[Senate Hearing 107-818]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-818

                  DISEASE MANAGEMENT AND COORDINATING
                    CARE: WHAT ROLE CAN THEY PLAN IN
                   IMPROVING THE QUALITY OF LIFE FOR
                      MEDICARE'S MOST VULNERABLE?

=======================================================================

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                           SEPTEMBER 19, 2002

                               __________

                           Serial No. 107-36

         Printed for the use of the Special Committee on Aging

                              -----------

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                            WASHINGTON : 2002
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                       SPECIAL COMMITTEE ON AGING

                  JOHN B. BREAUX, Louisiana, Chairman
HARRY REID, Nevada                   LARRY CRAIG, Idaho, Ranking Member
HERB KOHL, Wisconsin                 CONRAD BURNS, Montana
JAMES M. JEFFORDS, Vermont           RICHARD SHELBY, Alabama
RUSSELL D. FEINGOLD, Wisconsin       RICK SANTORUM, Pennsylvania
RON WYDEN, Oregon                    SUSAN COLLINS, Maine
BLANCHE L. LINCOLN, Arkansas         MIKE ENZI, Wyoming
EVAN BAYH, Indiana                   TIM HUTCHINSON, Arkansas
THOMAS R. CARPER, Delaware           JOHN ENSIGN, Nevada
DEBBIE STABENOW, Michigan            CHUCK HAGEL, Nebraska
JEAN CARNAHAN, Missouri              GORDON SMITH, Oregon
                    Michelle Easton, Staff Director
               Lupe Wissel, Ranking Member Staff Director

                                  (ii)

  
?

                            C O N T E N T S

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                                                                   Page
Statement of Senator Larry E. Craig..............................     1

                                Panel I

Dan L. Crippen, Ph.D., Director, Congressional Budget Office, 
  Washington, DC.................................................     2
Ruben King-Shaw, Jr., Deputy Administrator and Chief Operating 
  Officer, Centers for Medicare and Medicaid Services, 
  Washington, DC.................................................    29

                                Panel II

Sister Anthony Marie Greving, Director, Area Agency on Aging, 
  Pocatello, ID..................................................    46
John Rusche, M.D., Senior Vice President and Chief Medical 
  Officer, Regence BlueShield of Idaho, Lewiston, ID.............    53
Alan Wright, M.D., Senior Vice President and Chief Science 
  Officer, Centers for Health Improvement, AdvancePCS, Hunt 
  Valley, MD.....................................................    65
Matthew A. Michela, Senior Vice President, American Healthways, 
  Nashville, TN..................................................    75

                                APPENDIX

Testimony by American Dietetic Association.......................    91
Statement of Richard M. Wexler, Medical Care Development Inc./ME 
  Cares, Augusta, ME.............................................    93

                                 (iii)

  

 
DISEASE MANAGEMENT AND COORDINATING CARE:  WHAT ROLE  CAN  THEY  PLAY  
    IN IMPROVING THE QUALITY OF LIFE FOR MEDICARE'S MOST VULNERABLE

                              ----------                              


                      THURSDAY, SEPTEMBER 19, 2002

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:31 a.m., in 
room SD-628, Dirksen Senate Office Building, Hon. Larry E. 
Craig (ranking member of the committee) presiding.
    Present: Senator Craig.

              STATEMENT OF SENATOR LARRY E. CRAIG

    Senator Craig. Good morning, everyone. The Senate Special 
Committee on Aging will convene. Thank you all very much for 
joining us this morning to discuss the topic of disease 
management and care coordination. A very special thanks to 
Chairman Breaux who allowed me to facilitate this hearing and 
to chair it. He will be here in a few moments. I think he just 
called in tied up in downtown traffic and was there earlier for 
another engagement, so he will be joining us in a few moments. 
He is as interested in this topic as am I.
    Disease management is an emerging technology with the 
potential to improve patient quality of life and may reduce 
health care costs. Disease management can best be described as 
a coordinated and proactive approach to managing care for 
patients with chronic illnesses.
    Chronic illness is common among Americans on Medicare, and 
I would like to call attention to some charts that now have 
been turned in my direction. The yellow bar chart--why do we 
not spin that around. I have got a copy of it here at the desk 
so we can show it to the audience. The yellow bar chart shows 
several diseases with a high prevalence among America's 
seniors. Two of the chronic diseases shown are found in over 
half of Medicare beneficiaries.
    Even more striking is the fact that almost half of Medicare 
beneficiaries have three or more chronic conditions. The pie 
chart shows that 47 percent of those on Medicare have three or 
more chronic conditions. These citizens are especially 
vulnerable to medical complications. They also have high 
medical costs paid out of their own pocket and by Medicare.
    Unnecessary hospitalizations are one of the costly 
consequences that disease management programs are designed to 
prevent. These unnecessary hospitalizations are often a result 
of cross-drug interaction, poor medication compliance, 
deviation with treatment plans, and a lack of patient self-
management skills. Lack of coordination and fragmented 
monitoring of seniors with chronic health conditions can also 
contribute to unnecessary health spending.
    Our population is aging. As the baby boom generation begins 
to retire, the share of chronically ill seniors is expected to 
increase. Future Medicare costs are certain to reflect both 
increased numbers of seniors as well as extraordinary medical 
inflation.
    Evidence-based disease management is a promising technology 
for helping to reduce avoidable spending and improve the 
quality of life for Medicare's most vulnerable in the near and 
the long term.
    We are here today to learn more about the opportunity that 
disease management presents. We hope to learn about the 
challenges faced in moving these techniques into the Medicare 
population. We also hope to learn about the breadth of disease 
management programs and lessons learned from models already 
underway in the non-Medicare marketplace.
    Today's hearing will consist of two panels. The first panel 
that is before us now, we are pleased to have and to welcome 
Dr. Dan Crippen, Director of the Congressional Budget Office, 
and Mr. Ruben King-Shaw, Jr., the Deputy Administrator and 
Chief Operating Officer at the Center for Medicare and 
Medicaid.
    The second panel of experts includes Sister Anthony Marie 
Greving, Director of Pocatello, Idaho Area Agency on Aging; Dr. 
John Rusche, Senior Vice President and Chief Medical Officer, 
Regence BlueShield of Idaho, headquartered in Lewiston; and Dr. 
Alan Wright, Senior Vice President and Chief Science Officer, 
Center for Health Improvement, AdvancePCS, in Fort Hunt, MD; 
and Matthew Michela, Senior Vice President for American 
Healthways in Nashville, TN.
    Well, ladies and gentlemen, to all of you welcome. As I 
have said, this is an area that I believe Congress must 
explore, as we move toward Medicare reform and a prescription 
drug program for our most needy, and to do both with two 
thoughts in mind, providing better health care to our seniors 
and controlling costs through more effective management.
    With that, let me welcome our first panel of witnesses, and 
Dan, we will let you start. Thank you.

