bernard Mansheim, M.D., chief medical officer for Coventry Health Care, suggests that nothing out there — regardless of external validation — is an outcome in the truest sense. "Any outcome is going to be a long-term measurement. The ravages of diabetes — nephropathy, heart disease, retinopathy — occur over 10 to 30 years. Whether you prevented those things will take years to determine."

Consequently, what's touted are financial outcomes, based largely on cost avoidance. "That's a leap of faith," says Mansheim. "You can calculate savings of members who didn't end up in the hospital, but it's awfully difficult to prove they would have ended up there without the intervention."

In the absence of long-term outcomes, financial projections are most DM programs' best marketing tools. "Potential customers talk quality and measurement, but in the long run, they're not going to buy a system unless it helps to reduce their costs," says Iver Juster, M.D., a medical informaticist and chief medical officer for Palatine, Ill.-based Heads Up Population Health Management Services.

Four kinds of outcomes are generally offered now: clinical, functional status, satisfaction, and financial. Considering that DM-outcomes reporting is in the "first or second generation," Juster says, most of what's offered today "isn't that bad.

"But agreement on standards and making them usable is more important than spending 12 months revising some subtlety," he says. "Before inventing third-generation stuff, we need to ensure people do things consistently so we can make comparisons."

Bonnette agrees. "Unless we agree on a format for reporting and say, 'This is not scientific, it's just a short-term interim report,' then our press releases hurt us. Who knows whether to believe them?"

Garbage in, garbage out

Some movement toward standardization is under way. Juster cites the work of John Ware, Ph.D., of New England Medical Center, who developed the SF-36, a standardized questionnaire with validated scales for measuring health status from a patient's point of view. Using this, results of various types of interventions can be compared.

Industry leaders are taking steps, too. Together, Lovelace and Hartford Hospital are developing criteria people can use to evaluate outcomes. American Healthways produced standards for DM programs (to be released early this year), with the goal of helping buyers evaluate DM vendors' proposals.

A top consideration for any credible outcomes report, says Stone, is a fixed period, e.g., a calendar year, for comparisons. In some studies, a baseline for a given patient's health costs is calculated on a time frame that ends with a hospitalization. Almost by default, then, future savings are guaranteed.

"Most people with chronic disease who have an acute episode tend not to have another in a 12-month period, even without intervention," says Stone. "If you load the severity into the base period, your 12-month outcomes aren't very impressive."

Another mark of credibility, many agree, is large sample size. "Saving 53 percent on $30,000 of expenditures for 60 people is impressive," Stone says. "Saving 13 percent of $5,000 for each of 40,000 people is a lot more impressive, in terms of actual American green stuff you get to take to the bank."

Short-term return on investment doesn't mean much, he thinks. "It doesn't make sense to compare a CHF program with a 53-percent savings rate to a diabetes program with a first-year, 13-percent savings rate. The value in diabetes is savings over time."

Beware outcomes surveys that tout satisfaction measures, warns Bonnette. "It's like asking, 'How much do you love me — a whole big bunch, or not quite as big a bunch?' If you phrase the question right, you get the answer you want. I'd be more interested in clinical outcomes over a long enough period to see if it makes a difference, and whether we are saving money by altering the course of a disease."

Friedman takes a liberal view. Offering that the Disease Management Association of America last October defined DM as something with many specific components, no single methodology is "right."

"DMAA is trying to set a format where someone can say, 'I am a health plan that fits X and Y specs. I've contracted for DM with company Z that provides this product, so according to DMAA, these are some of the outcomes I can report,'" says Friedman.

Perhaps the chief criterion, many players agree, is that outcomes reflect study of an entire population — whether that is defined as everyone with a disease or just everyone, period. A common criticism of DM outcomes is that too few studies pay attention to people in low- to moderate-risk groups.

Juster understands why. "It's cost-effective to treat people who can benefit, cost-wise, within one to two years. That's the upper 20 percent, plus or minus, of any group with disease."

As for the other 80 percent, he says, it's not cost-effective to reach them — yet. "If we can focus on that 20 percent, we'd be doing well today. And in five years, when we have the technology, we'd better be seriously chipping away at the other 80 percent."

It would be tempting to end this story on that note, but Bonnette offers some food for thought that's hard to ignore. "Is DM just a way of providing infrastructure for care management that should have been present all along — but wasn't?" he asks.

"If you look at it that way, then I'm not sure we have to prove outcomes."

Disease Management: A Special Report
Michael D. Dalzell
Senior Editor

Disease Management: A Special Report

Less Carrot, More Stick? How Some HMOs Go Too Far

There's a line between encouragement and coercion that doctors say some health plans ignore. Given physician defensiveness, can any approach to DM work? Does capitation make effective buy-in nearly impossible?

The fate of any disease management program ultimately rests with physician buy-in. It's a corner of health care where HMOs (and their surrogates, the vendors) still hold less than total sway, a place where physicians can exercise that time-tested means of obstructionism employed by "subjugated peoples" — passive resistance. Plans are always trying to figure out ways to get doctors to buy in — to guidelines, disease management, formularies, whatever. Do they sometimes cross the line between encouragement and coercion?

"When a doctor calls and says, 'You're coming on too strong,' we listen and take advantage of his expertise and modify," says Joseph Carver, M.D., senior medical director at Aetna U.S. Healthcare, who adds that his HMO has not had conflicts with physicians over DM programs. "We don't ask him to do anything that isn't evidence based and best practice. We don't have any nuances for what we do for patients, because they're Aetna U.S. Healthcare members that a doctor wouldn't want to do for everybody else he takes care of."

Common ground

All physicians agree, in theory, on the need for DM, says Thomas LaGrelius, M.D., president of the Independent Doctors Traditional Practice Association (INDOC), a group that doesn't deal with HMOs. "That's what doctors have been doing forever." The sticking point is control. "It certainly doesn't require managed care — or managed cost, let's put it that way — to encourage physicians to do good medical care," he says.

Even Aetna U.S. Healthcare, despite Carver's rosy depiction, has encountered resistance. For instance, an interview with Aetna CEO Richard Huber in American Medical News spurred such an angry response from readers that the publication had to print replies in installments. "There hasn't been a positive letter yet," AMNews noted in its Oct. 25 edition.

One of the writers was Robert L. True, M.D., an Ob/Gyn from Arlington, Texas. "...Huber mentions Aetna's 'disease management' program that supposedly alerts physicians to patients' conditions and drug usage," wrote True. "Personally, I can't think of a bigger waste of money than these programs. As an Ob/Gyn, I receive these assessments from many of the managed care companies locally. I have found that they provide no further information to me than what I already know after I have spoken with and examined my patient (as we physicians are trained to do). I am sure that this costs the managed care companies big bucks. This is a waste of health care dollars."

Carver doesn't wish to go tit for tat with True, though he does point out that Aetna doesn't have any Ob/Gyn programs. (True, for his part, did not return calls.) Carver also cites the recent plea by President Clinton for fewer medical errors.

"Clearly, the facts don't document or support the opinion that doctors are infallible and that everything we do is right," says Carver. "Anytime somebody comes to me and says 'Here's what you're doing' in an unbiased and nonprejudicial way, and it either reinforces that I'm doing good things or makes me say 'Maybe I can do that better', I appreciate that. I don't find that threatening."

In fact, Carver feels this points to managed care's original purpose. "We do give doctors report cards about how they use drugs and how they do tests and how they — to some extent — make decisions. These are not punitive, but are rather more like saying, 'We can help you do a better job.'"

Thanks, but no thanks

That wasn't how it worked for David MacDonald, D.O., a primary care physician in Renton, Wash., who says that the way plans dealt with DM is one of the reasons that he severed all ties to HMOs a year ago.

MacDonald found DM restrictive regarding alternative medicine. "Take nonsteroidal anti-inflammatories as an example," says MacDonald. "Nonsteroidals inherently have a lot of problems: Just consider the incidents of GI bleeding. We encourage our patients to try alternative methods first. We would prefer to use the natural supplements first, because of the lower side-effect profile. The natural supplements are not a panacea. However, they are much less risky than the nonsteroidal medications."

Natural supplements usually do not fit DM protocols, which forced MacDonald to either compromise or choose something outside the protocol that patients had to pay for out of pocket.

"They often didn't have the extra cash," says MacDonald. "They were already spending $400 to $600 a month for an insurance package that did not cover alternative supplements."

In addition, says MacDonald, the DM protocol often didn't cover his first choice for a nonsteroidal. "It was not uncommon to receive a call saying, 'We cover this medication, but not the one you chose,'" says MacDonald.

HMOs tended to take the same tack with antidepressants and antihypertensives, he found. "Really, it's cookie-cutter medicine with the mind-set that most people fit whatever antidepressant pathway the plan happens to be following."

How that pathway is imposed — often without consultation with the treating physician — is also a sore point. "I have sent notes to insurance companies saying, 'Please treat and follow this patient because you have a method that is different from my practice style,'" says MacDonald. "It is ethically nauseating to practice medicine that way."

Not to mention logistically impractical.

"We used to get repeated requests for documentation indicating why a certain medicine was needed," he says. "One day, 7 out of 15 patients on my schedule for the morning needed a letter, a response, a form, or chart notes that documented why I used a particular medication. Doctors just cannot keep up with these requests. Spending three minutes on seven patients means using 21 minutes of my work day that I just don't have."

LaGrelius — who now contracts mostly with PPOs — agrees that what is touted as DM too often goes no further than pharmacy management.

"They compare you with your peers," says LaGrelius, who adds that he finds that the bottom line, usually, is keeping costs down. "This is not how we should be motivated to choose drugs."

LaGrelius is doubtful that any amount of tinkering by HMOs or vendors will help because the problem is systemic. He says flatly that capitation and DM do not mix. "There's no financial motivation to sit down with a patient and discuss his disease in detail. When I have an asthma patient, what he needs more than anything else is a lot of time and careful discussion about how he controls the problem."

Six-minute interview

Under capitation, of course, time is money. "HMOs assume a six-minute interaction between a primary care physician and a patient, and that includes keeping records," he says. In stating his position, LaGrelius alludes to long-recognized and much-discussed flaws in health insurance. DM, he claims, is one of the ways HMOs address these issues short of changing the system.

