Of Actuaries, Consumerism, Care Management and the Patient Centered Medical Home

"But we're saving money!" said the Disease Management Care Blog.

"I don't really care" said the company actuary.

That pretty much summed things up years ago when the DMCB was arguing the merits of expanding the care management programs. The good news is that the DMCB stopped talking, listened and got educated.

It learned that actuaries assess past patterns of health care utilization to project future patterns, much like looking in a rear view mirror to drive a car forward. Knowing that the previous years' rate of hospitalizations is "X%," that physician offices visit rates are "Y%" and that other rates for other forms of utilization are "Z%" etc., actuaries, knowing the cost for each unit of service, can then project the cost of future services. Since care management is an additional cost, that "hard" number is simply added into next year's budget. It's all added up and voila! the cost of providing insurance was known. Our customers never liked it because rates kept going up. Our State Department of Insurance - and their actuaries - required it because they knew rates had to go up.

Even though the DMCB could demonstrate that a $70,000 per year case manager could save (depending on the condition) $100 to $700 PMPM, the actuary only saw spiraling cost inflation with higher rates of utilization. Just because a segment of the overall book of business may have cost less, it was calculated that the costs for all persons with diabetes and heart failure would continue to rise and that the nurses were an additional cost center of $70K per FTE.

Case closed.

That was the logic then and is still believed by naysayers today. So, how has care née disease management survived years of actuarial skepticism?

One answer may lie in this J.D. Power press release. Human Resource directors, managers and owners that have responsibility for buying commercial health insurance are unhappy with the industry's ability to service accounts, design new products, resolve coverage problems and manage costs. However, the most important determining factor in overall satisfaction is "employee plan experience."

In reading the press release, the the DMCB can't tell what makes up "employee plan experience," but it has a pretty good idea that a large part includes wellness, prevention and care management. So, in addition to "patient engagement," and "self care" and "risk reduction" and "behavior change," care management's secret sauce consists of personalized outreach and creating special relationships with patients. It's called talking to your customers.

Which offers two lessons and a warning:

1. Service Recovery: This is one of the reasons why disease management, now called care management, wellness and prevention, has done so well in the self and fully insured commercial insurance settings. If JD Powers' press release is to be believed, insurers are relying on their care management programs to partially make up for their perennial inability to execute well on other parts of the business. That doesn't mean there isn't growing evidence that the actuaries can be wrong and that care management also saves money. This is cake and eating it too.

2. Medical Loss Ratio: Given the actuaries' biases and an in-house perception that disease management was a customer service function, it's no surprise that disease and care management programs were placed in the administrative cost column and not the MLR. The care management industry always thought it was a clinical function, but with the widespread perception that health insurer administrative costs are too high (and that the MLR is too low), the industry is working hard at getting their costs reassigned.

And the warning?

While my colleagues who are promoting the Patient Centered Medical Home (PCMH) are fixated on its ability to increase quality, reduce costs, rescue primary care, minimize variation, reverse the Federal deficit and banish all hunger in America, it may turn out that a key success factor will be none of those things. Rather, the long term staying power of the PCMH may hinge on its ability to enhance the health care experience for patients. GroupHealth understands that (here at the 30 sec mark) and so does Blue Cross Blue Shield of Michigan (here). If the actuaries get skeptical and consumers don't notice a palpable change, the PCMH may go the way of dermatologists who remember which end of the stethoscope goes in the ears, the dodo bird and good taste in a Lady GaGa music video.

Image from Wikipedia

Chronic Non-Chronic Blended Trending? A Word from Milliman about Medicare & Disease Management

Check out this interesting and highly readable report from Milliman and their health care actuaries. According to this analysis of Medicare fee-for-service claims from ’03 to ’06, the rate of increase (otherwise known as the ‘trend’) for persons with heart disease, diabetes, chronic obstructive pulmonary disease, chronic heart failure and asthma was lower than the trend for persons without those conditions.

That’s important because trend is arguably a more important metric for the success of disease management than cost. While it would be nice to ‘lower’ the cost of care for persons with chronic conditions, that begs the question of lower cost compared to what. Thanks to forces driving the overall cost of health care (for example, people are getting older, inflation is accelerating, technology is expanding), a successful disease management program may diminish the costs that are proportionally directly due to the chronic condition but still ‘look bad,’ thanks to the general cost drivers. Since costs are constantly increasing across the board, looking at the rate of increase is a good way to reconcile expected vs. observed costs. At least that's how the non-actuarially inclined Disease Management Care Blog thinks about it when its brain isn't getting full.

The art and science of separating costs/trends that are due to the chronic illness versus overall costs not only turns otherwise brainy, stoic, placid and mute health care actuaries into brainy, stoic, placid and murmuring actuaries but is also the stuff on which millions and millions dollars of disease management company performance guarantees depend. Guarantees may depend on comparison of observed trend to a calculated trend that ‘blends’ the non-chronic and chronic trends. If the ‘non-chronic’ general trend is higher than expected and the ‘chronic’ trend is already low without any disease management, the guarantees could be miscalculated. Big time.

This is all based on Medicare fee-for-service data, which doesn’t necessarily apply to the commercial insurance sector, which is where most disease management companies live. In fact, Medicare fee-for-service has no disease management programs to speak of. Milliman's analysis would need to be performed outside of Medicare to determine if it's generalizable.

However, the observation that rate of cost increases is higher for persons without chronic illness has big implications for health care policy. The Milliman report points out that wellness, preventive care, diagnostic services and elective procedures may be the more important drivers of health care costs in 2008. The folks at the Dartmouth Atlas, thanks to their perspective on variation and preference sensitive conditions, would probably agree. The report also asks if the current evidence-based medicine and quality improvement efforts that have been focused on chronic disease is paying off.

The report didn’t bring this up, but it begs another question: does Medicare FFS really need disease management? The answer may still be yes, but if this is all about the scary likelihood of depleting the Trust Fund by 2019, chronic illness may not be where President Willie Obama McCain Sutton should want to go. Maybe some parts of the current Demos directed at chronic illness were unable to show an impact because chronic illness trends were already down....

Food for thought. In the meantime, if you want to learn more about this chronic-non-chronic trend stuff, look here. The DMCB is going to read its copy one more time.