  STATEMENT OF DAN L. CRIPPEN, PH.D., DIRECTOR, CONGRESSIONAL 
                 BUDGET OFFICE, WASHINGTON, DC

    Mr. Crippen. Mr. Chairman, thank you. I really appreciate 
the opportunity to be here today. This is an important topic, 
not only to me, but perhaps more saliently to my kids and my 
grandkids. We all thank you for holding this hearing.
    I hope to make three points. One, Medicare is a program in 
need of reform. Hopefully, that point will not take a lot of 
convincing.
    Two, there is a part of the Medicare population that, as 
you said, Senator,  is fairly  expensive.  The question  is, 
are  they the  same people each year--or who are these people? 
There is a concentration of expenditures within the Medicare 
population that invites further examination.
    Third, disease management, or case management, as is more 
probably the case with this population, has great potential, we 
expect, to reform the delivery of Medicare services. We think, 
however, that it is not yet proven that it will provide 
significant cost savings in this program. But that is not 
because we think it does not. We just simply do not have enough 
evidence yet.
    I have, I am sure, imposed this first chart on you, 
Senator, somewhere else, in some other forum, because I use it 
all the time. It essentially shows what we are now spending on 
the programs for the elderly at the Federal level: Medicare, 
Medicaid and long-term care, and Social Security.
    Senator Craig. Again, why do we not turn that to the 
audience who is here to listen and gain information. I have got 
copies here, and the chairman will also have, so we can share 
that with everyone. Thank you.
    Mr. Crippen. We are currently spending a little over 7 
percent of gross domestic product (GDP), or a little more than 
a third of our budget, on these programs for the elderly. But 
as my generation retires, we will quickly, over the course of 
only two decades, drive that up to over twice as much--and 
those are relatively conservative projections. So we will be 
spending 15 percent or 16 percent of GDP on these programs--and 
we are now spending about 18 percent or 19 percent of GDP on 
the entire budget.
    What this means, of course, is there is likely to be a 
dramatic change in our fiscal policy. We will either need to 
dramatically raise taxes when the time comes, increase 
borrowing from the public, or significantly cut other 
government spending--and we have not seen that kind of tidal 
change for a long, long time. We could end up with a tax 
system, for example, that looks a lot more like a European 
country's than like what we have experienced here.
    For example, since World War II, we have taxed at the 
Federal level at an average of 18 percent of GDP. One could see 
a future here where that would be 28 percent. So it is a 
daunting challenge, to be sure, and something we cannot really 
avoid. The demographics are baked. The folks who will retire 
are alive today, and most of the folks who will be working are 
alive as well today. We cannot change those factors. All we can 
hope to do is change the growth of the economy, which is the 
denominator here, and perhaps reform the programs so that the 
numerator is not quite as onerous for our children. That brings 
us to the topic of today's hearing, Mr. Chairman.
    A little over 2 years ago, we began to ask the same kinds 
of questions you have posed for us today. That is, can we 
identify high cost procedures as well as high cost 
beneficiaries in the Medicare population? We quickly discovered 
that existing data were inadequate to thoroughly examine those 
questions, so we joined with a team at Stanford, who had 
received funding from the National Institute on Aging, to take 
the literally millions and millions of records that the Centers 
for Medicare and Medicaid Services (CMS) has accumulated over 
the years and construct a database, which at the moment covers 
1989 through 1997. We will be adding 1998 and 1999 soon, so we 
will have records covering essentially 1989 through 1999.
    What we have done is accumulate, over these years and for 
each Medicare beneficiary, a great deal of detail on the nature 
of their health care needs and the services that they are using 
from Medicare. In fact, we have a month-by-month rack-up for 
each beneficiary over those 10-plus years of data. So we can 
now identify individuals as they enter the program, as they 
incur illness, and as they incur expenditures throughout 
Medicare, which is something we have not heretofore been able 
to do.
    We will soon publish a series of three papers, essentially 
explaining this database and how it was constructed, as well as 
the characteristics of the beneficiaries that the database 
covers. But I can tell you some of the preliminary findings 
today, which I think will enlighten the discussion of this 
topic.
    First, and of importance to this hearing, we confirm what 
earlier analysis has suggested--that is that there is a 
relative handful of beneficiaries each year who incur most of 
the expenses. Five percent of Medicare beneficiaries account 
for about 50 percent of the program's total costs, and 25 
percent incur 90 percent of the costs.
    I am going to repeat that second point because I think it 
is an important number; that is, in any given year, 25 percent 
of the Medicare population incurred 90 percent of the program's 
total costs. That is not a new fact, Mr. Chairman. CMS and 
others have determined through sampling that it is a very 
heavy, very skewed distribution.
    But we can start from that point and further analyze our 
data now and see what some of the implications are. First, it 
might suggest that if 75 percent of the folks are only 
incurring 10 percent of the costs, we might want to figure out 
a way to handle them differently than we do the more expensive 
patients.
    That 75 percent might be able to go to any doctor they 
wanted to fill prescriptions or to do other things that an 
average Medicare recipient might do today without all of it 
being funded by the government and without all the current 
limitations in the Medicare program. Again, because this 75 
percent of beneficiaries only incur 10 percent of the costs, it 
may not be worth imposing all of the limitations of the current 
Medicare program on them.
    But more to the point of today's hearing, that finding 
suggests that we need to examine the 25 percent of 
beneficiaries with the highest costs because as Willy Sutton 
has reportedly said, the reason he robbed banks is because that 
is where the money is. Certainly if we are going to examine 
this program from a cost view point, we need to look at that 25 
percent. But it is also the 25 percent of the population in a 
given year that needs most of the health care, and so we can 
examine them as well from the point of view of determining 
their illnesses and, how they are being treated, in addition to 
their costs.
    There are questions we might ask as a first cut to look at 
both the data and the issue you have placed before us. Is it 
many of the same folks who incur high costs each year because 
of chronic conditions? If it is, that would suggest a 
particular kind of approach. What are their clinical 
characteristics, and can they possibly be treated in another 
way, such as with disease management, to produce better 
outcomes? That is the question you posed at the top of the 
hearing.
    Another question is, are these folks high cost largely 
because they are at the end of their life? We know that is a 
phenomenon that can be quite expensive. If it is, the case, 
what are we buying for those high expenditures? Heroic 