"In an effort to make sure that what a good doctor doing good health care would do anyway sort of gets done, they've set up these disease management protocols," says LaGrelius. "Then they say, 'You've got to make sure your asthma patient is getting this, and this, and this.' Then they give you no time to do it."

The interference could occur on many levels.

"They often go directly to the patient," says LaGrelius. "They get a list of patients with asthma and send them information on how their asthma should be managed."

Which, of course, can be be seen as undermining the physician.

"The patient comes in and says, 'Well, the insurance company sent me this thing and told me I should be on these chronic medications all the time to keep me out of the hospital. Aren't you supposed to do this?' Makes the doctor look bad."

Good DM means good physician/patient rapport. "We need a system that pays doctors to do work and therefore motivates them, financially, to spend extra time with patients," says LaGrelius. "We need a system that does not assume six-minute visits; one that doesn't include a capitated program requiring that a doctor see 50, 60, 70 patients a day."

Physicians also have concerns about how DM programs are organized, says LaGrelius. HMOs and vendors tend to use lower-level personnel, such as nurse practitioners, to do the work of primary care physicians; and primary care physicians to do the work of specialists, he says.

"When — let's say — an asthma patient does get to see a pulmonary specialist, it's often for a one-time consultation," says LaGrelius, "when, in fact, that specialist should be handling every aspect of treatment continuously."

Far from getting too much oversight for DM, as LaGrelius and MacDonald complain, Joselyn E. Bailey, M.D., a nephrologist in Torrance, Calif., says the HMOs she dealt with didn't exhibit enough interest. (Bailey, like LaGrelius and MacDonald, does not contract with HMOs anymore.)

"I think that the authorization committees were too busy," says Bailey. "Preventive medicine issues were seldom mentioned unless they were associated with increased revenue."

Bailey also questions the motivation behind many DM efforts.

"It seems that some of these things were promoted for business reasons," she says. "That's my gripe. It was not for the benefit of the patient. It was whether or not we can give him a shot and make more money."

Even the terminology employed in the DM programs she encountered left her cold.

"I didn't spend years and dollars in medical school and medical training to be referred to as a 'provider,'" says Bailey. "Anyone can have that title, including a seeing-eye dog. After all my training and experience, I just cannot allow someone who may have gotten a GED to tell me when I can order an X-ray or blood test."

We understand

Carver, the Aetna U.S. Healthcare official, says his plan is cognizant of what doctors find irritating. For instance, just who's asking the DM questions?

"We, if at all possible — especially when there's something in question — try to make it so that the discussion is peer to peer: doctor to doctor, and maybe even specialist to specialist, depending on what it is and who it is," says Carver. "People ought to be doing what they've been trained to do. People who are trained to answer the phone shouldn't be calling doctors. I think that if the question is important enough to get a clinical answer, than a clinical person needs to make that call."

That may be one of the reasons why, for the most part, Aetna's programs are all operated in-house. Asked whether a vendor might be able to elicit physician buy-in better than the health plan, Carver says "No."

"Doctors complain that they get bothered too much," says Carver. "People are sending them mail and calling them on the phone and offering to help."

Aetna attempts to train DM workers to approach physicians with the same respect with which a nurse or nurse practitioner might approach a doctor in a hospital. "It's never with the idea that it would be adversarial," says Carver. "The things that are scripted and the MO and the training that we give people are to be a compliment to what physicians do. Now, if they see that Mrs. Smith's blood sugar is 900 and the doctor tells her, 'Put one less teaspoonful of sugar on your cereal in the morning and you'll be OK,' our DM people would never question that doctor directly. But they would go to a medical director and say 'I think we have a problem.' Our doctor would then talk to that physician to sort out the reason for this unique approach to the treatment of diabetes."

Again, he insists that Aetna's DM nurses would proceed with caution.

"I think that a nurse who is dealing with that disease every day of the week might say: 'Here's what we know about Mrs. Smith. Here's what we have to offer you and Mrs. Smith to help you do a better job, and do you want to take advantage of it?' She wouldn't say, 'Why did you do this?' That's never the encounter."

The physicians quoted above may beg to differ. But of course, they are not representative — they do not deal with HMOs anymore. Most physicians cannot, or will not, make such a radical move. They have to deal with the reality of DM under managed care.

"We've always said that we can't exist without doctors," says Carver. "I think that the enlightened doctors understand that they can't exist without us."

Disease Management: A Special Report
Frank Diamond
Senior Editor

Financial and Risk Considerations for Successful Disease Management Programs

Abstract: Results for disease management [DM] programs have not been as positive as hoped because of clinical issues, lack of access to capital, and administrative issues. The financial experience of DM programs can be quite volatile. Financial projections that are protocol-based, rather than experience-based, may understate the revenue required and the range of possible costs for a DM program by understating the impact of complicating conditions and comorbidities.

Actuarial tools (risk analysis and risk projection models) support better understanding of DM contracts. In particular, these models can provide the ability to quantify the impact of the factors that drive costs of a contract and the volatility of those costs.

This analysis can assist DM companies in setting appropriate revenue and capital targets. Similar analysis by health plans can identify diseases that are good candidates for DM programs and can provide the basis for performance targets.

Successful disease management companies must address the clinical and administrative aspects of providing the required care to the identified population of patients, and the ultimate test of the success of a disease management contract must be an evaluation of its effect on the quality of care provided to the covered population. While it is critical for a disease management company to provide high-quality care, doing so does not ensure that the program will be successful. Another factor often crucial to the success of a DM company is its ability to evaluate the financial aspects of a proposed risk contract with a health plan. This presents a challenge because costs and utilization of health care services can fluctuate greatly, making it difficult to project costs and utilization. These fluctuations can threaten the financial viability of disease management arrangements. The actuarial tools of risk analysis and risk management can provide a basis for making sound management decisions for successful disease management contracts.

This paper introduces disease management risk concepts in general, along with a discussion of risk and financial evaluation considerations, and a brief case study illustrating these principles. The case study and examples used in this paper are taken from cancer disease management contracts, but the basic principles apply to other diseases as well.

Description of DM programs

Disease management programs direct and provide care to individuals with a given disease or set of symptoms, by establishing a group of providers and treatment protocols to ensure that the care required to treat the disease is provided effectively and efficiently. Some DM programs function as components of global health care service contracts. These programs are part of a larger risk management program. Other disease management programs are separate contractual agreements between two independent parties. Under such a disease management risk contract, the DM company will agree to provide some or all of the care that the health plan is obligated to provide to its members. These agreements are true transfers of risk. For simplicity, the remainder of this paper is written under the assumption that two separate entities are involved.

A disease management risk contract is fundamentally an insurance contract, because one party is accepting risk for financial outcomes of an unknown future event (in this case, providing care to a group of patients) in exchange for a financial consideration. As a result, the fluctuations in program costs are transferred to the disease management entity.

Financing arrangements

The two traditional forms of disease management contracts are capitation contracts and case rate contracts. Under a capitation contract, the health plan pays the DM company a fixed amount per member, per month. Under a case rate approach, the health plan pays the DM company a fixed amount per patient treated. Some case rate contracts present the rates on a stratified basis, with higher reimbursement for patients with more advanced disease or more complications.

The shared savings approach is increasingly popular. Here, the costs or revenues of the DM company are subject to performance conditions that usually are tailored specifically to meet the needs of the two parties.

Goals and objectives

The health plan and the DM company may have different goals and objectives. The objectives for a plan may include any or all of the following:

  • To minimize financial risk associated with high-cost claims.
  • To reduce aggregate health care costs by negotiating a capitation or case rate that is lower than the corresponding cost of care provided in its network.
  • To simplify and reduce in size or scope the panel of physicians and other professionals, thus reducing administrative effort and the expenses associated with maintaining a physician panel.
  • To improve the marketing position of the health plan or HMO by creating a strategic alliance with a regional center of excellence whose reputation for providing high-quality treatment will, in turn, enhance the reputation of the health plan by association.
  • To improve its risk-based capital position by transferring risk to the DM company.

The goals and objectives of each DM company vary according to its approach to the market. The objectives of the DM company in negotiating a disease management risk contract can include any or all of the following:

  • Maintain a flow of patients and revenue.
  • Support treatment in core areas of expertise to improve outcomes.
  • Support clinical trials to evaluate protocols or drugs.
  • Improve market share by expanding its service area or potential referral network.
  • Improve market share by enhancing reputation.

Disease management companies must pay meticulous attention to the clinical aspects of their business, including treatment protocols and provider panel design, because the program can be successful only if it provides good care. An analysis of a prospective disease management agreement should address not only the clinical issues regarding the screening, preventive care, and treatment of the disease in question and its common complications, but also risk issues.

Financial risk

The DM company is accepting financial responsibility for providing the specified care to the patients covered by the disease management contract, and faces the risk that the cost of care will exceed its resources. Fluctuations in utilization or cost of services can cause losses. The DM company should take steps to reduce the potential impact, including:

  • Identifying the financial, contractual, and other factors affecting the level of financial risk and the volatility of the risk;
  • Estimating the revenue and capital required to accept financial responsibility for the risk;
  • Projecting the possible outcomes under different scenarios for factors that influence overall program costs; and
  • Managing the risk effectively to ensure that clinical and financial goals are achieved.

Types of risk

The major sources of risk in disease management contracts include:

  • Prevalence Risk: The risk that the population will include a greater than expected number of patients with the disease or condition.
  • Patient-Severity Risk: The risk that the patients from the population will present at a more advanced stage of the disease than expected.
  • Complication Risk: The risk that more patients from the population will present with more complicated conditions than expected.
  • Cost Risk: The risk that the unit cost of services will be greater than expected.
  • Protocol Risk: The risk that the accepted protocols for treating the disease will change over time toward more intensive or more expensive treatments.
  • Duration Risk: The risk that the treatment will last longer than expected. Disease management companies may be victims of their own success. If they can improve survival in the patients they treat, those patients will be treated longer, on average, than patients not treated by the DM company.

These risks are to some extent interrelated. For example, an expensive new anti-nausea drug that allows more aggressive chemotherapy to be delivered to cancer patients with advanced cancer is initially an example of protocol risk. However, the more aggressive chemotherapy may be more expensive than the prior standard (cost risk), and may improve survival, increasing the average duration of treatment (duration risk).

