Disease management programs: Benchmarking costs, savings, ROI

Basic comparisons help you decide when to buy or build

You've decided - or you've been told - you need to develop a disease management program for a chronic condition that is eating up dollars and your patients' lives. It probably isn't too hard to identify diseases that would benefit from closer management - congestive heart failure, diabetes, asthma - but it might not be so easy to figure out how to get started. Should you build your own program or buy one from a vendor? How much should such a program cost you per covered life? What kind of return on your investment should you expect? What kind of resources do you need?

Unfortunately, it's probably going to be easier to come up with disease management questions than it will be to answer them. While consumer and employer demands as well as financial pressures and accreditation requirements have propelled disease management into its own fledgling industry, there is still no one-stop shop for information, at least not for free. The concept of disease management is too new to have even a standardized definition, much less a national association.

"Disease management programs are ill-defined," says Thomas Morrow, MD, vice president and medical director of One Health Plan of Georgia in Atlanta. "It's kind of in the eyes of the beholder. There is no standard to go by, so people are just creating this using their ingenuity. Everyone's slightly different."

But plow on you must, so Healthcare Benchmarks asked some of the industry's experts to help you figure out what you need to consider in developing a program and what costs and savings you can expect. (See p. 120 for help in deciding whether to build or buy. See p. 121 for tips on using data to evaluate your need for a program.)

The first thing many old hands at disease management will suggest you do is call Al Lewis, a consultant who has amassed probably the industry's most complete and up-to-date information on incidence, prevalence, and cost of major diseases as well as vendor comparisons, pricing, and contracts. For $2,000, you can buy yourself a one-year associate membership in the Newton, MA-based Disease Management Purchasing Consortium that will allow you access to Lewis' library. Or you can become a full member, which means Lewis will help you with the entire process, right down to negotiating the contract.

o What should you benchmark against?

Some free advice from Lewis: Benchmark against the guarantee, not the fee. "The middle- to high-priced vendors are generally the most cost-effective, moreso than the highest priced and much moreso than the lowest priced," he says. "The lowest priced tend to underinvest and leave out things that should be done, and the highest priced tend to do too much home care or otherwise overinvest. Say to the vendor, 'Put your fees and your benefits under one umbrella, and bid me the difference.'"

What's a mid to high price? Lewis says you can expect to pay $800 per patient per year in the first year of a program for moderate and severe asthmatics; $3,000 per patient per year for severe congestive heart failure (CHF) patients; and $500 per patient per year for all diabetics. In return, you should expect savings for the patients enrolled of at least 10% in emergency room and inpatient utilization for asthmatics, and at least 10% in all CHF costs. It's harder to get guaranteed savings for diabetes, Lewis says, so the return will be more like 5% on all claims for all diabetics. But that still should net you some nice savings in terms of dollars because you're looking at a much larger number of patients in a diabetes program.

Harry Leider, MD, MBA, corporate medical director and vice president of health services for Kansas City, MO-based HealthNet, says guaranteed savings are definitely the number to focus on when setting up a program. The most confident vendors will enter into a risk contract with you, which means your program should pay for itself plus save you money on top of that. For example, HealthNet contracts with AirLogix, a Dallas-based vendor, for its asthma program. HealthNet pays about $750 per patient per year and in return, AirLogix promises a guaranteed 15% savings on top of the case management fees. If HealthNet doesn't realize those savings at the end of the year, the vendor writes them a check for the difference. If the savings exceed the contracted amount, a deal is worked out to share the extra money. "With a risk contract, the vendor is on the line," Leider says. "The only way to save that money is by helping us take better care of patients."

In the process of developing several disease management programs, Leider says he's seen projected savings of 8% to 12% for all claims for CHF patients, and 13% to 18% for asthma hospitalizations and emergency room visits.

o What pitfalls should you avoid?

Morrow of One Health Plan of Georgia cautions that savings are an amorphous concept. "How do you measure something that hasn't occurred? You can measure this year against last year, but you can't control all the variables," he says. "If you target only the worst patients, you'll automatically see improvements. It's regression to the mean. Even if you do nothing, probably half of those patients will not be your worst patients next year. The vendor can't take credit for this." Or say you happened to start a CHF program at the same time as the new national guidelines on use of ACE inhibitors came out. You would have seen savings if your physicians improved outcomes by changing their practice patterns, without the vendor's program. You have to be sure you know what's being measured, Morrow says, or you could end up paying your vendors for things they didn't do.

To start his company's programs in asthma and diabetes, Morrow networked with colleagues, picked up information on vendors at conferences, and sent letters to potential companies. No one vendor had everything One Health Plan wanted, especially in the area of data management, so the plan settled on a hybrid: buying parts of the programs and doing other parts in-house. He wouldn't say exactly how much the plan is paying for its programs, but he did say costs among vendors ranged from $30 to $40 per member per year for a very basic program to $100 per patient per day for a short, intense diabetes program that offered daily patient contact. He says a 3-to-1 return on investment is reasonable to expect, although some companies will questionably promise 10-to-1. "You have to look at their methodology," he says. "If they're cutting your hospital days but sending your patients to home health, and home health costs aren't part of what's being tracked, then you haven't saved anything."

o What should you look for in a vendor?

Robert Stone, executive vice president of Diabetes Treatment Centers of America (DTCA) in Nashville, TN, says you should make sure you know what you're managing. Many programs only manage one disease. "That's a mistake, because once you develop a chronic disease, every other condition affects that. You have to look for a vendor that will be responsible for all aspects of the patient's care."

As you might imagine, DTCA provides just such a service by managing diabetics across the continuum of care, bringing in other disease management programs as needed. The company estimates a 12.5% reduction in total costs across the entire diabetes population with its program. A multi-site study of its pilot program showed DTCA cut costs $50 per diabetes patient per month. Stone says the program breaks even at 1,300 diabetic lives in the first year and that the cost savings increase out to year five.

Stone says you also should look for improved health status, lower costs, patient and physician satisfaction measured by a third party, and peer-reviewed, statistically validated outcomes.

o What factors affect the cost?

Even though your main concern should be the outcomes, you still need to know how much money you'll need upfront. The case management fee will depend on whether you have a commercial, Medicare, or mixed population; whether your population is younger or older; and whether you want your vendor to assume risk, Stone says. If you want your vendors to be at risk, you'll have to pay more because they will want a percentage of the savings.

Travis Cook, group director of finance for Wilmington, DE-based Stuart Disease Manage ment Services (SDMS), says the cost of a disease management program, like anything else, depends on the bells and whistles. At SDMS, where the CHF pilot program cut hospitaliza tions by 83% and emergency room visits by 100%, a selection of interventions is available.

"We have strong opinions on the critical points of the program, such as patient education, one-on-one contact with patients, and post-discharge education, but we allow clients to select what they need." If you want home visits, you'll have to pay more. If you want mailed patient education packets, you'll pay less. SDMS costs range from $25 to $50 per enrolled patient per month for low-index patients (those at high risk but with no significant utilization) to $70 to $250 per enrolled patient per month for high-index patients.

The more patients you have, the better off you are, Cook says. The SDMS program makes the most economic sense with 150 to 200 high-risk CHF patients enrolled since there are certain fixed costs in coordinating the program. Buyers can expect a 5-to-1 or greater return on investment in the second year and may approach that in the first year.