measures? Extended stays in hospitals? The question then is is 
there a better way to provide care for these elderly dying 
patients as well?
    Fortunately, we can now begin to answer some of those 
questions with a little more precision, but before I do, I want 
to offer a definition of disease management so that my 
statement, at least, can be taken in that context. Basically, 
and admittedly simplistically, disease management identifies 
the best evidence-based protocols and practices for a specific 
condition and tries to get both the patients and providers to 
follow those protocols.
    It is important to remember, however, that most of the best 
practices referred to here were developed for a single 
condition, not for one condition among multiple co-morbidities, 
and do not often account for unique characteristics of the 
elderly population, such as dementia.
    Many disease managers also try to predict which patients 
will ultimately become expensive, so as to target preventative 
measures more efficiently. Generally, the savings accrue 
because of fewer hospitalizations and emergency room visits.
    To begin answering some of the questions we identified, we 
examined in our data a cohort of beneficiaries for the years 
1993 through 1997, beneficiaries who were the most expensive 25 
percent in any of those 5 years. We then looked for patterns of 
expenditures and found that while many high-cost patients do 
die from one year to the next, a significant number have high 
expenditures in two or more consecutive years.
    It is those persistently expensive patients, Mr. Chairman, 
that I think disease management or case management might 
address more straightforwardly. Those patients account for only 
20 percent of beneficiaries but nearly 60 percent of all 
spending.
    The clinical characteristics of this population, as you 
have already suggested, are quite complicated. Most of the 
spending is accounted for by patients with multiple chronic 
conditions rather than just, for example chronic heart failure. 
In fact, nearly 90 percent of spending--to translate the 
numbers of individuals you have in your charts--90 percent of 
Medicare spending is incurred by patients with three or more 
chronic conditions.
    Often, one or more of those conditions is among those that 
have been treated with disease management in a private, younger 
population, but as I noted above, it is unclear how 
successfully those protocols developed for single conditions 
for younger folks could be applied to an older population with 
several chronic conditions.
    An additional complication is that there is not anywhere 
near a perfect correlation between exhibiting a condition as a 
patient and incurring high, persistent costs. For example, 50 
percent of those persistently  high-cost  patients  that we  
identified  have coronary artery disease, but only 35 percent 
of the patients with coronary artery disease are persistently 
expensive.
    In other words, persistently expensive patients--by our 
definition, patients with high expenditures in two or more 
consecutive years--are likely to have multiple chronic 
conditions, but having any one of those conditions does not 
mean the patient will become high cost in the future. So the 
conditions are not a good predictor of who the high-cost 
patients are going to be.
    It becomes difficult to identify, therefore, which patients 
should receive the additional attention of an intervention such 
as a disease management protocol in order to avoid 
hospitalizations. For non-Medicare populations, disease 
management companies use predictive modeling and additional 
data to increase the likelihood of picking out those with 
future high costs.
    Some of those additional data, such as pharmaceutical 
spending, are not readily available for the Medicare 
population, and the models may not fit the elderly very well. 
Because we do not have a pharmaceutical benefit as part of 
Medicare today, we therefore, do not have, pharmaceutical data 
for this same group of elderly people.
    We hope at some point in the future to be able to augment 
our database with things like that. A number of companies have 
offered to let us try applying their models to the Medicare 
population, and it is an exercise that we will pursue shortly. 
As I suggest, though, it is likely that the lack of comparable 
data on the Medicare population will prove to make these models 
less effective for predicting future expenditures.
    Before I move on, let me simply sum up at this point. While 
there are Medicare beneficiaries who exhibit persistently high 
costs, it is not clear that disease management as it is now 
practiced could be utilized successfully for that population.
    But if we assume for a moment that it could, then we can 
examine what we know about the health results and potential 
savings, at least, of utilizing disease management as it is 
currently practiced in the private sector.
    A recent study by the Employee Benefits Research Institute 
found that while case studies of particular programs have shown 
positive results, there is no--and this is a quote, I believe--
``There is no conclusive evidence that disease management 
programs in general improve health or reduce costs in the long 
term.''
    We at the Congressional Budget Office (CBO) are reviewing 
other research, but many studies examine the process of health 
care delivery, not the outcomes or the frequency of utilization 
of services. Admittedly, evidence on quality and cost is 
difficult to construct, especially for this population, and I 
know many are loathe to conduct what is usually considered to 
be a rigorous study--with a control group that does not receive 
the better treatment, to provide comparisons.
    It may well just be that we are going to have to let more 
time pass to see the results of some of these interventions.
    My colleague here on the panel obviously is in a much 
better position to describe to you in more detail the various 
studies and demonstration projects being conducted by CMS to 
begin to answer some of those operational questions and 
questions of savings.
    In the meantime, or at least for the moment, until more 
clear and compelling evidence materializes on health outcomes 
and costs, I cannot tell you how CBO would evaluate a 
legislative proposal promoting disease management.
    First, of course, there are a great many design issues 
that, as outlined in my written testimony, come into play. But 
more to the point, we remain to be convinced of significant 
savings from disease management as it is currently practiced, 
especially when applied to the Medicare population.
    I would hasten to add, however, that we are not agnostic on 
the issue. We expect that the continued examination of 
persistently expensive Medicare patients will enlighten us 
further, and perhaps, if companies offering disease management 
were willing to take on some of the financial risk for the 
medical care provided to those patients, as opposed to putting 
only their own fees at risk--we would be more confident that 
companies would have incentives to watch those costs more 
closely.
    The key, ultimately, at least to savings is the avoidance 
of hospital costs through lower admission rates and the 
avoidance of emergency room visits probably both for 
persistently expensive patients and for those at the end of 
their lives. So on both sides of this distribution, Mr. 
Chairman, we have work to do in identifying both the patients 
who are likely to become high cost and these who are at the end 
of their lives and how they are being served through Medicare. 
Thank you.
    [The prepared statement of Mr. Crippen follows:]

