What is Disease Management?

David Kliff, Publisher

The Diabetic Investor 

Which of the following is true of disease management companies: 

A) A system of coordinated care interventions and communications patients and physicians manage conditions that necessitate significant self-management. 

B) The application of all available health care resources to the care of populations characterized by the presence of a chronic disease. 

C) It is a strategy that coordinates the delivery of services in order to achieve specific outcomes and optimize costs. 

D) An integrated process to optimize clinical and economic outcomes for a specific high cost or chronic population. 

E) The most recent attempt to control rising health care costs. 

F) Some of the hottest stocks on Wall Street. 

G) All of the above. 

If you answered G, give yourself a gold star. With health care costs expected to rise nearly 13% this year and the economy slowly moving out of recession, everyone is once again looking for ways to lower health care costs.

It should come as no surprise that disease management companies have targeted chronic diseases such as diabetes and asthma. 

Consider that a person with diabetes, Type 1 or Type 2, should be testing their glucose levels 4 or more times each day.  They should also have their A1c levels checked  4 times per year.  Then there are the various forms of treatment: insulin, oral medications or both.  The fact of the matter is even a well - controlled patient with 

Diabetes is  costly to any health care plan. Unfortunately, diabetes is a debilitating disease that inevitably leads to complications.  Diabetes also places a significant cost on health insurers. According to the American Diabetes Association, approximately $27.5 billion was spent for inpatient hospital care. Diabetes-related hospitalizations totaled 13.9 million days in 1997. 

Rates of outpatient care were highest for physician office visits, which included 30.3 million visits to treat persons with diabetes. Finally, the mean length of stay for hospitalization was 5.4 days. 

While these are just some of the direct costs of diabetes, clearly there are indirect costs to employers in terms of lost productivity.  According to the ADA, on average, people with diabetes ages 18-64 lost 8.3 days from work as compared with 1.7 days for people without diabetes.  In 1997, diabetes accounted for a loss of nearly 88 million disability days. Of those, over 14 million work-loss days from jobs outside of the home were attributed to diabetes. All of these numbers add up to the reasons health insurers and corporate America are looking towards disease management companies, and why Wall Street is looking at disease management companies.   

Diabetes is growing at epidemic rates and, if left uncontrolled, could well consume the majority of health care dollars. 

The question is, do these programs really work? Does disease management really lower costs to insurers and corporate America? (Improving the everyday life of people with diabetes could be described as a benefit of disease management; however, these programs would never be put in place unless there was a financial incentive.) Or, will disease management go the way of the HMO, once full of promise yet never reaching their potential. 

The two leading companies in disease management are American Healthways (NASDAQ: AMHC) and Matria Healthcare (NASDAQ:MATR). Both have seen their shares skyrocket over the past year and some believe there are greater gains ahead.   

Very simply, a disease management company is like having your mother around to make sure you’re taking good care of yourself. Like your mother, a disease management company wants to make sure you’re eating right, exercising, taking your medications and seeing the doctor for regular check-ups. Also, like your mother, the goal of disease management is to be proactive rather than reactive; in effect, stopping the problem before it has a chance to start. This is similar to what HMOs offered when they first came on the scene.   

The question remains, will keeping the patient healthier transfer into true savings?  

According to Matria, while working with the National Jewish Research Center, on a six month program which included 2,000 HMO UCare Minnesota asthma sufferers, hospitalizations dropped 71%, unscheduled  physician visits decreased 66% and emergency room visits declined 50%. The study also showed that work absenteeism declined. 

Similar results were found for Medicare patients participating in American Healthways Diabetes Program. According to the company, the program reduced health care costs by 17.1% or $114 per diabetes member per month in total direct health care costs for the first year of operation.

The bottom line with disease management programs up to this point is that the real savings is coming from getting patients out of the hospital sooner or avoiding trips to the hospital all together. 

For programs that are designed to reduce costs, some costs actually go up under a disease management program.  Since the basis for these programs are a proactive approach to health care, patients with diabetes are testing their glucose levels more frequently and seeing their physicians more often for check-ups and A1C tests. 

According to a 1998 article published in the Journal of Clinical Endocrinology and Metabolism, pharmacy costs increased nearly 15% and physician cost increased slightly over 2%. Like the other studies mentioned, the majority of savings came from inpatient and out-patient visits to the hospital. 

Going back to the original question, does disease management actually save real money, the answer apparently is yes. This is also why both American Healthways and Matria have seen their share prices skyrocket and why analysts are lining up to recommend both companies.  

Now comes the hard part, will disease management avoid the pitfalls of HMOs who, like disease management companies, came on the scene when health care costs were rising out of control, promising to keep health care costs under control by stressing preventive  medicine. 

Frankly, HMOs never lived up to the expectations and their share prices have suffered as a result.  To the Diabetic Investor, as well as medical professionals, there is little question that disease management for patients with diabetes is an excellent tool. The fact of the matter is that the majority of people with diabetes are being treated by  primary care physicians who lack the time and resources to properly educate the patient. The more a patient knows and understands their condition, the more likely it is the patient will be compliant with their treatment options.  

Diabetic Investor believes the long term success of disease management rests on the shoulders of insurers and companies sticking with the program over the long haul. Disease management companies are reaping the benefits of events that are cyclical in nature- rising health care costs and a slumping economy. What will happen to these programs as the economy improves or should health care inflation subside is anyone’s guess. It should not go unnoticed that both American Healthways and Matria’s fortunes improved as the economy went soft and health care inflation once again accelerated. 

There is a case that could be made that both companies will see even greater rewards in the future when the economy improves, as companies will be in an even better position to afford disease management programs.  Both companies can also state that due to the cyclical nature of health care costs, it’s best to maintain their programs to insure that costs stay under control. These could be the reasons why Blue Cross/Blue Shield of Minnesota signed a 10 year agreement valued at $200 to $300 million with American Healthways to manage their entire 950,000 members. This agreement is unique not only because of its size and scope, but because the agreement is not just for those members with a chronic illness.  

Starting in March, American Healthways will play mom to Blue Cross/Blue Shield Minnesota’s entire membership, not just those with a chronic disease. 

Let’s face facts, HMOs are not held in a favorable light. Hopefully, programs like American Healthways agreement with Blue Cross/Blue Shield Minnesota will validate disease management for the long term.  Then, we truly could have a program that benefits insurers, corporate America and most importantly the patient.   

David Kliff

Publisher

Diabetic Investor 

For more information on the Diabetic Investor go to www.diabeticinvestor.com