All disease management contracts are subject to other risks as well as the usual risks inherent in providing patient care. These include asset risks (e.g. bond defaults), credit risks (e.g., that clients will be unable to pay bills) and general business risks (fire, theft, inappropriate management decisions, and the like). Although the primary focus of this paper is on the risks associated with patient care, the others should be evaluated as well.

Contracting considerations

Disease management contracts vary according to the needs of the parties. In addition to key clinical issues, the contracts should address the following risk issues:

  • Which diseases or conditions are included? It is important to define clearly in clinical terms the criteria for the covered conditions.
  • What is the financial nature of the contract? The financial structure of a disease management contract typically will be negotiated to reflect the unique situation of the parties involved. The most common financial options are capitation arrangements, case rate arrangements, and shared savings arrangements. Capitation contracts transfer the risk associated with utilization from the health plan to the DM company, while case rate contracts leave that risk with the health plan. An entity that accepts capitation, therefore, is subject to greater financial risk than a company that accepts case rates for the identical risks, and should be rewarded for accepting that risk. Shared savings contracts can be structured in different ways, and the degrees of risk sharing can vary significantly.
  • What population is covered? Many diseases are more prevalent among older people than younger people. Similarly, some diseases are more prevalent in one gender or the other. The capitation rates for commercial (predominantly under age 65) populations generally are significantly lower than the corresponding rates for Medicare (over age 65) populations. The Medicaid population also differs from the commercial population in age and gender distribution and socioeconomic status.
  • Which procedures are covered? A contract that includes services with low frequency and high cost (e.g. high-dose chemotherapy and stem cell replacement for cancer patients) will have higher risk of significant fluctuations in cost than will a contract that does not include such services. A contract covering only such services should be expected to have very volatile costs.
  • What is the duration of coverage? The contract requires a clearly defined beginning and (if applicable) end of treatment for each individual. The criteria can be measured clinically or by time.
  • What is the scope of the treatment provided under the terms of the contract? Some contracts cover only the treatment for the disease and its common complications. Others cover all care to those covered by the contract. If the contract covers only disease-related care, then the boundary between disease-related care and care that is not directly related to the disease, and therefore excluded from the contract, must be carefully delineated. Complicated boundaries may be difficult to administer, but boundaries that are too simple may lead to disagreements concerning responsibility for treatment.
  • Is screening covered? Screening has advantages and risks for both parties. The health plan may want to increase the frequency and improve the scope of its regular screening, with greater involvement of clinicians specializing in the disease. This advantage could be partially offset by the need to integrate these clinicians and screening services into the health plan's existing provider network. A DM company specializing in a disease that presents serious health risks, such as cancer, may want to control the screening to ensure that cases are diagnosed as early as possible, when outcomes are generally more favorable and total costs of treatment are lower. This may lead to an increase in diagnosed cases in the first year of a contract. Under a case rate approach, this should be an advantage for the DM company, because the additional cases should be diagnosed earlier, and hence be less severe, than average. Under a capitation approach, however, this may be an advantage for the health plan, because the fixed price (per member per month) is independent of the number of cases treated. Because early detection of most conditions is in the best interest of the patients, it is advisable to attempt to create financial incentives to improve screening.
  • What service categories are included within the contract? The contract may cover all service categories, or it may cover only some categories of care (e.g., inpatient services). It should reflect the expertise and efficiency of the two parties, and the responsibilities should be assigned in a manner that allows the best fit to the clinical needs of the patients. In general, good results are achieved when health care services are provided on an integrated basis, so wide coverage is best.
  • What providers will give treatment? The DM company may seek to improve medical outcomes and operating margins by using its own network of facilities, clinicians, and other providers. As an alternative, it may use the providers from the health plan, improving medical outcomes and operating margins via disease management protocols and decision-support systems. The former has the advantage that the DM company has greater control over the care provided. The latter has the potential advantage that the patient's care is better coordinated across categories of care.

The final test must be an evaluation of the likely impact of the agreement on the quality of care provided. For many diseases, timely screening and treatment are essential. Successful disease management contracts provide required care quickly and efficiently and avoid creating barriers to care. A contract that creates barriers to care is likely to have poor outcomes, high administrative costs, and potential public relations problems.


An important element of managing the risk is the projection of results required for success. These performance indicators, or benchmarks, serve as the basis for evaluating the success of the contract. Benchmarks allow for comparison of actual results to expected results. The benchmarks should reflect clinical requirements, financial elements, and administrative elements, such as the following:

  • Proportion of target population screened (e.g., proportion of eligible women given mammography for breast cancer);
  • Utilization by major service category, particularly for those categories of services whose utilization will be reduced if the program is effective (e.g., emergency room visits by asthmatics);
  • Cost of care (e.g., cost of chemotherapy per cancer patient treated, by type and stage of cancer); and
  • Administrative effectiveness (e.g., cost of administrative functions per patient or per dollar of revenue).

The key to managing risk in disease management contracts is knowledge. By understanding the dynamics of the disease and the associated treatment costs, the DM company can make appropriate management decisions.

Evaluating the contract

Any disease management contract presents challenges to both the DM company and the health plan. The challenges can be financial and administrative as well as clinical. Some diseases (e.g., cancer) with many different treatment pathways and volatile costs present significant challenges. Prospectively, the plan and the DM company should evaluate the risk associated with the contract. This evaluation should demonstrate the potential financial impact of the program under different scenarios.

Information technology

Information technology is necessary for risk evaluation. Both the health plan and DM company should build the capability to assess both clinical measures of success (e.g., percent of diabetics receiving annual retinal exams) and financial measures of success (e.g., costs per patient by risk level).The evaluation of the results also should involve clinicians, since the payback for some preventive services, such as retinal exams for people with diabetes, may be deferred beyond the observation period.

Financial risk models

One mechanism for measuring and managing risk is a financial model. These models permit the evaluation of the potential impact of key risk factors on the overall cost of a program or on the range of reasonably expected results. Volatility analysis can show the effect of risk factors separately and in conjunction with other factors. Financial models can be simple or quite complicated, and the additional work to create complicated models usually permits more sophisticated evaluations that include more factors that influence program costs.

As an example, a financial model for a cancer management program could reflect the following factors:

  • Distribution of covered members or patients by age, gender, geography, or other factors important to the disease in question (smoker/ nonsmoker for lung cancer, e.g.);
  • Prevalence of cancer in each population cell;
  • Distribution of newly-diagnosed cancers by tumor/node/metastasis (TNM) stage;
  • Survival rates by stage and population cell;
  • Treatment protocols and frequencies of service by cancer stage;
  • Provider delivery system composition;
  • Reimbursement methodology;
  • Presence of complications and their treatment costs;
  • Baseline benchmarks for utilization and costs;
  • Technology shifts and evolution of treatment protocols; and
  • Changes in duration of treatment.

Such a model could estimate the potential volatility caused by secular changes (e.g. cost inflation, population aging, etc.), specific combinations of adverse assumptions, or random fluctuations.


Another mechanism for managing risk is reinsurance, which can limit the potential adverse financial effect of the risks associated with a DM contract. The DM company may negotiate a reinsurance contract with the health plan or a reinsurance company that limits the effect of a single patient, or a contract that limits the effect of all patients combined. Either approach can help a company manage the amount of risk it assumes, keeping the level of potential losses within manageable levels. Note that the presence of a DM contract should reduce the potential need for (and cost of) reinsurance for the health plan, since the volatility associated with these patients has been transferred to the DM company.

Regarding revenue

General formula

Evaluating the revenue requirements (excluding administrative costs) of health risk contracts in general can be summarized by this formula:

Estimated revenue requirement
= frequency x intensity x cost

Frequency describes the number of times an event will occur per unit of population, usually expressed as an annual frequency per thousand. For hospital inpatient, frequency can be the number of hospitalizations per thousand persons per year. Intensity refers to the complexity or volume of services per episode. For hospital inpatient, intensity can be the length of stay (LOS). Cost refers to the per-unit cost for the health care service. For hospital inpatients, this can be the per-diem charge.

The DM company should ensure that its prices reflect not only the historical costs associated with providing care, but also reflect trends in the expected cost for current treatment, and margin to cover unexpected increases described above. Margin for administrative and overhead expenses should also be included.

General considerations

The process of estimating revenue requirements to support negotiations for a particular contract requires that the DM company develop assumptions for each component of the revenue formula. Those assumptions quantify the projected levels of prevalence of each type of patient, and the frequency, intensity and unit cost for providing health care services to those patients. These assumptions generally are made separately for each pricing factor (e.g., hospital admits and length of stay), for each service category of care (e.g., hospital inpatient, physician office visits, pharmacy) and then summed across service categories and patient types to determine the total cost.

The price that emerges from the process described above may or may not be acceptable to the potential client. If the negotiated price required to "close the deal" is less than the rate based on the experience-based rate, then the DM company needs to reevaluate the assumptions that led to its development. These may include:

  • Scope of contract;
  • Provider reimbursement rates;
  • Impact of protocols;
  • Levels of, and trends in, costs and utilization;
  • Changes in treatment protocols over time;
  • Utilization of services; and
  • Administration and profit charges.
Case rate contracts

The above formula works well for developing case rates for many disease management contracts. In estimating the revenue requirements of a disease management contract, the elements of the calculation should reflect the specifics of the disease, the delivery system, and the population covered. For example, the formula used to estimate the costs associated with a case rate cancer risk contract should be specific to cancer patients for the frequency, intensity, and cost-per-service assumptions in the pricing formula.

Each specific disease presents unique challenges. Cancer case rate contracts are guarantees that the DM company will provide required health care to cancer patients for a specific price. This type of contract transfers the risk of increases in treatment costs from the health plan to the DM company. This risk transfer deserves careful analysis, because cancer-care costs have tended to increase faster than costs for health care in general.

Capitation contracts

Capitation contracts guarantee not only the price per patient, but also the prevalence of the disease in the covered population. Even common diseases covered by disease management contracts can be expected to produce varying levels of prevalence, caused only by chance statistical fluctuations. Relatively uncommon diseases will produce greater fluctuations.