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    Senator Craig. Well, Dan, thank you very much. Before I ask 
questions of you, let us hear from our second member of this 
panel, the Honorable Ruben King-Shaw, Deputy Administrator, 
Chief Operating Officer, Centers for Medicare and Medicaid 
Services.
    Ruben, welcome before the committee.

  STATEMENT OF RUBEN KING-SHAW, JR., DEPUTY ADMINISTRATOR AND 
  CHIEF OPERATING OFFICER, CENTERS FOR MEDICARE AND MEDICAID 
                    SERVICES, WASHINGTON, DC

    Mr. King-Shaw. Thank you, Mr. Chairman. I appreciate being 
here. It is always good to talk about what we are doing over at 
CMS, and particularly on this very important topic as it 
relates to our overall strategy to modernize Medicare for all 
the people that we serve.
    As the Chief Operating Officer of CMS, I am very much, you 
know, responsible for the day-to-day operations of the 
nation's, if not the world's, largest insurance company and 
financial services firm.
    In that sense, I have got two major product lines in the 
insurance business, an indemnity fee-for-service Medicare 
product and Medicare+Choice product. My comments in the oral 
testimony will be focused on the fee-for-service, or indemnity 
environment. The written statement does have more information 
on what we are doing on managed care.
    But, as you can appreciate, most of the world outside of 
Medicare has moved away from the indemnity model toward more 
types of managed indemnity or managed care or care 
coordination. In the insurance benefit administration field we 
are a good 20 years if not more behind in that.
    So there are implications for that for Medicare, and as you 
heard from Dr. Crippen's testimony, in fact, a relatively small 
number of beneficiaries do account for a disproportionately 
large amount of our expenditures, and so we are looking at the 
possible ways that a disease management, population management, 
care management strategy can impact those costs, and beyond 
that improve our product, again, referring to the fact that we 
are very much an insurance company among other things.
    We need to make sure that we continue to improve our 
product, better serve our beneficiaries and deliver on the true 
promise of Medicare, and so disease management gives us an 
opportunity to talk about ways we will do that.
    My comments will go through some of the environmental 
factors that we are looking at and the demonstrations we are 
currently pursuing to answer some of the very same questions 
that we have talked about already here this morning, keeping in 
mind that the promise of disease management is most realized in 
having a positive impact on both the performance, the outcome, 
the clinical condition of the patient, as well as the cost, the 
overall cost of care.
    So it's the integration of resources, of information, of 
strategies, of data, the elevation of evidence-based practices, 
best practices, in a patient-centered way where these outcomes 
and cost savings can be realized.
    So we do look to disease management as a way of identifying 
the best ways to improve or increase access to care, the best 
strategies for intervening in the development of disease or the 
maintenance of illness--I'm sorry--of wellness for 
beneficiaries.
    We are looking for ways we can improve the clinical 
outcomes by having clinical performance of caregivers and 
physicians and patient participation brought to the mix so that 
we can produce a better outcome for the patient, the Medicare 
system overall.
    So as we are looking at the ways to do this, we have a few 
demonstration programs under way. One of these consists of 15 
different demonstrations that are the more the disease 
management variety. These demonstrations are focused on 
conditions such as congestive heart failure or coronary heart 
disease or hypertension or asthma.
    These individual vendors come from a variety of sources. 
Some of these are proprietary, commercial vendors that have 
been successful in the commercial market. Some of these are 
academic medical centers including historically black colleges 
and universities and other types of institutions. Some of these 
are not-for-profit entities that specialize in, for example, 
coronary heart disease.
    But through a variety of combinations of expertise, these 
vendors, if you will, partner with us to bring these best 
practices to organize a delivery system on behalf of the 
patient in a way that they believe will have a positive impact 
on the cost and the outcome of the patient.
    They are free to use various degrees of technology. Some of 
them are quite technologically advanced in their applications; 
some of them use a more traditional model of coordination of 
care. Some of these are telephonic. Some of these are face-to-
face.
    Our objective here would be to have these 15 different 
demonstrations that serve currently over 3,000 Medicare 
beneficiaries explore the different strategies so we can 
collect data at the end of demonstration to identify some of 
these best practices and what the cost implications were, what 
the performance measures were, as a result of different 
interventions, different types of organizations, different 
populations, and, in fact, different parts of the nation.
    Another type of these demonstrations were enabled by BIPA 
legislation, where again these demonstrations do give us an 
opportunity to include a prescription drug benefit, not just 
for a specific disease, but for all of the prescription drug 
needs of the enrolled population. It is commonly known that if 
you are going to do an effective job at managing the overall 
care of a patient, then a major part of that care plan would be 
the inclusion of the appropriate prescription drug therapies.
    So by including prescription drugs in the mix, the attempt 
here would be to have a disease management organization work 
with the entire continuum of care including pharmacology to 
produce this outcome. We have just, you know, recently gone 
through a process. We are finalizing that information. We hope 
to get those underway very quickly, but again that is a second 
variety of demonstrations that we are pursuing.
    We are looking soon to move into a demonstration 
environment for various strategies to better improve the 
performance of the ESRD, end-stage renal dialysis patients, a 
significant cost factor in the Medicare program, and also one 
that is very ripe, we think, for the kind of interventions a 
disease management program can bring.
    So in a very few words what I hope I have done in this 
introduction is give a sampling of what we are doing in this 
field of disease management with the understanding that we at 
CMS, the Federal Government as a whole, the trust funds, are at 
full risk in the fee-for-service environment. There is no 
intervening force, and so if you have a disorganized, if you 
will, non-coordinated system of delivering care, which is what 
we have in fee-for-service, and you have a small number of 
people who are disproportionately consuming your resources, one 
of the strategies would be to have an integrator, a 
coordinator, use data techniques to identify those individuals 
and build a community of care, a system of care, coordination 
of care, to have a positive impact on those individuals, but 
again the Medicare program overall.
    Thank you very much, Mr. Chairman. I would be happy to 
answer whatever questions you and others may have.
    [The prepared statement of Mr. King-Shaw follows:]

