DM in the Private Sector Spring 2003

1. Job Info Here: Job #, Template used, LIBs, colors, etc. DM in the Private SectorSpring 2003 Chart Colors used in order of preference: 21,114, 71, 44, 108, 118, 68, 106 © Disease Management Purchasing Consortium & Advisory Council (1998)

2. Agenda • History of Disease Management in the Private Sector • Size and Growth Rates • Build vs. Buy trends • Pricing and Fees • Employers vs. Health Plans • What's Hot and What's Not • Issues facing the industry • ROI • ROI • ROI

3. History of Disease Management in private sector: Milestones

4. Agenda • History of Disease Management in the Private Sector • Size and Growth Rates • Build vs. Buy trends • Pricing and Fees • Employers vs. Health Plans • What's Hot and What's Not • Issues facing the industry • ROI • ROI • ROI

5. Industry Trends: Market Sizes and Compositions (1997) Total Size: $77MM Maternal/Neo 39% Asthma 19% Rare Diseases 2% CHF/Cardio 19% Diabetes 3% Cancer 17% ESRD 1% 3

6. Industry Trends: Market Sizes and Compositions (2002) Total Size: 530MM in fees Diabetes/CAD/CHF Rare Diseases 4

7. Industry Trends: share of industry growth by consultant type 2002-2003 Total New Business (to be) Awarded: est. $120-million DMPC Self 4

8. Industry Trends: Consulting industry revenues Total consulting revenues in DM 2002-2003 est. $15MM 4

9. Growth rate of DM industry

10. You can’t tell from that slide but… • Much of 2002 growth was add-ons and implementations of contracts signed in 2001 or early 2002

11. 2002 was down in # of bids undertaken Second half First Half

12. 2002 was down in # bids but up in est. bid size

13. Other 2002 observations • Growth was from expanding in existing business, not new business • Many bids undertaken • Purchase cycle hasn’t gotten shorter so… • …Few contracts awarded • Even fewer scale contracts consummated and announced Many awards and announcements being made in 2003

14. How does the rest of 2003 look? • 3 new bids (small) • 3 more large bids expected soon (private sector) • 2 major Medicaid bids expected soon • Action definitely shifting to public sector

15. Agenda • History of Disease Management in the Private Sector • Size and Growth Rates • Build vs. Buy trends • Pricing and Fees • Employers vs. Health Plans • What's Hot and What's Not • Issues facing the industry • ROI • ROI • ROI

16. Source of Disease Management

17. Why Building is Declining • Very few health plans get it right • Most need to account for it in admin (guaranteed “bought” plans accounted for in medical) • Takes a long time • Employers looking for “Intel Inside” in DM programs • Two issues in detail: • Most built programs measure wrong • Network health plans are a different business from DM

18. Issue #1—How built Programs Measure WrongDollars spent per $20 in claims— typical built vs. bought

19. Dollars spent per $20 in claims— typical built vs. bought So you measure Only on the 15-25% Who are easiest to Enroll!

20. Dollars spent per $20 in claims— typical built vs. bought And you don’t spend nearly what you need To spend to measure right because there Is no guarantee “on the line” So you measure Only on the 15-25% Who are easiest to Enroll!

21. “It’s our core competency” Issue #2: How Health Plans are a different business

22. “It’s our core competency” No--it’s a highly specialized “custom shop” vs. an HMO throughput shop Buying is itself a core competency Myths of “Building”

23. “It’s our core competency” “Why should we pay someone to do what we can do ourselves?” No--it’s a highly specialized “custom shop” vs. an HMO throughput shop Buying is itself a core competency Myths of “Building”

24. “It’s our core competency” “Why should we pay someone to do what we can do ourselves?” No--it’s a highly specialized “custom shop” vs. an HMO throughput shop Buying is itself a core competency You can also deliver your own packages absolutely, positively overnight Myths of “Building”

25. Agenda • History of Disease Management in the Private Sector • Size and Growth Rates • Build vs. Buy trends • Pricing and Fees • Employers vs. Health Plans • What's Hot and What's Not • Issues facing the industry • ROI • ROI • ROI

26. Fee Migration (index 1997 to 100)

27. Why have prices come down? • Vendors more efficient • Fewer home visits (except in COPD) • Larger contracts • Buyer purchasing power increasingly concentrated

28. Guaranteed Savings falling due to better contracting

29. Guaranteed Savings still popular Guaranteed with LOC or Reinsurance All Consortium Contracts Not Guaranteed Guaranteed No LOC/Reinsurance 1997 1999 2000 1996 2001 1998 2002

30. Why are guarantees falling? • “Usual care” improving (example: ESRD) • Competition is more fee-based once guarantees are high enough • Guarantees aren’t falling much—counting is getting better (example: asthma)