For capitation contracts, where the required revenue is calculated per member per month rather than per patient, it is helpful to express the formula as:

Estimated revenue requirement =
prevalence x frequency x intensity x cost

As used above, prevalence refers to the proportion of the membership receiving treatment for a particular condition.

In developing a capitation rate for a cancer disease management contract, it is important to recognize some factors that will affect the assumptions used in calculating the capitation rates:

Prevalence (people having the disease and being treated for it) and incidence (people diagnosed with the disease) are not interchangeable, because of the time required to provide treatment. For example, consider a cancer that requires six months of treatment. The patients treated under a contract spanning a calendar year will include not only those diagnosed during the year (i.e., 100 percent of those who are counted to determine the incidence rate), but also those diagnosed during the last six months of the prior year (approximately half of those counted to determine the prior year's incidence rate, recognizing mortality and migrations in and out of plan).

Thus, the prevalence rate would be approximately 150 percent of the incidence rate, if treatments require six months and the population were stable.

Shared-savings contracts

For shared-savings contracts, estimating revenue and projecting costs becomes more difficult, and should be tailored to the specifics of the contract. First, the performance criteria and the other key features of the contract should be negotiated. Once these are agreed on, they are the basis for measuring "savings."

Shared-savings contracts present additional challenges. The very name implies a belief that savings will occur. If the DM company can deliver care of equal quality more efficiently than the health plan, there will be savings, compared to what the health plan would have been able to achieve. The risks associated with DM contracts (prevalence, utilization, cost, et al.) still exist, and are borne by one or both entities.

Practical considerations

Evaluating the revenue required to support a DM contract frequently reflects the historical clinical and financial results of both the health plan and the DM company. Evaluating the prior financial experience of the health plan will help to quantify the impact of the population on the utilization and cost per service (e.g., geographic and behavioral factors, such as smoking, diet, and exercise).

Evaluating the historical financial and clinical experience of the DM company is important if the protocols, reimbursement basis, or provider network will be different from the health plan. The DM company should estimate the effect of changes in protocols, provider panels, reimbursement and incentive methodology, and other factors on the experience of the health plan.

Case Study: Cancer DM

Issue 1: Estimating a Case Rate for a Disease Management Contract

Consider a proposed cancer carveout contract between a health plan and a cancer-management company. For simplicity, we will restrict this example to the following:

  • Medicare population only (>65), 25,000 members;
  • Colorectal cancer only;
  • Calendar year case rate basis (one year renewable), with no incentive provisions;
  • One location only (New Haven/ Bridgeport, Conn.);
  • Effective date Jan. 1, 2000;
  • Cancer care only (i.e., excluding care for non-cancer treatment);
  • Covered services based on a typical Medicare risk contract;
  • Charges based on Medicare's allowed reimbursement levels;

As described above, the calculation for a case rate includes:

  • Frequency (F): the utilization of each type of service per thousand patients;
  • Intensity (I): the relative cost for each type of service; and
  • Cost ($): the absolute unit cost.

For simplicity, this analysis ignores administrative and profit charges.

It is important to reflect the expected utilization and cost per service of the contract. In this example, the unit costs for services should be revised to reflect Medicare reimbursement levels for the network providers in the New Haven/Bridgeport area for calendar year 2000. Other contracts will have different reimbursement and incentive methodologies, and the unit costs and utilization of services should reflect the characteristics of those systems.

The prevalence of patients actively treated for colorectal cancer in the Medicare population is approximately 6 per 1,000 members. Therefore, the expected value for the number of colorectal cancer patients in our population is 150 (= 25,000 members x 6/1,000). If the group of recent colorectal cancer patients were a homogeneous population, this would be a large enough sample size to evaluate the revenue requirements of this contract. However, differences in stage at diagnosis, treatment protocols, survival, duration since diagnosis, underlying comorbidities, and other factors will cause fluctuations and uncertainties in actual experience and in projections based on that experience, so supplemental data should be considered.

The development of the projected case rate for this contract was based on data from the Health Care Financing Administration's 5-percent sample of Medicare claims. The process used was as follows:

  1. Identify patients in the sample with colorectal cancer, based on diagnosis codes and procedure codes.
  2. Analyze the care provided to those patients to identify cancer treatment.
  3. Evaluate the completeness and accuracy of the care and cost data against external sources.
  4. Assign the care to service category (e.g., hospital inpatient).
  5. Summarize the care by service category and patient.
  6. Adjust the utilization and unit costs to reflect changes in treatment protocols (such as new radiation therapy techniques or chemotherapeutic agents), changes in duration of treatment, changes in distribution of diagnosed cases by TNM stage, or other secular trends or differences between the source data and the intended population.
  7. Calculate utilization, resource-based relative value units (RBRVS) and per-unit costs by service category, based on the number of patients.
  8. Adjust the case rates to be appropriate for the New Haven/ Bridgeport area, using the appropriate conversion factors.
  9. Adjust the case rates to reflect the specifics of the contract and the population covered.

For this contract, the actuarial cost model in Table 1, reflects the "best estimate" of the utilization and average cost per service, and the per patient per year (PPPY) claim costs.

Table I Per patient, per calendar year case rate.
Colorectal cancer patients in Medicare (over age 65) population
New Haven/Bridgeport, Conn.
Center date: 7/1/2000
Service type Annual utilization
per patient
Cost per service Case rate per patient
per calendar year
Hospital inpatient 0.7 $16,650 $10,842
Hospital outpatient 2.5 263 646
Physician; surgery 4.3 360 1,554
   Office visits 7.0 38 268
   Chemotherapy 8.5 118 998
   Radiation therapy 1.7 154 263
   Miscellaneous 17.3 56 969
   Pathology 18.4 30 552
Prescription drugs 25.6 16 419
Other (hospice, home health,
   ambulance, DME, etc.)
2.0 377 752
Total 88.0 $196 $17,263


Issue 2: Projecting the range

The model described in Table 1 presents the expected costs associated with treating colorectal cancer in a Medicare population in the New Haven/Bridgeport area, $17,263 per patient per year. However, there can be significant variations in the costs per patient. These can be evaluated by creating a financial model that reflects the important risk factors described earlier.

As described above, the expected number of patients from the 25,000 covered members is approximately 150. The average calendar year cost per case is $17,263, so the total expected cost is $2,589,441 per year (150 cases per year times $17,263 per case). A range of outcomes is possible for both the number of patients and the annual cost of treating those patients. Based on the prevalence of 6 patients per 1,000 members, for example, we can project that 90 percent of the time, the number of patients out of 25,000 members will fall between 130 and 170, with the expected value being 150. This interval (130 patients to 170 patients) is referred to as the 90-percent confidence interval, because 90 percent of the results are expected to fall within it. This suggests that once in every 10 years the number of patients will fall outside this interval, either more than 170 or fewer than 130. Because this contract is on a case rate, rather than a capitation rate, the carveout company is not at risk for fluctuations in the number of colorectal cancer cases. The HMO should recognize that the number of patients treated would directly affect its costs.

The distribution of patients being treated for colorectal cancer by their annual cost of treatment is shown in Chart 1.

Colorectal cancer patients, Medicare (over age 65) population

Both the HMO and the cancer carveout company may use an "average" case rate to evaluate the contract, but they also should consider the fluctuations that are possible under the new contract. For the health plan, this should be a positive, because it is passing along the risk for high-cost treatment. For the DM company, this is a source of financial risk. Table 1 shows an "average" rate of $17,263. Based on this distribution of costs, it is possible to determine confidence intervals for the case rate. These confidence intervals are illustrated in Table 2.

Table II Scenarios for colon cancer treatment.
Confidence intervals by number of patients.
Medicare population, center date 7/1/2000.
No. of Patients Annual cancer treatment
Annual cancer treatment
(Percent of expected)
90% Confidence interval
(Percent of expected)
90% Confidence interval
      Low High Low High
50 $863 15% 75% 125% $649 $1,077
100 $1,726 11% 82% 118% $1,423 $2,029
150 $2,589 9% 86% 114% $2,218 $2,961
500 $8,631 5% 92% 108% $7,954 $9,309
1,000 $17,263 3% 94% 106% $16,305 $18,221
2,500 $43,157 2% 96% 104% $41,642 $44,672

As shown in Table 2, the expected annual cost for treating 150 cancer patients is $2.6 million (= 150 patients x $17,263 per patient per year). The 90-percent confidence interval for the annual cost is $2.2 million (86 percent of $2.6 million) to $3 million (114 percent of $2.6 million). That is, for a population of 150 patients whose claims distribution matches the distribution shown above, the average claims per member will fall between $2.2 million and $3 million 90 percent of the time, or 9 calendar years out of 10 on average. The other 10 percent of the time the costs will be below $2.2 million or above $3 million. This is the amount of fluctuation caused only by random variation in annual treatment costs per patient.

The DM company may not have the capital to withstand fluctuations of this magnitude. This problem can be addressed by different approaches, including:

  • Growth: Adding lives reduces the random fluctuation of risk, relative to revenue, as shown in Table 2. Note, however, that additional capital is required to fund growth in risk. The advantage of growth is that the required capital increases less rapidly than revenue should increase.
  • Contracting: Some of the cost risk can be transferred from the DM company to providers by case rate or similar arrangements.
  • Reinsurance: Ceding the risk to another entity reduces the range of potential losses, but also the expected profits for the DM company.

Note that there are additional sources of fluctuations in total annual costs. Some of the fluctuation is caused by patient characteristics (i.e., TNM stage at diagnosis); some of it is caused by treatment choices. Complications and outcomes also cause some of the differential (since treatment is ended at death). Thus, while a calendar year case rate approach to cancer carveouts eliminates some financial risk for the DM company, it does not eliminate all financial risk associated with the negotiated contracts.

The carveout company may not be subject to financial risk caused by the number of patients, but fluctuations in the cost of treating each patient may still cause adverse financial results.


Disease management programs offer health plans the potential for improved return on invested assets by reducing required risk capital and by improving the efficiency of the delivery of care, while at the same time improving outcomes for patients.

In addition, a disease management contract provides health plans with the opportunity to link their company name to that of a regional center of excellence, recognized for its current expertise in treating the disease. The DM company has the opportunity to increase its market exposure and patient base, ensuring a flow of patients.

