Take Your Meds, Exercise—and Spend Billions

A decade ago General Electric (GE) experimented with a promising approach to employee health care known as disease management. It hired a company to talk with workers in North Carolina who suffered from heart disease. Nurses called to encourage them to take their medication and get moderate exercise as a way to avoid expensive hospital stays. Around the same time, large corporations in many industries began paying for similar disease-management programs to keep employees healthier and cut costs. "It seemed too good to be true," says Dr. Robert S. Galvin, GE's chief medical officer. And, he adds, it was.

During the trial, GE didn't see any compelling evidence that disease management saved money or substantially improved worker health. Galvin decided against expanding the program.

In exercising that caution, he is a lonely figure. Disease management—despite a series of studies finding that it doesn't deliver what it promises—has caught on throughout the business world (BW—Feb. 1 & 8). Employers and government agencies are spending a total of $2.5 billion a year on the services. Aetna (AET), Cigna (CI), and other insurance giants sell disease management. Healthways (HWAY), the leading company in the field, has seen its share price double over the past year, as Wall Street anticipates health reform legislation that will provide incentives to adopt the approach.

Even with serious doubts hanging over the Obama Administration's campaign for change in the insurance system, Congress is expected to approve some kind of slimmed-down bill that will promote disease management. That perplexes Galvin and other skeptics. At GE, a company known for savvy management of employee benefits, "the idea that you are going to save enough on hospitalizations to save money over and above what the [disease-management] program costs just didn't pan out," he says.

Companies marketing disease management counter that in-house research shows such services sharply reduce costs. In Washington the industry has spent generously on lobbying to convince politicians in both parties that the government should expand the business. Lobbyists have distributed an industry-generated study showing that disease management and related efforts could save Medicare, the public insurance program for seniors, $652 billion over 10 years.

But outside analysts say the case for disease management—and the data its marketers emphasize—typically rely on exaggeration and ignore the cost of the service itself. "These companies are making so many claims that are never subjected to any scrutiny," says Soeren Mattke, a senior scientist at Rand Corp., a nonprofit research group funded by corporate and government grants. In August 2009, Rand issued a report for the state of Massachusetts concluding that disease management could increase employer and government spending in the state by $6.7 billion over 10 years with little overall benefit. Specifically, Rand said that even when researchers used "highly optimistic assumptions," the cost of the services made any savings negligible. One reason: A lot of preventive attention ends up directed at relatively healthy people who wouldn't require hospitalization anyway.


In a separate analysis, outside consultants hired by Medicare determined in 2008 that disease management used in a pilot for 200,000 patients raised spending but didn't reduce hospitalizations, emergency-room visits, or death from chronic disease. The vast discrepancy between the contentions of disease-management companies and those of critics stem from different attitudes toward projections. The providers attribute large dollar figures to the desired long-term benefits of cajoling smokers to quit and telling heart patients to take walks. It's common, for example, for advocates to claim that preventive steps can save millions of dollars over a cardiovascular patient's lifetime by obviating the need for multiple hospitalizations. Extrapolation from such estimates produces huge aggregate savings. But most disinterested analysts, including the staff of the nonpartisan Congressional Budget Office, refuse to tie specific savings to open-ended prevention, citing research that it increases costs overall.

Now Congress and the Obama Administration are poised to commit billions of Medicare dollars in coming years to a health-care solution that may do little good. "We have already wasted a lot of money on disease management," says Randall Brown, director of health research at Mathematica, a for-profit research firm in Princeton, N.J., that studies preventive care on behalf of government agencies. "I'm worried we could throw more money down the drain."

About three-quarters of large companies offer some form of disease-management services, as do most state Medicaid programs for the poor. Employers or the government typically pay outside providers monthly fees per member. By sifting through patient data on claims, prescriptions, diet, and behavior, companies try to identify people who are most at risk of requiring costly medical care. They assemble voluminous detail on treatment and lifestyle, using software to predict the highest-risk patients (whose names aren't revealed to employers). Then nurses and "health coaches" call the patients to monitor their conditions between doctor's visits or sometimes after a hospitalization. They check on whether patients are taking their medication, eating right, and getting enough exercise. They sometimes install devices in people's homes to track changes in blood pressure and weight. The programs, which first appeared in the late 1990s, often provide incentives to persuade patients to participate, such as discounts on insurance premiums.

In Washington there is bipartisan support for allowing employers to grant bigger incentives to employees who participate in disease management. Current law allows a 20% discount on premiums; a Senate proposal would expand that to 50%. The industry also stands to benefit from proposals in Congress to spend more taxpayer money up front on preventive care for the chronically ill.

Executives with disease-management companies say studies raising doubts about their services have looked at crudely designed programs from years ago that focused on just one disease at a time, rather than taking a more comprehensive approach. Newer services are much more effective, they contend, and allow for the projections of huge savings. The executives say they're reaching out to more doctors' offices and putting more care managers in the field for face-to-face visits with employees. "It's hard for any third party to conclude we aren't successful," says Robert E. Stone, a Healthways co-founder and vice-president. "Don't use a broad brush to tar the entire industry."