31. Asthma studies suffering from regression to the mean (plus ACAAI study just published) R e d u c t i o n s i n : E c o n o m i c s : Annualized Savings per Patient Annualized Cost per Patient Patient # in Study Adult/ Ped Program Emergency Room Visits Hospitalization Study Type 1. Massachusetts Respiratory Hospital/Air Watch A 26 Historical Control 2. Valley Home Care P 30 Historical Control 3. Jacksonville University Medical Center A 25 Historical Control 4. University of Tennessee, Memphis A 39 Non-randomized Control 5. Access Health — BC/B, Massachusetts A 67 Historical Control 6. Lutheran Medical Center Brooklyn, New York P 50 — 7. United Health Care of Ohio A/P — Historical Control 8. Lovelace HMO, Albuquerque, N.M. P 86 Historical Control 9. Kaiser Permanente, Santa Clare ——— 10. Harvard Community Health Plan (1995) P 53 Historical Control 11. Managed Care Services P 11 Historical Control 12. University of Pennsylvania, Philadelphia A —— 13. National Jewish Medical Center A/P 317 Historical Control 14. University of Laval, Quebec A 126 Non-randomized Control 15. Henry Ford Hospital A 241 Randomized Control 16. Harvard Community, Health Plan (1999) P 57 Randomized Control 17. Hartford Hospital, Connecticut A 23 Historical Control 18. Olsten Kimberly Quality Care A/P 257 — 19. Blue Cross/Blue Shield of South Carolina — 3,000 — 20. Harvard Pilgrim Health Care, Boston ——— $5,981 — 4,026 407 1,676 278 —— —— 3,400 — —— — 45 —— 3,296 418 —— 1,500 — 2,260 606 —— 628 85 2,217 190 4,137 — 11,172 — —— $1.07 million — total savings source; gregg meyer

32. To guarantee or not to guarantee • Pro • Assures return on investment • Easier to compare vendors • Tests for confidence in vendor outcomes • Easier to sell internally • Easier to get budget for scale program • Less career risk if program doesn’t save money (may even boost career) • No need to micro-manage vendor

33. To guarantee or not to guarantee • Cons • Complexity of baseline and reconciliation (easier to put the complexity in the RFP and contract) • Higher price (not much higher) • Most people will contract incorrectly anyway (example), giving the worst of both worlds Synthesis

34. To guarantee or not to guarantee • Synthesis • ALWAYS ask for guarantees even if you aren’t going to use them • A lot of the “pro’s” (comparability, selling internally, confidence in outcomes) are in the purchase process • After a few years of positive reconciliations, switch to FFS (e.g., Humana--COR)

35. Agenda • History of Disease Management in the Private Sector • Size and Growth Rates • Build vs. Buy trends • Pricing and Fees • Employers vs. Health Plans • What's Hot and What's Not • Issues facing the industry • ROI • ROI • ROI

36. Employers and Disease Management • What matters • Market size • Players • Through health plan vs. independently • Markup

37. What Matters to Employers

38. Market Size of employer-direct market in 2002

39. Why so little employer-direct? • A lot of employers looking…but median is c. 10,000 employees • Programs are more likely to be “lite” and opt-in (chart is revenue-based) • Some very large employers still on sidelines • Some don’t think it works (GE) • Biggest waiting for its UM vendor to come up with something • Some don’t interfere with employees • Many go through health plans • Note: A lot of heat (“big” RFPs) but not much light

40. Independently Makes more sense with multiple health plans Don’t like your health plan’s own offering Continuity if you change health plans Through health plan Easier (if there is only one) More will enroll—won’t be obvious it’s coming from you Can do opt-out Uses the UM and other tools to enroll members Should be a better financial deal (but often isn’t) Arguments to go independently vs. through health plan

41. Agenda • History of Disease Management in the Private Sector • Size and Growth Rates • Build vs. Buy trends • Pricing and Fees • Employers vs. Health Plans • What's Hot and What's Not • Issues facing the industry • ROI • ROI • ROI

42. Hot COPD Post-acute care (Medicare plans) “Significant Medical conditions” Medicaid disabled Total population management Vendors with correct metrics Cancer PPOs Not Single-disease RFPs in diabetes, CHF, asthma Medicaid HMOs Large straight HMO bids (not many left to bid) “Builds” Pharmaceutical company initiatives (except PHS) “Soft” savings 2003-4: What’s hot and what’s not

43. Agenda • History of Disease Management in the Private Sector • Size and Growth Rates • Build vs. Buy trends • Pricing and Fees • Employers vs. Health Plans • What's Hot and What's Not • Issues facing the industry • ROI • ROI • ROI

44. Issues facing the Industry: ROI • Still a great deal of skepticism about ROI • “Peer review” in published accounts can be worthless • “Peer reviewers” usually physicians, not actuaries • Trust your in-house actuary! • Proliferation of “experts” making things more confusing • Hopkins paper an excellent starting point (though other methodologies are valid) • “Built” programs measure ROI too high • A good rule of thumb from yesterday’s workshop: If you show more than 2:1 ROI in first year, you measured wrong