The contract also creates the opportunity to improve earnings for both parties, by allowing each to focus on providing care that each does best. As may be seen from this discussion, however, there are significant issues regarding the scope of the negotiated agreement, and both parties should conduct a thorough evaluation of the expected health care financial experience before entering into a disease management contract.

Evaluation criteria

Both the health plan and the DM company also should periodically evaluate the emerging results of the contract. Health plans should evaluate the results under several criteria:

  • Are the outcomes under the capitated contract consistent with clinical goals for patient treatment?
  • Has the delivery of care been consistent with best-observed practice?
  • Are the costs of the program meeting the financial targets?
  • Are patients satisfied with the program?

Disease management companies should evaluate the programs that they negotiate under other criteria:

  • Did the membership and revenue meet or exceed the projected levels?
  • Was the contract profitable?
  • Was utilization by service category consistent with treatment protocols?
  • If it was a capitation contract, was the number of cases consistent with the levels assumed in setting the price? Was the distribution of cases by severity level consistent with the distribution assumed in setting the price?
  • Under either a capitated or case rate contract, was the cost per case treated consistent with pricing assumptions?
  • Under a shared savings contract, were the savings as measured under the terms of the contract consistent with the expected levels? With independent assessments?

The author is a consulting actuary, specializing in health care, in the Seattle office of Milliman & Robertson Inc. His assignments have included evaluations of costs, risk models, and provider reimbursement for global risk contracts and disease-specific risk contracts. He has a BS in mathematics from Trinity College, Hartford, Conn.

This paper has been reviewed by peers on Managed Care's Editorial Advisory Board and within Milliman & Robertson.

Arthur L. Baldwin III, FSA, MAAA
Milliman & Robertson, Seattle, Wash.
Washington Watch

Privacy Legislation Is on Track; Could It Derail DM Programs?

The Medicare Commission couldn't cross the finish line. Patient-rights bills can't seem to get to the starting line. So there's not much chance of major health care legislation going far in this session of Congress, right?

Wrong. Think privacy. Legislation to protect the confidentiality of medical records is front and center on Capitol Hill, with prospects for passage better than they've been in years.

Of course, Congress has a built-in incentive to enact some sort of privacy measure. Under the Health Insurance Portability and Accountability Act, it has until August to pass legislation on the confidentiality of electronic health information — or suffer the consequences. If Congress can't get its act together, then the Department of Health and Human Services will promulgate privacy standards by February.

For policy analysts on the Hill, it's become a matter of pride, and there's no shortage of proud players at that end of Pennsylvania Avenue.

In the Senate, Jim Jeffords of Vermont, chairman of the Health, Education, Labor, and Pensions Committee, and Christopher Dodd of Connecticut have reintroduced essentially the same measure they sponsored last year (this time, it's called the Health Care Personal Information Nondisclosure Act of 1999). Jeffords's fellow Vermonter, Patrick Leahy, and Massachusetts's Edward Kennedy also have reintroduced their privacy-protection legislation. Also, with the support of the Healthcare Billing & Management Association, Bob Bennett of Utah is again pushing his pet bill, the Medical Information Protection Act.

On the House side, there's the Medical Information Privacy and Security Act, introduced March 10 by Edward Markey of Massachusetts.

The American Medical Association is reviewing all of the bills, but hasn't yet formulated a position, according to spokesman Mike Lynch. Last June, the AMA House of Delegates adopted a statement on patient-privacy protection, and any legislation will be judged against its principles, Lynch says.

Strategies differ

A General Accounting Office study concluded that "a considerable amount" of health research relies on information that can identify patients, and that existing safeguards on confidentiality are limited.

The Jeffords-Dodd measure — the presumptive leader at this point — would give individuals access to their medical records, prohibit disclosure of information without patient consent, and grant law-enforcement agencies access to information through subpoenas or warrants. It would not preempt existing state laws that provide stronger protection.

Dodd's main goal is to prevent data, including prescription records, from being sold. "Individuals should have control of this very personal information. It shouldn't be exploited to boost a company's bottom line," he says. The act creates incentives for those who would use a patient's health information to sanitize it — that is, remove references that would make it possible for a recipient to identify the patient. Hospitals and physicians turning over patient information would need to provide individuals with "clear written notice" of their rights, and develop procedures for granting and revoking authorization for others to make use of that information.

Bennett, former chairman of the Senate Republican Health Care Task Force, doesn't like the idea that state statutes could preempt federal law. State laws, he says, are "incomplete, inconsistent, and inadequate."

While most pharmaceutical companies do not want research efforts to be compromised by what they might consider to be restrictive privacy measures, one trade group, the Biotechnology Industry Organization, says federal legislation may be preferable to the hodgepodge of existing state laws.

Federal law doesn't regulate use of computerized patient medical information obtained in the course of clinical trials or in epidemiological and outcomes research. Janlori Goldman, director of the Health Privacy Project at the Institute for Health Care Research and Policy at Georgetown University, says a national health policy "should create incentives for researchers to use nonpersonally identifiable health care data," and should provide uniform protection for subjects in any research study.

Will DM be sacrificed?

Privacy legislation is hardly a slam-dunk. While it's not politically correct in this town to come out against confidentiality protections, as you read this, legislators are listening to arguments by health plan supporters who warn not to go overboard in the pursuit of privacy.

Al Lewis, president of the Disease Management Association of America, observes that medical records contain valuable data that can be used to benefit patients. "Our view is that unauthorized use of people's medical data should be strictly prohibited, with stiff penalties for anyone who violates that privacy."

On the other hand, says Lewis, disease management programs "require access to patient-care data to identify patients who stand to benefit from them, ensure compliance with recognized standards of care, and monitor patient outcomes."

Disease management, Lewis argues, has emerged as the most effective and efficient way to organize and deliver proactive programs that improve health.

Successful disease management programs, he says, have reduced the number of lost school days for children with asthma by 83 percent, reduced ER visits by asthma sufferers, and improved screening and lowered overall blood-sugar levels for diabetes patients.

Thanks in large measure to the threat of HHS regulation, inside-the-beltway gurus assess the odds of passing privacy legislation by August as about 2:1.

"Society as a whole will face higher health care costs resulting from a sicker population," says Lewis, who adds that access to patient data allows health plans, "for the first time, to manage diseases. They are finally doing what their critics have criticized them for not doing."

Look beyond Washington for illumination on this issue. Last year, Maine passed legislation last year that prohibited hospitals from releasing information without a patient's written authorization — with penalties of up to $50,000 per violation.

The situation created unintended effects: Clergy, florists, and reporters were denied data about a hospital's census, family members complained of problems getting information on relatives, and pharmacists refused to release medication to anyone other than the patient without a waiver.

What the state had hoped would be a model for privacy protection turned out to be an unmitigated legislative disaster.

In fact, the public outcry against the measure was so enormous that Maine legislators were forced to passed another bill in January, suspending the law until a new privacy measure could be crafted.

After last year's ennui, however, Congress probably will want to do something — anything — in the health care arena before the next millennium.

Michael Levin-Epstein

The Short, Unhappy Lives of Too Many DM Programs

A disease management program by any other name might go belly up — pronto. But there are ways to avoid the quick fizzle.

The best-laid plans of HMO executives can fizzle — especially if those plans involve disease management. Every year DM programs are launched and quickly die. Nobody knows just how many go belly-up, but anecdotal evidence abounds that it happens a lot. Even diehard DM advocates admit that many programs are erroneously slapped with a DM label and have the shelf life of a celebrity marriage.

"The reason that many so-called disease management programs fail is that they are not true disease management programs to start with," says Stan Bernard, M.D., M.B.A., principal for health care industry consulting at A.T. Kearney. "They are what I call intervention management programs, such as clinical guideline or patient education programs, instead of a coordinated set of interventions seen in most successful disease management initiatives. When true disease management programs fail, it is usually the result of poor physician buy-in and ineffective execution."

However you define disease management, implementing a program can be difficult, notes Al Lewis, president of the Disease Management Purchasing Consortium, who adds that quick fizzles happen all the time.

"The people who contract for the program at the health plans do so under pressure to get the job done quickly, or without a budget, or they contract with a vendor they've used for some other purpose and that vendor has offered to give them three months for free," says Lewis.

One health care consultant says that the bidding process can be tricky and suggests that HMO executives closely review the data on which the vendors set their benchmarks. "What happens is the vendor will make predictions based on clinical trials or on programs that were launched in highly controlled managed care environments," the consultant says.

Most experts contacted agree that problems can arise in the bidding process. The notable exception is Lewis, who says that he's "never seen a program fail because a competitive bidding process was done wrong."

Vince Kuraitis, J.D., M.B.A., a principal in Better Health Technologies, a consulting firm, says that it is during bidding that a vendor may be tempted to say that he can deliver measurable results in one year, when it may actually take two or three.

"We advise our clients to look for a three-year contract," says Kuraitis. "The vendors need this time because much of the cost of DM program implementation is front-loaded. The plans need to have a longer perspective, too. Disease management should not be viewed as a quick fix."

And how fast can the programs fizzle? "I've seen it where they can't even get off the ground," says Lewis. "They can't enroll the patients."

Of course there are the usual suspects: lack of physician buy-in, patient compliance, and information technology.

"The most likely scenario for a quick failure is one of passive resistance in which the local doctors say the program is just nonsense," says Kuraitis.

Regarding patient compliance, Kuraitis holds out some hope that technology may provide assistance. He talks about three-button telephones developed by SOS Wireless that can be used by patients with congestive heart failure who don't want to be too far from help. "Heart patients want some way to access the specialist 24 hours a day," says Kuraitis. "Technologies are under development that will allow them to carry around a combination telephone, pager, and Internet access device."

Make sure the vendor has a good track record in managing the specific disease you're interested in managing. And make sure he has all the tools to do the job.

"A lot of times vendors that are good at one aspect of disease management direct all their resources into that one aspect to the exclusion of everything else," says Lewis.

Louise Kier Zirretta, M.B.A., group vice president at Isis Research, and author of the Disease Management Strategic Research Study & Resource Guide, says that if quick fizzles do occur — and she hasn't seen any numbers that would identify a trend — "it might be because you have a disease management program in place for a population you don't serve any longer."

Kier Zirretta notes that about 20 percent of the 367 HMOs that participate in Medicare bailed out of the program at the end of last year. "Anything they were doing in the area of congestive heart failure is not going to have the same emphasis," she says.

