A Tale of Commercial Disease Management

The intrepid Disease Management Care Blog hunter found signs of disease management company game in the private health insurance market. The footprints tell an interesting story.

Kathie Bracy is a retired elementary room classroom teacher who keeps a blog that acts as a forum for participants in the Ohio teachers’ Health Care and Retirement System (STRS). Several comments on Kathie’s blog about disease management prompted the DMCB to track the STRS’s involvement with a company called... LifeMasters. That’s when things became interesting.

Among its many services, STRS provides health insurance to active employees and retirees. It is funded by enrollee premiums, employer contributions and investment earnings. Like many employer-based insurance plans, STRS has been grappling with providing affordable health care coverage:

‘Rising health care costs, increased utilization and the loss of healthier enrollees are depleting money available to subsidize STRS Ohio retirees’ health care premiums at a rapid pace. Changes in the delivery of health care will need to occur at both the state and national levels. In the meantime, the Retirement Board remains focused on ensuring the long-term stability of the pension plan, while working to create a dedicated revenue stream to fund the health care program’

The forensically minded DMCB checked out the posted minutes of STRS’ governing Retirement Board. They and Kathie’s Blog are an instructive public-domain case study on the workings of a typical commercial disease management contract and the search for savings and quality. Search the STRS website first and readers will find some interesting information:

STRS initially contracted LifeMasters August of 2002 for $2.5 million. The deal included a guarantee that STRS would save more than the fees in insurance claims expense or LifeMasters would rebate 80%. The other 20% was also guaranteed, but half of that (or 10%) was based on ‘clinical measures’ improvement, while the other 10% was contingent on satisfaction. In 2003, STRS estimated it had 6956 enrollees, which calculates to a fee of $30 per member per month. In addition, ‘88%’ of this group were actively participating in what the DMCB suspects was an opt-out program. On April 15, 2004, an unnamed independent auditor confirmed there were 6,125 (or about 88%) persons enrolled with LifeMasters, that there was an 18% reduction in the number of hospital admissions and ER visits and an overall 6.9% reduction in claims expense.

As of December 2004, the STRS Board heard there were ‘5,831’ participants in the disease management programs. Observed savings were $8.6 million vs. the $2.5 million in fees and 92% of participants rated the program ‘excellent, very good or good.’ Based on the results of the program, the Board authorized its Executive Director to negotiate a three-year contract renewal with LifeMasters beginning July 1, 2005.

In May of 2005, there was more good news: STRS noted that among the approximately 6,900 people who were diagnosed with congestive heart failure, diabetes, coronary artery disease or chronic obstructive pulmonary disease, total health care expenditures (medical and prescription drug) were $17.65 million lower than expected. After accounting for the fees paid by STRS Ohio, the net savings was $15.32 million (the fees therefore calculate to $2.3 million). This time the independent auditor was identified: Health Data Management Solutions.

In Feb of 2006, the stakes increased. STRS reported that it was solvent until 2018 and a 3% premium increase was necessary. Instead of contemplating a 12% premium increase, the 3% was based on anticipated cost savings of $47 million between 2007 and ­2009, a 1% employer contribution, Medicare Part D subsidies of $33 million per year and an 8% return on investments. Those $47 million in savings were based in part on a prescription drug management program called the ‘Prescriber Advisor’ as well as – you guessed it - LifeMasters disease management.

Kathie Bracy’s blog has feedback from individuals in the STRS plan who are not happy with LifeMasters. One individual wrote that STRS retirees were being ‘signed up against their will,’ subjected to personal intrusive phone calls and that it was up to the person to indicate that they do not wish to be part of the program. Another, who also heard about multiple ‘pushy phone calls,’ questioned just how the savings were calculated and charged this was a ‘waste of the teachers’ contribution money.’ There are minutes on the STRS website that reflect the Board was aware of some persons’ concerns about being able to opt out and whether the information is confidential.

Insights for the DMCB?

If you scan the literature or the web, getting at the commercial PMPM fees charged by disease management companies doesn’t seem to be all that easy. The DMCB has informally heard global average fees range around $30 per diseased member per month and this seems to confirm it. In addition, the opt-out rate seems to be 12%, which may be another useful benchmark factoid.

Isn't it interesting that the lion's share of the fees' guarantee were based on reduced claims expense? The DMCB thinks it's sad but true: we can talk up 'quality' (which apparently went unmentioned) and 'satisfaction,' (reviewed once) but at the end of the day, this is about the bottom line.

The Board didn’t take LifeMasters’ word for the assertion that there were savings, but brought in an independent auditor. So much for the notion that DM companies are pulling wool over their customers’ eyes by performing their own self-serving analyses.

Despite a 92% satisfaction rate, there often are small numbers of individuals who can noisily protest. The DMCB doesn’t think this is necessarily bad; in fact this helped the Board to re-examine the issue.

If the rather large savings vs. fees are to be believed (without access to the methodology, we’ll have to take their word for it), it is very clear that in 2006, STRS doubled down: it is banking on LifeMasters as a principal means of keeping the teachers’ health insurance premium increases to a minimum. If this is typical of the market in general, no wonder employers are supportive of disease management. The good news is that, based on close to $18 million in savings, STRS thought a 3% premium increase is reasonable. The bad news is that the bet is also based on 8% market returns on STRS’ investment portfolio.

As an aside, this last point has implications that extend beyond disease management. As we know, the markets are not cooperating in generating the kind of investment income that supports insurers and helps keep premiums down. If STRS was not alone in its rosy assumptions, the employer-based commercial insurance market may find disease management is not enough to protect its beneficiaries from steep increases in premiums.

While this may or may not help the disease management industry, how will this stress the ability of employers to continue to provide health insurance? How will it factor into how they react to health reform?

Stay tuned!