Inside the Healthways headquarters in suburban Nashville, posters urge workers to fill out detailed annual health-risk assessments. The sweet potato fries in the cafeteria are baked, not fried. The main hub of activity is a second-floor call center where about 200 nurses and health coaches wearing headsets sit in cubicles and scan patient files on their PCs. Nurses talk to diabetics about their blood sugar levels and to heart patients about aerobic exercise. Healthways has 11 call centers in the U.S. and three overseas. About 12,000 calls go out a day; most last less than 15 minutes.


The company was one of eight that participated in the 3-year Medicare pilot that ended in 2008. Medicare paid the disease-management providers about $360 million in fees, but outside consultants found no evidence of improved outcomes. Disease management worked in some individual cases, and some patients liked having nurses check with them, but the pilot group didn't enjoy better health overall, the study found.

The companies that participated contend the government botched the experiment and should have allowed it to continue for a longer period. Medicare enrolled patients in the pilot who were far sicker than expected and failed to share information adequately on hospitalizations, lab results, and use of prescription drugs, the companies say. "I would argue [that Medicare] didn't prove or disprove anything relative to the value of disease management," says Jeffrey Kang, chief medical officer at Cigna, one of the participants. "It was like we were executing with one hand tied behind our back."

Medicare continues to explore ways to help chronically ill patients, says spokesman Peter Ashkenaz. The agency cannot comment on the disease-management pilot because the companies involved are contesting the cancellation, he adds.

"We believe we offer a clear business model for the government to pursue for the 30 million people in Medicare fee-for-service," says Ben R. Leedle Jr., chief executive of Healthways. "It isn't an option to just leave people with chronic illnesses alone."

William Evans, a 71-year-old retired finance manager in Snellville, Ga., says he has benefited from disease management, an opinion echoed by many other individuals. Through his Humana Medicare Advantage plan, Evans receives a call once a month from a nurse checking on his rheumatoid arthritis. At first, he resented some questions she asked, such as whether he could move his fingers or tie his shoes. "They were old fart questions," he says. But the nurse effectively monitored his health and even helped him handle insurance claims, Evans says. "I have her number, and she's easy to reach."

At GE, disease management didn't work on a broad scale, according to Galvin, who was a primary-care physician for 10 years before joining the company. He says he had a hard time believing that chronically ill employees would change unhealthy behavior at the direction of unfamiliar nurses calling from remote offices. Still, he didn't want to dismiss the idea entirely. So in 1998, GE tested a disease-management program with employees in North Carolina who had already suffered heart attacks and were likely to end up with repeat hospitalizations and other expensive treatments.

The program failed, Galvin says. GE struggled to get enough enrollment to justify the cost, and those who did enroll rarely responded to the nurses. Galvin went so far as to listen in (with permission) on nurses' conversations with employees. It was all too impersonal, he concluded. "If you're going to influence someone, you need a social relationship with them," he says.

Galvin and some other medical experts favor a different tack: paying physicians a bonus to hire nurses and other care managers who will get to know patients and monitor them effectively. "They'll grab [patients] on the way out, and they'll know their wife—that's how these things change," he says. "Why don't we try to rebuild the doctor's office, rather than make these separate disease-management companies and insurance companies more profitable by putting in call centers and headphones?"

This spring, GE will start an outreach service that shares some elements with traditional disease management. Nurses will use claims data to identify gaps in care, such as unfilled prescriptions or missed checkups. But rather than just contacting patients, the nurses will also call the treating physicians, if patients agree. "Never hooking in the doctor was a terrible negative" of programs such as the one GE tried in North Carolina, Galvin says.


For much of the past year, the providers have been promoting their wares in Washington. Healthways officials say they've lobbied fiscally conservative Democrats who are swing votes on health reform legislation. Their claim that prevention programs could save Medicare $652 billion over 10 years reflects industry assumptions that disease management would dramatically increase the percentage of healthy seniors entering Medicare at 65 and keep them fit for years to come.

Support for the services has also come from the Partnership to Fight Chronic Disease, a nonprofit founded in 2007 and funded in part by disease-management companies, insurers, and other medical groups. Its paid executive director is Kenneth E. Thorpe, a health policy professor at Emory University in Atlanta. Thorpe, who worked on health reform as a Clinton Administration official in the 1990s, says he has met regularly with congressional staff members to explain what the federal government should do to combat chronic disease. One important answer, he says, is disease management. Stone, the co-founder of Healthways, describes Thorpe as the industry's "go-to guy."

Thorpe argues that Congress should invest in chronic-care management much like it did when it allocated $19 billion in last year's stimulus bill to speed the adoption of electronic health records among doctors and hospitals. He has told lawmakers that an investment of $30 billion over 10 years could reap huge long-term savings. "We need to make a small investment to build care coordination into Medicare," he says.

Within Congress, Jim Cooper (D-Tenn.), Healthways' hometown representative, has been a strong supporter. "Healthways is a company that we in Tennessee should be proud of," he told other moderate Democrats when they met with company executives in June. "They are playing a key role in the current political discussion by enriching our understanding of America's health—or lack thereof." It appears that many of the politicians were persuaded, despite ample skepticism from elsewhere.

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