From scratch

When Peter Katona, M.D., medical director for Apria Healthcare, is asked to give advice about launching DM programs, he says simply, "Do your homework." He should know. Several of Apria's DM programs died last year. (See "Home Health Care Company's Experience Shows How Easily DM Programs Can Fizzle".)

Janine Evans, M.D., medical director for Yale-New Haven Hospital IPA-PHO in Connecticut, has been doing a lot of homework recently. Evans hopes to spin DM programs out of Yale-New Haven's ambulatory case management program, which was created four months ago. Using mailings, phone calls, and physician feedback, Evans's team is gathering and reviewing clinical and pharmacy data to determine what groups to target.

The case management program at the 45,000-member IPA-PHO was put in place to address some resource-use concerns immediately. Creating the official DM programs will come later — within the next year. But some form of disease management is already under way. "We want to reduce the requirement or need for high resource use in our patient population," says Evans.

She has not yet chosen which diseases to manage in the official programs but the main candidates — not surprisingly — are coronary heart disease, congestive heart failure, diabetes, asthma, and obstetrics. She wants to remain flexible.

"We have Medicare and Medicaid members, and we have members who are part of commercial plans," says Evans, who points out that about 1,000 physicians belong to the IPA-PHO. "We want to structure our programs around the many variables in each of these populations."

Evans says another way her team is trying to avoid the quick fizzle is by devising easily recognizable and agreed-on measurements for success. "Those measurements will reflect the financial realities as well as patient and physician satisfaction," Evans says. "The results will help us prove that we're achieving the goals we promised when we presented the program to our board of directors."

Diane Collins, R.N., one of Evans's ambulatory case managers, notes that the team has traveled far in a short time. "We started with a piece of paper and a pencil," says Collins. "We put together the entire database — the backbone. Our biggest stumbling block was identifying the patients. It was a large number of patients and only four of us. We contact them by phone and we also go and visit them. We call them up right after they go home. We're just really feeling our way through."

Despite the danger of a quick fizzle, there is some margin for error, Kuraitis suggests. He relates a story of a vendor who admits privately to "totally screwing up the implementation but the program still showed a 50-percent decline in readmissions."

"It is representative of the power of disease management," he says.

"This stuff really works."

Home health care company's experience shows how easily DM programs can fizzle

Don't mention home health care companies and disease management in the same breath when you're talking to Al Lewis, president of the Disease Management Purchasing Consortium. In Lewis's opinion, home health care companies — with the exception of Caremark and Matria — have had very little success with disease management. "They don't even take the time to try to understand it," says Lewis. "Disease management is vertical and home care companies don't sufficiently realize what else is needed."

You want names? Lewis mentions Apria Healthcare. "It seems that Apria was getting a lot of bids but couldn't collect the data to make the programs really take off," says Lewis. "Apria did not provide physician education or outbound education calling. Of any five people in a disease management program, only one is sick enough to need a visit. A couple of companies joined the consortium because they didn't like how they came to choose Apria."

Peter Katona, M.D., Apria's medical director, says that DM programs operated by that company fizzled for a variety of reasons, but the main cause was lack of funding.

"The company was having many financial problems and it gave DM programs a low priority," says Katona, who adds that he was primarily involved with the HIV program. Other programs that were launched and that subsequently fizzled in 1998 — after about three years in operation — were asthma and COPD.

"It seemed to me that HIV was a very worthwhile program," says Katona. "Three physicians were doing it through a provider entity. Both physicians and patients felt it was productive for them." Apria hoped to reap financial benefits — but only in the long run. "It wasn't intended to be financially successful for Apria in the short run."

Watch those contracts

It certainly wasn't out of the red before another problem cropped up.

"The large group in San Francisco that bought the DM program for the three physicians to run took what we had and set it up itself," says Katona. When asked how someone could get away with such maneuvering, Katona states: "Apria was naive in not anticipating that its program could teach the user to run it himself. We felt that we could do it better, and that the contractor didn't have the resources to do it well on his own. We also made mistakes with our contracting."

Other Apria DM programs suffered setbacks as well. "Apria officials made some mistakes in purchasing an educational package for asthma that did not do what they were hoping it would do." That package contained mostly videos and brochures, says Katona.

That wasn't all. "I'm a big believer in database management," says Katona. "Apria is steadily trying to become more and more effective as a data manager. It was very difficult to assess the effectiveness of the programs and, thus, hard to sell them."

For other organizations hoping to get into disease management, Katona has this advice: "Know what's needed. Know what you can do, and periodically reassess your effectiveness both clinically and financially."

Frank Diamond
Senior Editor

Just What the Devil Is Population-Based Care?

Though health plans preach it, the phrase doesn't resonate with many physicians. But practicing it is not as difficult as many fear.

Population-based care" is the managed care mantra. But ask physicians what it means, and most grope for a definition. "If you find out, let me know," jokes Peter Juhn, M.D., executive director of Kaiser Permanente's Care Management Institute.

Actually, Juhn has his own take on population-based care, which we will explore, but his jest makes the point: Physicians have difficulty squaring an abstract concept with daily responsibilities.

"It's not an easy fit with the traditional physician's ethic of working for one's individual patient," says John La Puma, M.D., an internist at Alexian Brothers Medical Center in suburban Chicago and Managed Care's ethics columnist. "Doctors don't have it in their heads that they're responsible for 2,000 or 3,000 patients."

It doesn't help that most health plans haven't done a brilliant job of articulating population-based care to their physician panels, either.

"We have to enunciate a vision of 'What the heck is it?'" says psychiatrist Mark Vanelli, M.D., M.B.A., a Harvard Medical School psychiatry instructor. "HMOs need an educational strategy."

Though perceptions and definitions of population-based care differ, many outstanding examples, large and small, exist. Vignettes of population-based care reveal common traits: education (such as teaching patients self-care), delegation (e.g., use of midlevel providers) and, when possible, intelligent use of information systems that turns grass-roots activity into a scientific endeavor.

Care management

Kaiser built a reputation on population-based care by stressing early detection and disease management. Now, Kaiser is taking that a step further with a concept it calls care management.

Under care management, members are grouped into disease-specific populations. Prevention and "health maintenance" are the goals. Care is coordinated so that physicians provide clinical interventions when needed, while other health care professionals aggressively educate those in each group about their conditions or risks — enabling members to understand how to care for themselves and when to call the HMO.

This national effort is led by Kaiser's Care Management Institute. Each of Kaiser's geographic regions selected care management priorities (such as diabetes, asthma, heart disease or depression) based on the health needs of its members. CMI develops tools each region can use to develop care management strategies, then ships them to local implementation teams, which tailor care management programs to their populations.

CMI melds emerging best practices with Kaiser's experience of 100,000 visits per week. "We synthesize this information into a bite-sized morsel, package it and link it to the relevancy of practice," says CMI's Juhn. Physicians receive outcomes data comparing them with peers ("We need to get physicians to pay attention to why they, personally, should learn something new," says Juhn) and tools for improvement — guidelines, case studies and access to Kaiser's massive database. A state-of-the-art information system allows for professional exchange, prompts for preventive and follow-up care and offers continuing education credit for physicians working in the priority areas.

It would be easy for a cynical outsider to dismiss this as "cookie-cutter medicine." But Juhn says the Kaiser culture values education and accordingly, its physicians are free to evaluate generalized bodies of knowledge in the context of individual cases. "That's the rub in population-based medicine: You derive the best things to do for your individual patients from an assessment of experience with that population."

As for that freedom to discover, Juhn likes to say, "We're not the Care Mandating Institute."

It's one thing for a staff-model HMO to roll out an organization-wide strategy. But most physicians aren't blessed with such resources to meet plans' population mandates. How now?

Think of one of the common threads of population-based care: education.

"We're very good at developing high-powered science, which often filters down into substantial treatments," says Vanelli, the Harvard psychiatrist. "But we're not very good at making sure that people get that treatment effectively."

He says it's easy to think, "'Once I write a prescription, the patient is cured.' But if the patient doesn't pick up the medication and take it as prescribed, that scientific knowledge is for naught."


Vanelli participates in a program called Person-to-Person, a telephone support system that educates patients with schizophrenia and bipolar disorders about their illnesses and reminds them to take their medications. Sponsored by Janssen Pharmaceutica, Person-to-Person, he says, recognizes a nagging problem in American health care delivery: poor medication-compliance rates.

Most of the patients Vanelli admits to hospitals fail to comply with their medication regimens. "If we can increase compliance rates of 50 to 60 percent to 80 to 90 percent, patients with major mental illnesses are likely to avoid rehospitalization and annual treatment costs are likely to go down dramatically."

But programs such as Person-to-Person are a hard sell to most physicians; when telling one colleague about Person-to-Person, the response Vanelli heard was, "That's very interesting, but I didn't go through ten years of training to remind patients to take their medicine." True, but Vanelli thinks of compliance programs as the health care equivalent of seat belts and child safety seats: "They aren't what attract your attention, but do you really want to go without them? Such programs have the potential to add more years to your life than dramatic acute-care interventions that come too late in the disease process."

At the core of Person-to-Person is a simple, powerful practice that every physician can use to boost compliance. "I don't think a lot of doctors do it," says Vanelli: "Tell your patients, 'You're going to feel better, and when you do, you're probably going to forget your medication. But chronic illnesses don't get better when you stop taking your medication. You'll get sicker.'"

Public health

Person-to-Person uses the tools of public health: information, education and communication. Vanelli, who trained in public health and once designed health care programs in Peru on a budget of $5 per person per year, appreciates the connection. But "public health" makes most physicians recoil.

Until the early 1900s, public health was intertwined closely with medicine. After that, though, says David George, M.D., associate director of medicine at Reading Hospital and Medical Center in Reading, Pa., "Public health went one way, and medical schools went another. Only recently have their paths again begun to converge."

Such a merger may prompt much wailing and gnashing of teeth. In an essay last February in the Journal of the American Medical Association, Henry Greenberg, M.D., predicted a conflict between "Hippocratic medicine and population-based medicine." The latter, he wrote, would force physicians to think more like public health specialists. "An understanding will emerge," he wrote, "but the adaptation process will disconcert the transition generation of physicians."

