Scott MacStravic, PhD
When Medicare evaluated its Coordinated Care Demonstration project after two years, the results joined the growing list of disease management (DM) programs that failed to live up to its expectations. Of the fifteen HCOs that participated, exactly none achieved the net five percent savings expected; in fact, only one failed to produce a net loss over the study period, once the fees for the HCOs’ DM efforts were included, only one, Quality Oncology, managed not to cost Medicare more than it saved, though two others, Georgetown University and QMed added only 1% to Medicare costs. [See www.mathematica-mpr.com/publications/PDFs/mccdfirsttwoyrs.pdf]
The fees that these HCOs charged had been negotiated with each of the HCOs, based on their estimates of the costs of their interventions. If a 20% savings compared to projected costs would not have been enough to offset the costs of the intervention, either the HCO reduced the target population to higher-risk patients, or CMS reduced its payment to enable a 20% savings to achieve this offset. Yet despite this preparation, only one of the fifteen HCOs even achieved a breakeven or “cost neutral” outcome.
The challenges were pretty clear, and the diseases being addressed including most of the more expensive chronic conditions. Six of the HCOs included congestive heart failure, which has frequently been the source of savings in the range of 30-50% through effective DM. Six more included other heart conditions, and chronic lung diseases, including COPD, diabetes, asthma, cerebrovascular disease, cancer, neurological conditions, mental illness, renal failure, Alzheimer’s disease, moderate to severe hyperlipidemia and hypertension were included by at leas tone of the HCOs.
Baseline monthly costs per Medicare beneficiary involved in the DM programs ranged from as little as $507 to as much as $3299 per month, or from $6080 to $39,588 per year. The HCOs’ monthly fees ranged from $80 to $444, or from $960 to $5328 per year. On average, none had to achieve greater than a 20% reduction in expenses to cover their fees, though Medicare expected a 5% net savings, so that meant they would have to do better than breakeven. The trouble was that the highest percent savings achieved by any of the HCOs was 13%, achieved by Mercy Medical Center, with two others. Georgetown and QMed achieving a 12% reduction before counting their fees.
Once their fees were counted, Mercy Medical Center, for example, added 8% to Medicare expense, while three of the HCOs achieved no savings at all even prior to counting their fees, and added 9%, 10% and 17% to Medicare costs once those fees were counted. Only Quality Oncology, which cut overall Medicare costs by only 2%, but charged only $140 per month, was able to avoid adding to Medicare’s costs once its fees were counted.
Altogether, seven of the fifteen HCOs added double-digit percentages, ranging from 10% to 44% to Medicare’s costs, once their fees were counted. The overall effect of all fifteen was to reduce Medicare’s costs by only 2%, before their fees were counted, and increase costs by 11% after fees were counted. While only six of the HCOs yielded statistically significant results, all six were in the double-digit increase range. Altogether, the first two years amounted to digging a fair-sized hole for the entire demonstration to attempt to fill in subsequent years.
It would seem that the HCO suffered from a surfeit of hubris in taking on their individual challenges under the circumstances. The size of their fees, compared to the size of the Medicare costs per beneficiary in the populations they targeted and enrolled made their challenges severe at the outset. Only Quality oncology, whose $140 fee represented less than five percent of the baseline costs for the patients it served, started with what could be called a good chance of succeeding. If it could cut total costs by 10%, it would have covered its fees plus delivered a net five percent savings to Medicare. Unfortunately, it only cut costs by 2%.
Mercy Medical Center, for example, needed a 19.5% reduction in the $1315 baseline costs among its patients to breakeven, and a 24.5% decrease in order to deliver a net 5% savings to Medicare, but only produced a 13% savings, barely over half the amount needed. Had its costs been $100 per month, instead of $257, it would have needed only a 7.6% reduction in costs to cover the lower fee, and the 13% savings it did achieve would have delivered a net 5.4% savings to Medicare. Quality Oncology would not have yielded a net savings of 5% to Medicare even if it charged nothing, since it only achieved a 2% savings before counting costs.
In general, there was such a wide variation across the cost savings percentages achieved, from 13% savings to a 21% increase, though eight of the fifteen did achieve a reduction of some kind, that there is no single change in strategy that would have made all successful. But reducing their fees would have made the probability of success a lot higher than the levels charged in this example. As it was, the average monthly fee came to $235, while the average baseline costs were $1696. This meant that the average HCO had to achieve a $235 divided by $1696 = 13.86% reduction in costs, plus another 5% for Medicare’s expected net savings, in order to be considered a success.
It may well be that by the end of the third year, more of the participating HCOs will have succeeded, at least in achieving a positive net savings, though achieving the 5% net savings demanded by Medicare will be tough, indeed. In another CMS demonstration project, only two of the large physician groups participating, the University of Michigan’s Faculty Group Practice and the Marshfield Clinic in Wisconsin was able to save more than the 2% set as a minimum savings for the ten groups participating. [“P4P Demo Yields Good Results, Few Rewards” ModernHealthcare.com Aug 20, 2007]
HCOs, in general, are probably handicapped, not only by hubris in having such confidence in their ability to succeed in DM projects, despite the consistently dreary history of federal government evaluations of such projects. They are also handicapped by their tradition of identifying the best, highest quality approach to sickness care, confident that saving lives and restoring patients to good health are worth almost any cost. A similar position may be argued with proactive health management (PHM) efforts, except that they are intended primarily to save payers money, and if the charges made by HCOs make achieving net savings difficult or impossible, this position can only handicap the HCOs.
There are a wide range of DM and PHM methodologies available, and few of them are burdened with charges as high as the $960 to $5328 per year fees that the HCOs in the Coordinated Care demonstrated charged. If HCOs are to succeed and survive in the DM and PHM market, they are clearly going to have to dramatically improve their success rates, reduce their costs, and probably both.
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