Disease Management Does Save Money.... but Its Fees are Too High.

Remember Medicare Health Support?

Jerry Cromwell, Nancy McCall and Joe Burton have had an article titled 'Evaluation of Medicare Health Support Chronic Disease Pilot Program' posted in the Fall 2008 on-line issue of Health Care Financing Review. It casts additional light on just what the trial has shown to date. Some highlights:

Fees paid to the participating disease management organizations (DMOs) ranged from $74 to $159 per month. Recall that in order to avoid having to give this money back, the DMOs had to reduce health care costs by 5% (compared to a control group of Medicare beneficiaries) plus an amount equal to the fee.

6 out of 8 of the participating DMOs reduced utilization by amounts ranging from $17 to $80 per month. There were several wrinkles however: 1) These savings were achieved in a background of considerable cost inflation. Cost didn't really go down, they increased less thanks to disease management; 2) the observed savings don't appear to have been due to a reduction in hospitalization rates compared to the control group; 3) for most of the DMOs, the observed savings were not 'statistically significant.'

And then there were the contract terms. In order to keep the fees of $74 to $159 per month, the DMOs had to reduce spending by 5% plus whatever the fee was. Only two DMOs achieved 5% or greater savings and none recouped their total fees. It appears that inorder to have gotten to the 5%-plus-fee threshold, the DMOs would have had to reduce utilization in their Medicare fee for service populations from about 10% to 16%.

Take-aways from the Disease Management Care Blog:

Disease management does save money. 6 out of 8 of the participating DMOs reduced utilization in a background of considerable cost inflation and 2 achieved statistical significance. The DMCB did not see a 'pooled' comparison of overall savings (a meta-analysis) in MHS, but it suspects the program all in all, even if it didn't get to the threshold of statistical significance, showed considerable promise of financial significance. This is still real money, which is why both candidates still prominently feature disease management in their reform proposals.

While it's real money, it's also relatively modest money. Gone is the heady hubris of the early days when the DMOs promised the sun and the moon and the stars. That being said, disease management has a role to play, but

Disease management fees are too high and exceed the money saved. Welcome to the club. While the DMCB doubts there were will sweeping reform, it expects the next President will tackle healthcare's administrative costs. The most visible target is the 'medical loss ratio,' which is simply an expression of how much of every insurance dollar is actually spent on medical care. If the disease management industry wants to be a viable option in the short term, it will have to demonstrate that it is part of the solution to the MLR and that it can do the task in chronic illness with far less expense. Better start planning now.

Compare what happened in MHS to what will happen in the Medical Home Demo. Participating practices will be paid (depending on the tier) blended per beneficiary fees ranging from $40 to $52 (contrast that with the DMO fees of $74 to 159) and have to achieve a savings threshold of 2% (not 5%). According to my prior analysis, smaller Tier 1 practices will have to reduce utilization in the range of 5-8% to achieve profitability, depending on the number of patients that get signed up and assuming they have the personnel to do the job right. Can practices achieve this? The reductions in the MHS Demo would suggest that changes in utilization are within reach. Once again, it comes down to the expense necessary to achieve it.