Greenberg's crystal-ball world triggered angst-ridden letters to the editor. No surprise to Vanelli.

"There's an immediacy to the ER or doing a procedure that's invigorating to people who are attracted to medicine, so to get them into teams and systems that make for good population-based care is difficult. It may be different from what they wanted to do when they entered medicine," he says. "The questions are, can these things interest providers, and can physicians bring along the energy of their clinical colleagues?"

They might soon have to try. The man in line as the next head of the U.S. Centers for Disease Control, Jeffrey Koplan, M.D., is an epidemiologist who has led many high-profile public health projects. He is expected to press managed care to be more of an element of public health, in terms of achieving community health objectives.

Behavior modification

The link between behavior and pathology strongly interests George at Reading Hospital. Noting suggestions that slight changes in Americans' cholesterol levels have prompted a decline in the incidence of coronary disease, George believes incremental changes in behavior can dramatically affect population health. And physicians, he says, can encourage that change.

George enlisted four physicians to participate in a grant-funded pilot project involving 80 patients. Adapted from a behavioral change model developed by psychologist James Prochaska, the project helps doctors to help patients change their own destructive behaviors.

"One of the problems [of past attempts] is that behavioral-change models add another thing for the physician to do," says George.

In the Prochaska model, people's readiness to implement lifestyle changes occurs in stages. In George's study, physicians ask patients a few quick questions to determine their willingness to, in this case, stop smoking or be more active. "If a smoker comes in with an upper respiratory infection," says George, "trying to help him see the relationship between his smoking and catching repetitive colds helps the physician to personalize risk." Helping patients understand the personal benefits, he says, is more effective than a physician commanding, "You're killing yourself and I want you to stop."

If the patient doesn't appear motivated to change, the doctor doesn't push it. "There's no sense wasting time talking about why smoking is bad — especially if a patient already knows why — if that person isn't ready to quit," says George.

But if the patient seems receptive, the physician may ask him to enroll in a telephone counseling and case management system. Nurses at nearby Lancaster Health Alliance's Wellness Center take over, calling enrollees periodically to check progress, offer support and education and, if necessary, refer to community resources. Their findings are entered into the medical record, and after a year, summary reports will be generated.

But choosing the right physicians for this is as important as choosing the right patients, says George, who used the Prochaska model on colleagues to select them. Otherwise, he says, "After the money from the study goes away, the instructional papers that the physicians used become lost, and they go back to their old ways."

Health plans' role

George hopes that if the results are promising, he can persuade Health Central, an HMO owned by Reading Hospital and several other hospitals, to fund a larger, controlled study.

In other words, putting money in the vicinity of one's mouth. "In general," George says, "HMOs make a lot of statements about preventive health, but a lot of that — and this is supported in the literature — is more of a promotional thing than a true belief that this stuff works."

La Puma, the ethicist, thinks that most managed care organizations have abandoned "the lofty goals of population-based care in the pursuit of profit." But he thinks that some HMOs — he specifically names Kaiser — are truly interested in practicing what they preach. "Disease management programs," he offers as an example. "We're just starting to play with them and see whether they can be economically viable and improve quality of life."

Farming out management of specific populations to DM organizations could help HMOs bridge what George says is one barrier to population-based care: "There is not a lot of reward for the physician to practice it."

Of course, physicians can aid the cause by staying current, an effort with which HMOs can help. "You would be shocked at how little of medicine is actually based on evidence," says Kaiser's Juhn. A recent Journal of the American Medical Association article suggested that "80 percent of medicine is of unknown benefit."

In 1991, the National Asthma Education and Prevention Program of the National Heart, Lung and Blood Institute recommended inhaled corticosteroids as front-line therapy for asthma. Today, says Juhn, fewer than 30 percent of asthmatics who should receive inhaled corticosteroids are prescribed them. The institute said last year that inappropriate therapy is a major contributor to asthma morbidity and mortality.

"The evidence is clear that inhaled corticosteroids improve asthmatics' outcomes," says Juhn. "What's also clear is that this piece of knowledge has not been communicated to all physicians."

Stepping back from the day-to-day grind to develop a perspective is yet another strategy for practicing the mantra. "For me," says Vanelli, "population-based care starts with thinking, 'What can I do with communication strategies for large numbers of patients to address problems I saw in my practice this morning?'"

Distributive ethic

Far from some of the grass-roots strategies outlined here is a school of thinking that physicians and health plans should develop a "distributive ethic" to practice population-based care.

In Annals of Internal Medicine earlier this year, Hall and Berenson hit a nerve by suggesting that physicians work within health plan limitations by providing some patients with optimal care — and others with "minimally acceptable care." Doctors, they argued, are in the best position to make medical decisions and thus to allocate care by evaluating which cases warrant more expensive treatment.

The thought made New England Journal of Medicine editor Jerome P. Kassirer, M.D., almost gag. "Intentionally providing minimally acceptable care to some for the benefit of others [and] the bottom line is wrong," he fumed in an editorial last month.

Encouraging physicians to engage in such practices could be risky to the managed care industry, which is already fighting a substantial public backlash. "The American public trusts managed care about as much as tobacco companies," says John La Puma, M.D., Managed Care's ethics columnist. "The idea that managed care wants to try to take care of everybody is often met with a 'Sure, buddy, tell me the next one.'" La Puma thinks managed care organizations would have a difficult time proving the good in a distributive ethic — let alone persuading physicians to go along with it.

Michael D. Dalzell
Senior Editor

Don't Let DM Vendors Set the Bargaining Table

Health plans can position themselves even before talks begin by getting all the information they can on the population they wish to target.

The saying that the three most important things to consider when buying a house are location, location and location can be tweaked a bit and applied to the process of purchasing a disease management program. The three most important tools health plan representatives need when sitting down at the bargaining table with a vendor are information, information and information — allowing you to shape your expectations and bargaining position. Without such information, shopping for a disease management program is akin to walking into a car showroom and saying aloud that you don't quite know what you want. Gathering data should begin even before the initial contact.

"All of the vendors are more than willing to put your data through their buffing system but they charge you a considerable amount of money for that," says Thomas Morrow, M.D., vice president and medical director for One Health Plan of Georgia. "The more you know about your population and your expectations, the better prepared you are going into the talks."

Once you have the data, there are things you should insist upon, says Al Lewis, president of the Disease Management Purchasing Consortium, a company that has helped 22 health plans negotiate contracts. "I hugely prefer that the program use savings as a performance measurement," says Lewis. "You can't guarantee savings without guaranteeing outcomes because you can't get savings without keeping people healthy."

Morrow says health plans should also seek:

  • A deadline for promised improvements;
  • A schedule for progress reports;
  • A plan for continuing improvements beyond what's promised; and
  • A guarantee that the contract can be modified later.

Morrow also likes to see patient satisfaction measures of some kind. "They're talking to our members and I don't know if they're being polite or rude." You'll want assurances that the vendor will be invisible, seamlessly integrating the program with other services you offer.

"There is no vendor that has so much credibility in disease management that patients will feel more comfortable talking to him than they are talking to their own doctor," says Louise Kier Zirretta, M.B.A., group vice president for Isis Research and author of the Disease Management Strategic Research Study & Resource Guide, which she prepared when she was at Migliara/Kaplan Associates, a market research company.

Insist on significant, measurable outcomes, says Lewis. "For instance, with diabetes, there should be far fewer amputations in the out years of a contract and lower hemoglobin A1Cs in the early years. With asthma, there should be a guarantee of X percent fewer nighttime awakenings or missed school or work days. A surprising number of health plans don't insist on guarantees of quality and costs. The program has to cover the entire population of people with the disease. Who gets counted? I'm quite adamant that everybody should get counted."

Peter Smith, CEO of Ralin Medical, a DM vendor in Buffalo Grove, Ill., has "no problem" with Lewis's assertion, but says the term "population-based disease management" can be interpreted in different ways. He points out that many plans, in the beginning, identify the acutely ill "who are clearly costing them money." That might be a way to go, at first. And even well into the program, he says, different services should be allotted to different subgroups that are defined by the severity of their symptoms. "I think you need to separate acute and nonacute patients. You don't want active management of your nonacute patients because you'll wind up paying more than it's costing you today."

You'll want a contract in which the vendor shares the risk for savings when the particular disease lends itself to such a system, says Harry L. Leider, M.D., vice president of health services and corporate medical director at HealthNet, with 450,000 members in Kansas and Missouri.

"Nobody assumes risk management for things like hypertension and high cholesterol because the payback is too long," says Leider. Asthma, end-stage renal disease and congestive heart failure make excellent candidates for risk contracting. "The big issue is, 'Is this a fee-for-service arrangement or a risk arrangement?" I'd want a risk arrangement. It shows our financial people that we're serious about saving money. Risk agreements separate the wanna-be vendors from the ones that really have competence."

Despite the advantages of risk-sharing arrangements, statistical data indicate that many health plans do not insist on such contracts. Kier Zirretta's guide reports that 48 percent of over 100 managed care organizations surveyed said that contracts "currently in place with vendors are on a fee-for-service basis, although [managed care organizations] expressed a clear preference for risk-sharing arrangements that provide for evaluating the program at the end of a defined period and sharing the savings or loss from disease management services with the vendor."

Says Kier Zirretta: "Vendors, taking their cues from managed care organizations, would like to see the programs capitated."

Lewis says the point where much of this often gets ironed out is not in the contract, but in the letter of intent. (See "Reading between the lines") "Cost and quality guarantees and who gets counted should be 80 percent of the value of the contract," says Lewis. "Twenty percent of the bargaining time goes to 80 percent of the value. All the issues of who counts in the program, what gets counted and when — if you get those key points in the letter of intent, you can literally start implementation."

Gathering data

Negotiations involve more than demands. There's a "give" as well as a "take." Says Leider, "What are they going to expect you to do? Do they want you to do patient identification?"

The question brings us back to data-gathering concerns. Vendors, for the most part, want to sell you something that fits your need, says Ralin's Smith. "The more information the plan can provide, the better," he says, pointing out that most disease management contracts are based on historical baseline costs. How much has the plan had to pay to provide services for the population being targeted for disease management? Answering that question is crucial, says Smith. "We have found that once we've been able to agree on the historical data, the process tends to speed up. The biggest problem is just getting the data."

