U.S. medical costs continue to spiral out of control -- they're projected to climb 13% this year. Desperate to slow the increases, some health-care providers are starting to focus on a simple idea: Helping patients with chronic diseases to better manage their own care.
Experts have long known that health-care costs are usually highest for a few long-term illnesses. Indeed, the direct and indirect expense of treating just two ailments, diabetes and congestive heart failure, account for 60% of all medical spending. In hopes of large savings, health plans and specialized service vendors have developed a raft of new disease-management programs to help people suffering from chronic conditions. Despite doubts about the effectiveness of such programs, they're rapidly gaining momentum.
In practice, disease management seems pretty straightforward. For instance, a nurse might phone diabetics several times a year to provide diet recommendations and remind them when they're due for diagnostic tests. The idea is to lower the incidence of heart attacks, respiratory failure, and other major episodes that cost big bucks to deal with. But the strategy could be a colossal waste of money if the intervention isn't effective.
Indeed, as recently as a decade ago, critics waved off the first disease-management programs as gimmicks and drug-company marketing tools. Pharmaceutical outfits were the first to sponsor such programs, but skeptics saw them as a just another way drugmakers could push their products. Just what combination of delivery methods -- phone calls, e-mail correspondence, interactive Web capabilities, educational mailings, in-clinic visits, house calls -- work best is still hotly debated.
Disease-management schemes come in many varieties. Some large health plans, including Kaiser Permanente and United Healthcare, have developed in-house programs to better manage patients with certain diseases. Virtually all health plans now have at least one program in place, up from a third only five years ago, according to Susan Pisano, a spokesperson for the American Association of Health Plans, a managed-care industry trade association. Bob Stone, executive vice-president with American Healthways, a pioneering disease-management company, estimates that spending on such programs in 2002 will total $675 million -- and eventually could rise to $20 billion annually.
Wall Street has taken notice. Some investors have high hopes for entrepreneurial companies that have sprung up to market disease-management programs to major health plans. Nashville-based American Healthways' (AMHC ) stock has surged from about $3 two years ago to $27.13 at the closing bell on May 14. Its earnings soared to $3.2 million, on revenues of $75 million, during the fiscal year that ended on Aug. 31, 2001 -- up from earnings of just $148,000, on $53 million in revenues in the prior year. The outfit hopes to hit $1 billion in revenue by 2005, and Jefferies & Co. analyst Andrew May is looking for earnings growth of around 30% annually for the next several years.
It's not clear just how effective disease management can be at cutting costs overall, however. "We need more research to see if some of these business approaches are really working," says Bob Harmon, president-elect of the American College of Preventive Medicine. Stone sees tangible benefits: He estimates that American Healthways can cut a health-care provider's costs per patient by about 20% on average after the first year of implementation. "If we were not able to demonstrate a return on investment," says Stone, "the number of plans eager to embrace us would decrease dramatically."
The savings are likely to be greatest from managing diseases that are the most costly to treat. Indeed, American Healthways has several smaller rivals that target specific diseases. For instance,Matria Healthcare (MATR ) in Marietta, Ga., has expertise in cancer management, and Q-Med (QEKG ) in Laurence Harbor, N.J., specializes in cardiovascular disease.
CorSolutions Medical, a privately held disease-management contractor in Buffalo Grove, Ill., mainly counsels patients over the phone. Nurses assigned to diabetics might collect information about what drugs they are taking and determine the regimens their doctors have proposed. The nurses will periodically phone patients, answering questions about the disease or simply reminding them that the date for a blood-glucose test is coming up. Says CorSolutions CEO Richard Vance: "We help the patient understand how to be a better self-manager of his disease."
Paying a staff of nurses to provide disease management isn't cheap. But Vance says after the program's expense has been deducted, CorSolutions' approach cuts the cost of caring for a diabetic by up to 20% per month, while improving the rate at which patients get the diagnostic testing they need. It figures that more than 86% of its diabetics take a common test that measures long-term blood-glucose levels every few months, well above the industry average of 70% to 75%. By teaching patients how to perform a self-administered home test, CorSolutions says it also increased to 90% the number of diabetics who get an annual foot exam -- an important health-maintenance measure because of the disease's circulation-related complications. Currently, the typical rate for diabetic foot exams is 40%.
Some big health plans have decided not to outsource disease management. Kaiser Permanente, which has 8.3 million members in various regions and employs some 11,000 doctors, is a good example. Explains Paul Wallace, executive director of Kaiser's Care Management Institute: "We're already integrated from the start, so the benefit of using a disease-management company is marginal. We can leverage the integration we already have."
A big boon, say disease-management specialists, would be greater participation by government health-insurance programs such as Medicare, which covers some 40 million mainly elderly retirees, and Medicaid, which covers 34 million low-income people. Medicaid, which runs on a state-by-state basis, has been more nimble at getting disease-management programs in place. Right now, only 15% of Medicare patients are enrolled in HMOs that might offer such plans. But a Medicare spokesman says the feds are testing broader use of the concept and expect to start a program sometime next year.
Like private health plans, the government senses that disease management might have the potential for reining in costs. Just how much of a potential won't become clear for a few more years. But considering the rate of health-care cost increases, even modest savings would be a relief.
By Amy Tsao in New York
Edited by Thane Peterson