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    Senator Craig. Well, thank you very much. I appreciate both 
of your testimonies and let me ask several questions of you. 
Dr. Crippen, you have provided I think an excellent testimony 
on what appears to be a fairly complicated issue, trying to 
understand if, in fact, you can affect the current trends 
significantly.
    You discuss the problem of identifying best candidates for 
disease management and referred to the concept of regression to 
the mean. Now that sounds a bit like an economist speaking.
    Mr. Crippen. It is.
    Senator Craig. I am not. From the testimony I was not sure 
if this theory applied to the Medicare population because you 
did identify a persistently expensive group in your analysis. 
Question therefore is: does the regression to the mean concept 
apply to Medicare enrollees?
    Mr. Crippen. The answer is yes, but probably not in the 
same way. The term regression to the mean is roughly saying 
that a person will over their lifetime, exhibit average 
spending. These, if we had a Medicare recipient who in one year 
was a very high-cost patient, there is some probability that 
over the next year they will be a low-cost one--that is, if 
their are expenditures episodic, or acute expenditures and not 
for chronic conditions.
    There are certainly many of those folks in this population. 
Indeed, there are two things that you need to look for as we 
look at the data. One is unfortunate but true: those folks who 
die are not representative of the future costs of beneficiaries 
of the program, for an obvious reason: and those who incur high 
costs in one year may not be representative of those who will 
incur high costs in following years. That is why we looked for 
people who had high costs in at least two consecutive years.
    That is the population that we think you would first want 
to look at to say do they have chronic conditions, are they 
treatable in a different way like disease management or case 
management, because if they are just an acute health problem, 
there is no use trying to manage that very much. You are going 
to experience expenditure in the next year that will be out of 
this group.
    Likewise if folks die. But it's a very important thing, as 
you pointed out, to keep in mind. Some of the studies frankly 
that have been done over the years looking at this population 
have done things, partly because of data necessity, like throw 
out anyone who died during the course of the year, and then 
look at costs. That is not a representative sample certainly 
for this population.
    So your question is very much on point. We do not have the 
complete phenomenon of regression to the mean, but we certainly 
do have that show up to some extent here as well.
    Senator Craig. OK. The end of your testimony lays out 
several obstacles for achieving direct scoreable savings with 
any Medicare disease management program. If successful, will 
the Medicare demonstration projects that Mr. King-Shaw is 
talking about provide enough evidence to show a scoreable 
savings; do you think?
    Mr. Crippen. I expect so; it always seem too soon to tell, 
particularly for those that are being designed with capitated 
payments. That is important so that providers have some 
financial risk as well, in looking at the costs, but any 
additional data on how much it takes to support this population 
and how these disease management concepts could apply will 
enlighten this discussion.
    As I said, part of our reluctance at the moment to say that 
we know this is going to save money is not because we do not 
think it will. It is because we do not have enough evidence, 
and these demonstration projects should be quite informative in 
that as well as other research we and others intend to do.
    Senator Craig. OK. Is there a way to design a Medicare fee-
for-service disease management program without creating adverse 
incentives among providers?
    Mr. Crippen. The answer is yes. I suspect, however, that 
there are a lot more ways to create a program that does have 
adverse incentives, so it is important to keep our eye on 
that--as you are suggesting by this question.
    Let me digress for a minute, if I might, because I think, 
as my colleague here suggested, that we do not often think of 
this population as an insurable pool, even though we are 
effectively providing some types of insurance. We think of it 
more as the Federal beneficiaries who are participants in this 
program, and the benefits we are providing, and how to pay for 
them.
    But if you think of these groups as risk pools, it can 
sometimes be informative. We have, by our simulations, 
estimated that it takes about 100,000 Medicare recipients to 
have a pool with average risk. We do not have insurance pools 
that are in the country, that large although clearly we could, 
because we have 39 million, roughly, people in this program. 
But given the division between providers and geography and 
other factors, we do not have pools that large.
    So you need to look at the risk within the pools, which is 
one of the things that drives our interest in this topic. If 
you look for high-cost procedures or patients, that is the 
risky tail of this pool. If you devise a system for removing 
those beneficiaries from the risk pool--because you are paying 
for them differently, independently--you would then create a 
much more average risk for the remainder of the pool. We are 
convinced that it takes some financial risk by providers and 
probably beneficiaries, as well, to get the incentives right. 
By bearing some risk, everyone has a bit of an incentive to 
watch how much of a service they use.
    That is not to say there has to be a large risk, but at 
least there needs to be some. So, until disease management 
companies are part of a provider system that bears some 
financial risk, they will not have those incentives that we as 
economists think are important to control costs.
    It is entirely possible, I think, to construct a system 
that could avoid adverse selection--or the incentives that 
encourage. We also have an opportunity here--and it is one of 
the few silver linings to the cloud that is the doubling of 
this population, from 40 million to 80 million, over a 
relatively short period of time. With all those new entrants, 
we would have the ability to assign them to risk pools in, say, 
a random fashion.
    As a result, there may be some opportunities with the rapid 
expansion of this population to compensate for any selection 
that becomes evident; even after the fact, a risk pool that 
showed lower-than-average spending, for example, or a healthier 
population could be repopulated with random assignment of folks 
who are coming into the program.
    Senator Craig. OK. I thank you not only for your interest 
in this and the involvement of the Congressional Budget Office. 
I think that is critically important because those of us who 
are spending time looking at these issues and seeing this 
phenomenal explosion of costs out there----
    Mr. Crippen. Yes.
    Senator Craig [continuing]. Trying to understand how we get 
this all done, and I think your example of talking about moving 
from the, well, nearly doubling, 18 to 28, is a very high 
factor here.
    Mr. Crippen. Absolutely, and this kind of approach might 
also be useful as you develop other policies on pharmaceutical 
benefits----
    Senator Craig. Yes.
    Mr. Crippen [continuing]. As my colleague here suggested. 
It is entirely possible that you could give pharmaceutical 
benefits through a disease management protocol where most of 
the pharmaceutical costs probably are anyway.
    Senator Craig. Well, in one of the versions of the 
pharmaceutical effort, at least here, prescription drug effort 
in the Senate this year, a piece of legislation I supported 
dealt with allowing pharmacists to become skilled in education, 
training, cross-referencing, really working with, if you will, 
the client or the patient in a much broader knowledge of the 
use of, the application of pharmaceuticals as an important part 
of not only understanding and creating and disallowing the 
problems that can result, but also bringing down some of those 
costs. So, thank you.
    Mr. King-Shaw, you talk about, I guess I would have to say, 
quite a few different management demonstration projects. Why so 
many?
    Mr. King-Shaw. Well, I think it is important as we go down 
this road to have really good research, good information on 
what works and what does not. I think it is also true that 
different approaches have been successful in the commercial 
sector or in the Medicaid sector. They may not all be 
successful in the Medicare space, and so it is important, we 
think, to have very good credible data about the range of 
activities that are possible before we would select any one or 
even a few to become the mainstream effort in disease 
management.
    I think it is also important for us to stay current with 
the developments of technology. For example, one of the 
realities in the Medicare program is that there is no natural 
coordinating force. We have many different people paying 
claims, organizations paying claims on one individual. There is 
no easy way to pool data together on either patient performance 
or outcomes or utilization or anything like that, and so when 
you do not have anyone in the system who has the ability to 
coordinate across the system, obviously you have weaknesses and 
concerns from that alone.
    There are different strategies underway to organize or 
galvanize or centralize information and coordination on behalf 
of patients. We need to know which ones work better than others 
and with which populations.
    Senator Craig. OK. In January, you selected 15 
demonstration sites for coordinated care projects, as I read 
it, four rural, one rural urban, ten urban. The reason I ask 
this particular question, my State by definition is a rural 
State, is the availability of Medicare+Choice programs is very 
low. As an appropriator and a senator from the rural State, I 
have worked hard to develop a couple of demonstration projects 
to try to bridge this urban-rural gap, and one of those that is 
developing a good deal of interest is the tele-health 
demonstration projects.
    Can you tell me if any of your disease management 
demonstration projects are using tele-health or tele-monitoring 
devices?
    Mr. King-Shaw. We believe that there are programs out 
there, disease management vendors, who will use and, in fact, 
are beginning to implement those strategies. All of them will 
not. We have encouraged these disease management demonstration 
proposers to come up with the best approaches based on who they 
are and where they are. The tele-medicine/tele-health 
capabilities are extremely applicable in the rural areas and in 
some of the urban environments as well. So it is our 
understanding, it is our belief, and, in fact, our expectation 
that those tele-medicine/tele-health applications will be used 
in some of the demonstrations, and at least one of them in the 
rural areas.
    Senator Craig. OK. Your written testimony discusses 
potential payment options and the idea of a competitive bidding 
process is notably absent. Is this an oversight or an omission 
by design?
    Mr. King-Shaw. Actually neither.
    Senator Craig. OK.
    Mr. King-Shaw. There is a competitive process that we use 
for identifying these disease management programs. We have a 
process that can work in two ways. We can actually release a 
statement saying we are interested in proposers in this way, 
and so individuals can submit their responses to us. They are 
vetted thoroughly. We select the best ones. There is a series 
of criteria that we use. There is a panel of experts that we 
bring together from throughout CMS, and at times we will 
consult with entities outside of CMS.
    But there is a competition for the best, most robust, most 
tested proposals. Now, that is slightly different from 
competitively bidding for a commodity where you would just pick 
the lowest price or the best deal, so to speak. Many of these 
proposals are submitted with nuance and strategies and 
different approaches, and so you are comparing the various 
strategies that people will use to achieve an outcome.
    So a commodity like competitive bidding process is probably 
not well suited, but they are quite competitive. The selection 
criteria, you know, is quite intense, and so when we do have a 
series of winners, they have been thoroughly vetted.
    Senator Craig. OK. Of course, the ultimate question is how 
long? How long before we see any published final results in 
these demonstration projects?
    Mr. King-Shaw. We think that the final results are about 2 
years, at least a year beyond the completion of a 
demonstration. So we have these demonstrations that are running 
from 1 to 3 years, more often 2 to 3 years in length. So a year 
after that, we would have some conclusive data. They are 
staggered, and so we will begin to have some data coming in 
over a period of time.
    I think what is also important to note is that many of 
these disease management demonstrations, population management 
demonstrations, are built around evidence-based practices, and 
once evidence-based practices are made available and 
disseminated to the delivery system, there tends to be 
relatively rapid adoption of them among the caregivers, the 
clinical community.
    So you can begin to see very quickly changes in behavior, 
patterns of utilization, some outcome data. We will be getting 
regular reports from these disease management demonstration 
projects that we can compile into some type of interim report 
card or update. But for something final and conclusive, that 
would take longer and it would include some external 
verification as well.
    Senator Craig. Well, gentlemen, thank you. Thank you both 
very much for your time and your valuable testimony this 
morning. Of course, as you all know, this committee is not an 
authorizing committee; it is an investigative committee, an 
information-gathering committee, a record-building committee, 
that we hope can supply information and evidence to authorizers 
as we get into these critical areas of policy design and 
decisionmaking. Thank you both very much.
    Mr. King-Shaw. Thank you.
    Mr. Crippen. Thank you.
    Senator Craig. I would ask our second panel and panelists 
to come forward please. Thank you all very much. That is the 
difficulty of cell phones when you do not turn them off. I 
apologize.
    Let me welcome our second panel and let me start with 
Sister Anthony Marie Greving, Director of the Pocatello, Idaho 
Area Agency on Aging. I always foul that up, Sister. I 
apologize. We welcomed you before the panel. Please proceed.