If the whole data-gathering process leaves you frustrated, you are not alone. Here, again, is the Disease Management Strategic Research Study & Resource Guide, saying that managed care organizations "cited the lack of adequate information technology as the most challenging obstacle to overcome in the implementation of a disease management program. Information technology is expensive and time-consuming to develop, and thus a ripe market exists for vendors who can satisfy this need."

Morrow reports that "the biggest thing we've come across is system limitations. If you can't get information that you can give to the vendor that he can use and feed back to you, then you're dead in the water." For instance, one vendor Morrow negotiated with needed the phone numbers for patients with asthma. "We don't have the numbers for many patients," he says. "We had to pay another vendor to find those numbers. Also, you can call any household in Atlanta during the workday and there's nobody there. The problem is identifying your population. If Jane Doe needs to belong to a diabetes program, you've got to identify exactly who Jane Doe is, including her medical history. Most insurance companies can't aggregate all the information needed."

Claims information

Drew Palin, M.D., would agree with that. Palin is CEO of ThinkMed, a Milwaukee company that sells software that's intended to help HMOs gather and stratify claims information. "If you have a population of 100,000 members, 800 to 900 of them are going to be diabetics. But all diabetics aren't the same."

Sound like a pitch? Companies like ThinkMed, while not DM vendors, could help plans during the prenegotiation stage. In fact, says Palin, ThinkMed provides that service for some of the plans that use its software.

But "claims data don't necessarily give you clinical data," Smith notes. "Claims data may not be that difficult to pull, but trying to track back to the clinical data isn't always easy." Do vendor and plan sometimes read different things from the same data? "It's not so much that we would disagree," says Smith. "It's just that the whole process is quite complicated."

Palin admits that claims data aren't always translatable into clinical data, but points out that "the advantage of using claims information is that it's universal. It is a very good starting point and, with appropriate interpretation, it can serve as a proxy for clinical information."

Lewis says the steps leading to negotiations work like this: "Typically, there's a proposal from several vendors and then presentations are made and then, usually that same day, health plan officials vote on who they want to do this with. Then draft letters of intent go back and forth five or six times before the letter works for both sides."

Of course, he says, "There are presentations that wind up going nowhere. Often, the health plan was just being polite. Often the plan didn't have a process in place for working up a letter of intent. After the presentation, the plan has every intention of getting a letter to the vendor but it often doesn't happen."

Morrow agrees that the letter of intent is vital. "It's sort of like the engagement," he says. "It's a serious component for the whole process." After the letter comes another trouble spot, says Morrow. "There's often sticker shock because then the vendor is going to come back with a proposal and it's going to have a dollar sign attached to it."

But Leider says sticker shock can be avoided if you prepare for negotiations. "You need to know what the competitive deals are out there," says Leider. For instance, say a vendor tells you he can save you ten percent. "How do I know if ten percent is good or bad for most health plans?"

NCQA-style reports?

Morrow points out that knowing what you're trying to accomplish helps. Some disease management programs are no more than public relations efforts so that "the plan can tell employers it has something in place." More intensive programs delve into how to utilize services to reduce costs. Morrow says, "A third way is to set up a National Committee for Quality Assurance-type report to help you with quality improvements."

Can a disease management program help a plan meet NCQA standards? It depends on whom you ask but the answer seems to be, "Yes, in a roundabout way."

Morrow warns: If a vendor begins talking about how he can help you with NCQA data, listen carefully, because much of what NCQA requires can't be done by a vendor. "The adaptation of guidelines has to be a plan function," says Morrow. "They can tell you what NCQA requires and provide you with some of the outcomes material, but you still have to do it. You need to ask them to clearly define what they mean when they say that they can help with NCQA. There are a whole lot of things NCQA would like you to do that are usually not part of any program you can buy."

However, Leider of HealthNet asserts that a well-run DM program will impress NCQA officials. "NCQA wants to see you improving the care of populations of people. A good program will help you attain NCQA accreditation."

This sounds all too familiar to Jody Barish, director of clinical program development at Highmark Blue Cross Blue Shield. She recently completed negotiations with three different vendors. "The vendors will say 'We can help you get NCQA accreditation,' but it's really the health plan's responsibility to measure its own improvement activities," says Barish.

Kier Zirretta points out that "The NCQA measurements, even with the new HEDIS, have not really been disease-specific. They've really been process-specific. Having a well-run disease management program in place will definitely add to the quality of a plan. But nothing in the NCQA accreditation process says you have to have a disease management program."

All of which comes down to the practical wisdom that you should understand what you're buying, says Ralin's Smith. Most plans dealing with prospective vendors go onsite to see how programs work where they're already functioning. "We let the health plan officials come in and actually look over the shoulders of our nurses doing their jobs," says Smith.

Says Leider: "You need to find out if the vendor has ever achieved real outcomes. If the outcomes data the vendor offers during his presentation come from one site, you've got to ask yourself, 'Would the same system work here?'"

It's a question worth answering because, as Smith points out, a good disease management program will produce "enough savings so that everyone will come out ahead."

Reading between the lines

Al Lewis, president of the Disease Management Purchasing Consortium, says the most sensitive stage in negotiations between health plans and vendors negotiating a disease management agreement involves a letter of intent. Here's where the big issues — guarantees for cost, quality and performance — get hammered out.

The letter is usually the first step undertaken by health plans after deciding to work with a specific vendor — a decision usually made after vendor presentations.

Here are highlights from a generic letter of intent that Lewis uses as a template for actual letters leading to disease management agreements. Lewis explains the meaning and relevance of many of the items listed. (The letter is copyrighted and may not be reproduced without his permission.)

  August 20, 1998

John Doe
Any Vendor Inc.

Dear Mr. Doe:

Generic Health Plan would like to enter into a nonbinding Letter of Intent with Any Vendor Inc. to provide asthma disease management services. The terms of those services are detailed in the May 1998 proposal from Any Vendor to Generic Health Plan, with the following material exceptions:

The per case fee is $_____ per member receiving Any Vendor services, payable one half at enrollment and one half 90 days following enrollment.
This means that the vendor is promising savings in excess of fees, and if it does not achieve those savings, it must reduce its fees in the year ahead. This is like a guaranteed-savings deal, but because the health plan, rather than the vendor, keeps the excess savings, there is no need to reconcile claims to figure out who owes what at the end of each period, unless the health plan feels there is a chance the targets were not met. The vendor represents that savings in ER and IP claims will exceed the per-case fee by at least _____ percent. If not, the vendor must reduce the subsequent year's fees by the amount of the shortfall.
An important point, because you need to have a solution for members who join the plan after the program is implemented. It's fair to assume their claims experience is similar to the experience of current members. Members may be added to the program at Generic Health Plan's option even if they do not have 12 months' worth of baseline data, using the previously calculated baseline as a proxy for their baseline, and the full-recourse progress payments associated with such members will also be $___ the first year.
This is needed because finding the members is such a critical part of implementing a disease management program for the plan's entire population. You don't want to let the vendor off the hook for members who aren't easy to find because they are likely to be less compliant generally, but it's not fair to make the vendor -play detective without compensation. Members will have valid or forwardable addresses in 95 percent of cases, and reachable phone numbers in 80 percent for group health and Medicare, and 80 percent valid or forwardable addresses for Medicaid; to the extent these targets are not reached, Generic Health Plan will pay Any Vendor $20 per participant below the threshold.
This is important because to ensure savings without statistical bias, you must do the whole population, and you can't let vendors financially walk away from people who won't comply — their claims experience is likely to be high and must be included in final savings calculations. Members will be deemed to consent to participate in the program if they are findable.
  No inflation adjustment; actual changes in ER and IP rates will be used to adjust the baseline.
This is fair because it is harder to save money if costs are low and easier if costs are high. Since you usually don't have the data when you sign the letter of intent, you don't know whether your numbers are high or low. This protects both sides from unexpected historic claims experience levels. Also, the full-risk option is based on having an average amount of asthma medical losses. (ER and IP claims coded for asthma account for roughly 0.4 percent to 0.5 percent of all medical losses.) To the extent that the number is less than/greater than 0.5 percent, the guaranteed savings percentage will be adjusted proportionately.
It is easier to save money on a stable population. Changes in stability change the terms. If annual Generic Health Plan turnover varies, up or down, more than two points from current levels, the guaranteed savings percentage will change inversely by one point.
Here, several important points are made mostly to ensure that while 80 percent of the potential points of dispute are in the letter of intent, the other 20 percent are at least considered at the time of the contract. Generic Health Plan understands that there will be other terms Any Vendor may wish to negotiate, involving among other things:
  • Timely notification by Generic Health Plan of ER and IP utilization by program participants;
  • Assurance that Any Vendor will not pay for disease management of members after they become ineligible;
  • Payment for members who disenroll from the plan prematurely in a manner which recognizes that 90 percent of Any Vendor's expense takes place in the first two months of enrollment.
This helps speed up the process because it allows the vendor to rely on the letter of intent to start implementation. But it also prevents the vendor from speeding up implementation to create a large contingent liability should the health plan decide not to consummate. Basically, both sides feel pain if the deal is not ultimately consummated, making a completed contract much more likely than if one party could easily walk away. However, all price-related terms are included in this letter.

While this is not a "binding" letter of intent in the sense that no expectancy damages would be payable in the event that Generic Health Plan ultimately elects not to consummate an agreement with Any Vendor, Generic Health Plan would like Any Vendor to proceed with early stages of implementation effective upon receipt of this letter.

To demonstrate Generic Health Plan's belief that it will ultimately consummate an agreement, Generic Health Plan is willing to reimburse Any Vendor one third of all documented out-of-pocket expenses solely related to implementation of the Generic Health Plan asthma program, in the event that Generic Health Plan does not proceed with the program substantially along the terms outlined in this note or the proposal. Please inform us along the way of every major budget increment ($5,000 or above) you are incurring, in order to allow us to monitor this process. If we believe there is a chance we will not consummate this agreement, we will ask you to postpone further spending.
A complete listing is much better than getting references because anybody can find a couple of decent references. As part of our due diligence, we would like from you:
  • A complete client list and at least two people whom we may contact at each client (with phone numbers).
Frank Diamond
Senior Editor