QUALITY: All is not well in the DM world

Last year LifeMasters pulled out of one of the Medical Health Support DM pilots in rural Oklahoma because they found that adhering to the proper standards of care made the cost of care go up for those patients they enrolled, not down.

Now Healthways, the largest DM for-profit company, which has the greatest number of the Medicare Health Support pilots, appears to be seeing some big problems too.

MHS Pilots Based on the receipt of essentially complete first-year data which revealed smaller separation from the control group than reflected in previous reports, the Company’s net per share costs in the MHS pilots for the first fiscal quarter of 2007 totaled $0.10 per diluted share, $0.04 more than previously estimated. For the first 15 months of the pilots, per member per month (PMPM) beneficiary costs, including inflation, have been held flat, which the Company believes reflects meaningful impact resulting from program interventions. To date, however, the control group costs as reflected in the most recent report released by CMS’ third party actuarial firm are also unchanged, and do not reflect anticipated increases provided by CMS nor the results of historical national and regionally-specific trends identified by third-party actuarial analysis of the Standard Analytical File (better known as the Medicare 5% Sample). The Company has brought this issue to CMS’ attention and has received the Agency’s commitment to pursue understanding and resolution of this anomaly in a timely manner.

While the Company has no direct control over the timing of this review by CMS, it will communicate progress toward resolution. Based on the strength of the Company’s performance with the intervention group, particularly as compared to the Medicare 5% Sample data, as well as the questions raised by the unanticipated trend of control group costs, the Company is maintaining its fiscal 2007 guidance related to the MHS pilots until this issue can be resolved to the satisfaction of all parties.

In other words either Medicare has got the data wrong about its control group, or the control group is healthier than average, or (gulp) DM doesn’t save money for the sick Medicare recipients group. And so the DM companies, which have promised CMS that they’re going to pay them 5% savings for the sick group (and make their money on the reduction from there!), are going to be losing money.

Healthways stock is down around 15% over the last week as this news seems to have seeped out. But it’s PE ratio is in the 40s, and the stock price went up more than five fold 2003–6, suggesting that the market is expecting it to continue its quick growth. If MHS is deemed a failure, there may not be any growth. Watch this space.

(Thanks to Fred Goldstein for this tip).

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  1. I am very amused and not at all surprised at this development. I was involved in a (failed) bid for a MHS proposal and working with the data that CMS provided for that project led me to be incredibly suspicious of my companies’ chances of success in particular but also how difficult success in general would be. I think that it is pretty awesome the structure of the program in putting some teeth and good data behind the evaluation of DM outomes. I know one issue that concerned me about evaluating the control group vs. the intervention group was that decreasing the mortality in the intervention group might end up raising costs overall in the 3 year pilot period vs. a higher mortality in the control group. It seemed like a good strategy for the DM provider under the program was to get people into a hospice situation ASAP since at that point their costs would not be counted in the evaluation.
    Regardless this are very interesting results – and ones that I hope commercial plans pay attention to.

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