   STATEMENT OF SISTER ANTHONY MARIE GREVING, DIRECTOR, AREA 
                 AGENCY ON AGING, POCATELLO, ID

    Sister Greving. Thank you very much. I appreciate the 
opportunity to showcase our health promotion program in 
southern Idaho. As Senator Craig says, I am Sister Anthony 
Marie Greving, Director of the Area Agency on Aging in 
Pocatello, ID.
    The southeast Idaho area encompasses 9,200 square miles of 
rural and desert areas, sagebrush and juniper trees. The area 
is dotted with people not in large metropolitan areas or 
cities, but in small rural towns. Elderly in southern Idaho 
number a little over 22,000 or 15 percent of the total 
population.
    I come today to share with you our health promotion program 
for the low income elderly. The Area Agency on Aging contracts 
with the Southeast Idaho Community Action Agency, Retired and 
Senior Volunteer Program, to provide health promotion services 
to some 1,500 rural elderly. This program has seen a monumental 
growth.
    Over the past 7 years, the Southeast Idaho Health Promotion 
Program has received a total of some $90,000 in Older American 
Act funds, an increase of 38 percent since initial funding in 
1996.
    The current year contract, however, with the RSVP program 
is not $90,000, but a mere $18,300. In service numbers, 176 
people were served the first year, and now over 1,500 rural 
elderly are being served, a monumental 752 percent over the 
past 7 years. We are talking about commitment of dedicated 
staff and volunteers who see the need for services to the 
underserved and vulnerable.
    This program began with medication reviews called brown 
baggers in local senior centers, and has now grown beyond 
belief in assisting the homebound elderly with home safety 
checks, as well as a medication assistance program for those 
elderly who cannot afford the full cost of prescription drugs.
    Permit me to cite an example here which happened in 
southern Idaho. We have an elderly gentlemen who is 66 years of 
age, who has no primary physician, yet he has many diseases for 
which he takes many medications daily. On his kitchen table 
were two coffee cups. He would fill each coffee cup with 23 
medications, take one cupful in the morning with breakfast, the 
other cupful in the evening with dinner, whether he needed them 
or not.
    Through our health promotion staff medication review, we 
assisted him in getting a primary doctor, who prescribed only 
seven medications on a daily basis. I am here to say that now 
he is serving as a volunteer within his local community.
    Elderly people have voiced to me that greater coordination 
is needed between physicians and pharmacists on prescribing 
drugs for elderly people. So many doctors do not take the time 
to know what drugs elderly people are now taking, all the while 
prescribing another better pill to ease the pain.
    They have also stated that pharmacies need to write not 
only in large print, but also give very specific directions on 
the medication label when to take the meds, not just the phrase 
``take as directed.'' Those are two of the concerns that local 
elderly people have.
    Besides the standard health promotion program, the RSVP 
staff coordinate with Idaho State University Senior Health 
Mobile Clinic to provide medication review for the rural Idaho 
homebound elderly.
    This interdisciplinary mobile team travels the isolated 
areas of southeast Idaho in a van clinic that is equipped with 
health-related supplies, equipment, and educational resources. 
Yes, Idaho is a very rural State. Its population is made up of 
a shifting trend from those who have aged in place to those who 
are moving around the country as they age.
    In our health promotion program, we are seeing a number of 
older adults who are taking 16 to 18 medications daily, 
prescribed by a number of health care professionals to make the 
individual feel better. But the picture is by no means bleak. I 
highlighted what one health promotion program can do with 
drive, determination, and a readiness to solve problems in 
small rural communities.
    Disease management is possible in some rural areas, 
especially to those elderly desirous of a home and community-
based service system, those who are homebound and those who 
wish to remain independent. I have given you a brief portrayal 
of how southeast Idaho has utilized the Older Americans Act 
funds to implement an effective health promotion program with a 
limited budget.
    There is always room for more services to our vulnerable 
elderly. I would ask for greater support of a disease 
management program like health promotion and medication 
management under the Older Americans Act, so elderly as 
Medicare beneficiaries can continue to maintain their health 
and quality of life and gain greater longevity and 
independence. I thank you for this opportunity.
    [The prepared statement of Sister Greving follows:]

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    Senator Craig. Sister, thank you very much for that very 
valuable testimony about effective utilization of resource.
    Now, let me introduce before the committee Dr. John Rusche, 
Senior Vice President and Chief Medical Officer, Regence 
BlueShield of Idaho, headquartered in Lewiston, ID. Doctor, I 
am traveling to Lewiston, ID tomorrow morning.
    Dr. Rusche. Say hi for me.
    Senator Craig. I will do that. I think I am going to beat 
you home. Welcome before the committee. Please proceed.

STATEMENT OF JOHN RUSCHE, M.D., SENIOR VICE PRESIDENT AND CHIEF 
   MEDICAL OFFICER, REGENCE BLUESHIELD OF IDAHO, LEWISTON, ID

    Dr. Rusche. Thank you, Senator. I appreciate the 
opportunity to give testimony to the committee. I am Senior 
Vice President and Chief Medical Officer of Regence BlueShield 
of Idaho. We are a mutual health insurer and an independent 
licensee of the BlueCross BlueShield Association.
    We are a member of the Regence Group, which is four 
northwest Blues, BlueCross BlueShield of Utah, BlueCross 
BlueShield of Oregon, Regence BlueShield in Washington, and 
ourselves.
    I appreciate this opportunity to discuss disease management 
programs from the health plan point of view. I believe that 
this model of care coordination will be an important tool over 
the next few years as we continue to struggle with the issues 
of cost and quality.
    Disease management works by focusing effort and limited 
resources on those individuals who are most likely to utilize 
services and whose clinical course can be improved by the 
intervention. You saw from the charts before that in the 
Medicare population, half have three chronic diseases. From an 
analysis of our population, 2\1/2\ percent of our insured 
population account for 60 percent of the cost. It really is 
concentrated.
    The range of interventions can extend from patient 
education and self-management to medication and therapy 
management and reminders to intense, individually crafted care 
plans involving the entire array of physician, facility, drug 
and nursing care available.
    In our experience, there are four components of a 
successful population health program. First is identification. 
Of any population, only a subset has a condition.
    Second is stratification. Once you have identified the 
members with the condition, you need additional data. Not all 
people with a condition are of the same likelihood to incur 
expense.
    Third, the intervention has to be palatable. The program 
must be acceptable to the members and providers it supports. 
Simplicity, ease of service, and customer service are really 
important.
    Finally, outcome data. Any program needs to be able to show 
that the end effects are there in order to be able to judge the 
value of the intervention, or if you make later changes, that 
you have had a positive effect.
    In my more than 15 years of clinical practice, it has 
become clear that optimum care of complex chronic disease could 
be handled in better ways than our current one-on-one physician 
and patient behind a closed door system. As the managed care 
organizations of the 1990's become the care management 
organizations of the future, we will be doing a lot less 
utilization management, the authorization and approval 
approach, and more guidance in the best evidence-based approach 
to care.
    We will be more focused on the opportunities for greatest 
success. The written testimony I have provided describes our 
use of a cardiovascular program and a high risk psychosocial 
program for our Medicare HMO population. We will be looking at 
other chronic conditions that have modifiable courses. 
Currently, we are evaluating renal disease, cancer, depression, 
and arthritis programs.
    Some will be internally managed with our staff. Some will 
be contracted with vendors. The nature of the population served 
really defines the best model, I believe, for financing these 
programs.
    For example, we operate our maternity program internally. 
We could get a good result at as low or lower cost than from a 
vendor. The services and expertise in our cardiovascular 
program provided by QMed could not be replicated internally, so 
contracting was our best bet.
    A predictable rate of complications or disease incidence in 
a large population ordinarily allows a health plan to accept 
risk or retain the risk. Unpredictable risks, small 
populations, make risk-sharing or guaranteed return contracting 
with a vendor more attractive.
    Chronic disease increases with age. Complications and co-
morbidities increase with age. Our senior population is what 
one might call a target-rich environment for disease management 
tools. If there is any population that the tools will benefit, 
if there is anywhere they will prove their value in health 
improvement and cost avoidance, it is among seniors.
    Senator, this concludes my oral comments. I would like to 
thank the committee for this opportunity to discuss disease 
management programs, and would be happy to answer any questions 
that you might have.
    [The prepared statement of Dr. Rusche follows:]

