Being Bullish on Disease Management

Because it's a bellwether for the investor-owned care coordination provider companies, the Disease Management Care Blog likes to keep an eye on Healthways.  It recently eyed this drop in its share price:

Ouch.

As part of its third quarter earnings announcement, the company revealed that mega-health insurer Cigna is "winding down" its Healthways contract in 2012.  Since Cigna accounts for about $110 million in revenue, loss of 17% of the top line was not good news for the company.  Investors reacted by punishing Healthways with a  43% decline in the stock price, while S&P downgraded the company.

The DMCB is not a Healthways investor, but even if it were, it wouldn't be worried.  Stuff like this has happened before to the company and and the market will always have an cyclic pattern of purchasers deciding to insource then outsource and then later insource their care management programs.  In fact, Healthways is pointing to the arrival of some other contracts. That's simply the nature of this business.

In the announcement linked above, Healthways points out that the future's quite bright because of the following market trends:

1) Health plan preparation for the implementation of state health insurance exchanges, which is projected to cause significant disruption of their individual and small group fully insured business;

2) Change from a volume-based to a value-based payment system and the associated shift of financial risk and responsibility for cost and quality from health plans to providers;

3) Increasing payer requests for a comprehensive, integrated solution that addresses longitudinal health risk and care needs for total populations;

4) Global adoption of population health management by both foreign government and foreign private sector health organizations; and

5) Recognition by large employers of the expanded value of improved well-being to reduce medical cost and improve individual and company productivity and performance.

The DMCB finds the reasoning quite sound and applicable to the entire industry.  Based on the implacable logic of short-term investing, the loss of one big contract is a big deal.  On the other hand, the DCMB remains bullish on the industry's longer-term value-proposition built on cost control, risk mitigation and prevention.

Last but not least, note that the commercial health insurance business hasn't abandoned disease management.  Insurers are looking to extract the greatest value and, if that means insourcing it, so be it.  Ultimately, it's the patients who win.

Shirley Temple couldn't have said it better.  Care coordination remains a reason to be optimistic and smile.....



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