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    Senator Craig. Thank you very much, Doctor, for being here 
and for offering the testimony and the experience that your 
companies are going through.
    Now, let me introduce before the committee Dr. Alan Wright, 
Senior Vice President and Chief Science Officer, Centers for 
Health Improvement, AdvancePCS--I will let you explain that--in 
Fort Hunt, MD. Doctor, thank you.

STATEMENT OF ALAN WRIGHT, M.D., SENIOR VICE PRESIDENT AND CHIEF 
 SCIENCE OFFICER, CENTERS FOR HEALTH IMPROVEMENT, ADVANCEPCS, 
                        HUNT VALLEY, MD

    Dr. Wright. Thank you, Senator Craig. I would like to thank 
the committee for calling this hearing today.
    Senator Craig. Pull your mike a little closer down maybe 
just a bit. Thank you.
    Dr. Wright. How is that?
    Senator Craig. That is better maybe.
    Dr. Wright. Our company, AdvancePCS has been creating 
disease management programs to improve the delivery of health 
care in this country for many years. We are pleased that 
Congress is interested in exploring the integration of disease 
management into the Medicare program and look forward to 
working with Congress.
    My name is Alan Wright. I am a physician and I am the Chief 
Medical Officer of AdvancePCS. During my tenure at AdvancePCS, 
I have been responsible for the development and oversight of 
disease management programs. I am currently focused on 
integrating new and emerging technologies into these programs.
    By way of background, AdvancePSC is the nation's largest 
independent provider of health improvement and pharmacy benefit 
services, touching more than 75 million lives. Our clients 
include BlueCross and BlueShield programs, health plans, self-
insured employers, other employer groups, labor unions and 
government agencies including the Federal Employee Health 
Benefits Program.
    AdvancePCS health improvement capabilities range from 
pharmacy benefit management to clinical programs to disease 
management programs to specialty pharmacy services. We believe 
that these services are critical components in helping our 
clients balance their objectives of cost containment and 
quality.
    What I would like to do in my testimony today is first 
describe our current disease management programs and our 
approach and delivery of these programs. Second, highlight the 
current status and future plans for our programs. Third, 
describe the potential value of these programs to Medicare.
    Disease management programs are application and management 
strategies for the chronically ill, relying on a wide array of 
delivery models that improve the overall health of targeted 
populations. The benefit of our disease management programs are 
numerous. Aggressive management of chronically ill patients 
typically enables individuals to require less intensive care 
which enhances the quality of life and reduces the medical 
costs.
    In addition to providing health and financial benefits, 
disease management also reinforces care standards and 
strengthens physician-patient relationships. AdvancePCS disease 
management programs are developed internally, using established 
national guidelines such as the Joint National Committee on 
Hypertension, sponsored by the AMA; the guidelines created by 
the National Institutes of Health; the American Hospital 
Association; and the American Diabetes Association.
    We select programs for development based on the potential 
improvements of quality of life and cost impacts in the 
population. Quality and quantitative effectiveness of 
AdvancePCS disease management programs are measured using 
specific indicators that compare results to clinical benchmarks 
or goals. We enhance programs continually based on changes in 
clinical guidelines, feedback from practitioners, patient 
experience and program effectiveness, basically determining 
what works, what does not work, and adopting those things that 
work.
    We use principles of continuous quality improvement in 
collaboration on behalf of our sponsors in execution of 
programs so they achieve compliance with NCQA, the National 
Committee on Quality Assurance.
    AdvancePCS has a clinical research division called 
Innovative Medical Research that is devoted to clinically 
assessing and improving these programs through cooperation with 
numerous Federal agencies.
    The agencies that we work with include the Centers for 
Education Research and Therapeutics, sponsored by AHRQ. We also 
work with the FDA in post-marketing surveillance programs, and 
we have participated with other agencies as well in projects.
    Our programs have evolved over time. We maximize the number 
of methods available to communicate and educate patients and 
physicians. Our disease management programs are now tailored to 
specific conditions with interventions that extend from 
telephone outreach, mail and web-based interventions to 
personal nursing counseling.
    A good disease management program begins with a specific 
plan-sponsored goal, and when we initiate programs with a 
sponsor, in this case Medicare, we would begin discussing what 
is the objective of the program, and then build a program out 
from that objective.
    Without that kind of conversation, it is very difficult for 
everybody to be satisfied at the completion of the program. I 
would like to emphasize that patient privacy is a priority in 
our program, and we work closely with our plan sponsors to 
ensure protection of patient confidentiality.
    We would like to recognize that the Congress and the 
administration have made progress in bringing disease 
management approaches into the Medicare program, but there is 
more work to be done. We believe that Medicare can greatly 
benefit from appropriately designed and tailored disease 
management programs.
    As evidenced earlier in the exhibit from the Kaiser 
Foundation, patients in the senior population, the Medicare 
population, vary dramatically from those in the commercial 
population. The problems are more complex and those issues need 
to be directed and addressed when developing programs for a 
Medicare population.
    However, there are a number of disease management programs 
that could be adopted within Medicare today by focusing on 
pharmaceuticals and interventions already sponsored by 
Medicare. Given the high cost of illness, disease management 
programs that are focusing on some of the new and innovative 
biotech interventions that are paid for by Medicare Part B are 
suitable areas for disease management intervention and continue 
and will continue to be a rapidly growing area of both cost and 
quality within the Medicare population.
    Ultimately implementation of disease management into a 
Medicare program on a large scale requires consideration of 
payment reform and creation of financial systems that improve 
and enhance the deployment of disease managed services. We look 
forward in working with Congress to develop flexible payment 
systems for these types of disease management tools, and 
Congress can support CMS by ensuring that the agency has broad 
authority and latitude within the Medicare program to test new 
models.
    We believe that disease management programs directly 
address the challenges faced by Medicare in coming years by 
delivering high cost, cost-effective, quality care to 
chronically ill populations and would encourage further 
studies. That concludes my comments, and thank you for this 
opportunity to testify.
    [The prepared statement of Dr. Wright follows:]

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    Senator Craig. Doctor, thank you very much. Let me turn to 
our last panelist, Matthew Michela, Senior Vice President from 
American Healthways in Nashville, TN.
    Matthew, welcome before the committee.

    STATEMENT OF MATTHEW A. MICHELA, SENIOR VICE PRESIDENT, 
               AMERICAN HEALTHWAYS, NASHVILLE, TN

    Mr. Michela. Thank you, Senator. How is that? Is that all 
right? My name is Matthew Michela, and I am Senior Vice 
President of Operations of American Healthways which is 
headquartered in Nashville, TN. Thank you for the opportunity 
of appearing this morning to highlight our previously submitted 
written testimony.
    American Healthways is the nation's largest independent 
disease management organization, providing services to 
approximately 600,000 Americans with chronic diseases in all 50 
States, Puerto Rico and the District of Columbia.
    Our programs were the first in the country to be accredited 
by both the NCQA and URAC, and are provided to a wide variety 
of populations including HMO, PPO, Medicare+Choice, and for 
some of our programs the Federal Employee Health Benefits 
Program. We are also the only disease management organization 
providing services to a Medicare fee-for-service population 
today, as we know.
    Because of commitment to quality we have led the way in 
submitting our outcomes, both clinical and financial, for 
third-party validation and peer review. Of particular 
pertinence to this committee, we believe, is the unpublished 
study reflecting our first 10 months' results with 
approximately 6,000 Medicare fee-for-service beneficiaries with 
diabetes in Hawaii.
    This study shows improvement in all clinical and a net 
reduction in total health care costs of about $5.1 million or a 
17.2 percent net savings on an inflation-adjusted basis.
    Now, disease management is a treatment-support concept 
predicated on the principle that the way to reduce health care 
costs is to actually improve health. The goal of all disease 
management programs is to create and sustain behavior change 
among patients and providers to assure the most effective 
management of each patient's health.
    But while the precepts of disease management are uniform, 
program design and the method of delivery reflect significant 
differences, and as a result, so do the outcomes. Accordingly, 
the key factor in our success is not really a matter of what we 
do; rather, it is a matter of how we do it.
    Our programs are based on three underlying principles. The 
first holds that the fundamental interaction in health care is 
the one between the patient and physician, and that the rest of 
the health care system exists solely to make that interaction 
more effective, more efficient or preferably both.
    Between office visits, patients are essentially responsible 
for their own care and management. The current delivery system 
provides little or no support for them in that effort. That is 
what our programs do.
    The second foundation principle holds that creating and 
sustaining behavior changes necessary to improve the health of 
people with chronic disease is best achieved through personal, 
trusting relationships between patients and caregivers. 
Accordingly, our program interventions are delivered by over 
600 highly trained, experienced and caring registered nurses 
who not only help patients deal with their condition or 
conditions, but also with the reality of living with chronic 
disease.
    That approach underscores the third principle that holds 
that patients we work with are people and are not diseases. By 
meeting each patient's needs, wherever that patient is, we are 
sure that we always prepared to support whatever behavior 
change the patient is willing to make.
    Another important issue is accreditation. American 
Healthways' early advocacy for accreditation had two bases. 
First, we believed that every health care organization ought to 
open itself to meaningful third-party scrutiny. Second, the 
historical absence of a uniformly recognized definition of 
disease management has allowed many programs, really thinly 
disguised marketing efforts, to prey on a vulnerable population 
by masquerading as disease managers.
    Accordingly, we needed, the industry needed a reliable 
external body to certify program quality. Whether or not 
accreditation programs serve that role effectively, however, 
will depend on their acceptance and use by private and public 
purchasers.
    The last topic I will address in my summary is how Congress 
can help. At a conference last week, David Kreiss, special 
assistant to the CMS Administrator, said ``The last frontier in 
disease management demonstration projects is population-based 
projects focused on outcomes.'' That he anticipated a request 
for proposals that would be released in the month or two. We 
urge this committee to provide whatever support may be required 
for CMS' efforts in this regard.
    Finally, we would ask Congress to revisit the issue of 
Federal preemption with respect to HIPAA and State privacy 
laws. Health care while delivered locally is no longer bought 
or paid for in that way. Health plans must provide uniform 
services to national corporations. The continued ability of 
individual States to enact laws more restrictive than HIPAA 
presents a significant barrier to meeting that requirement.
    So let me conclude, Senator, by emphasizing that disease 
management programs properly designed, properly implemented, 
and properly delivered improve health care outcomes and reduce 
the cost of care.
    As we have shown in Hawaii and in many other places, 
effective disease management programs can improve the health of 
Medicare beneficiaries and reduce the cost of care sustained by 
the trust fund. Further, the introduction of disease management 
services to Medicare beneficiaries does not require reform of 
either the health care system itself or the Medicare program. 
What it does require, however, is the support of this committee 
and this Congress. Thank you very much.
    [The prepared statement of Mr. Michela follows:]

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    Senator Craig. Matthew, thank you very much. I am going to 
spend probably no more than the next 15 minutes with questions, 
because I have got other commitments to make this morning. So 
what I am suggesting in asking you questions is there may be 
some I will have submitted in writing to you, and if you would 
respond, if we do not get to all of them, I would appreciate 
that as we build this record.
    Sister, I think we are all impressed over time when I have 
associated myself with the senior community and programs of the 
phenomenal volunteer effort that can be generated in a 
community of interest to provide service and educational 
training and programming. Have you received any interest from 
other area agencies on aging to replicate your pharmacy 
management program?
    Sister Greving. I would answer yes, and it was probably a 
jealous nature that we have such a good program in Pocatello, 
ID. I have had inquiries not only from our other five Area 
Agencies on Aging Directors within Idaho, but also from 
neighboring States, and their question is how do we do it on a 
limited budget?
    I keep saying to them it is only because of the 
coordination efforts that we can really do it. We do not 
duplicate what someone else has already done. I think that is 
our secret within southern Idaho, and we would really like to 
replicate it throughout Idaho and the United States.
    Senator Craig. Is your health promotion program linked in 
any way to the tele-health demonstration program at Idaho 
State?
    Sister Greving. I can honestly answer with an affirmative 
yes. Dr. Beth Stamm and I are in constant coordination because 
we see the needs of the elderly, especially the rural elderly 
in Idaho, as someone who really needs these kinds of services, 
especially in relation to the lack of transportation that the 
elderly people might not have within rural communities. So if 
tele-health care serves those rural communities in that way, 
the linkage will have been served, yes.
    Senator Craig. Thank you.
    Sister Greving. Thank you.
    Senator Craig. Dr. Rusche, how many disease--I should say 
how many diseases does Regence have disease management programs 
for at this moment?
    Dr. Rusche. Currently, we have five. We started out with 
maternity----
    Senator Craig. Yeah.
    Dr. Rusche [continuing]. For a commercial health insurer 
makes a lot of sense, but include cardiovascular disease, 
psycho-social problems, in particularly our Medicare-managed 
care, diabetes and migraine or chronic headache.
    Senator Craig. How did you first recognize the value of the 
disease management approach?
    Dr. Rusche. By an analysis of the data, the Willy Sutton 
approach of going where the money is. We had for a long time 
identified that there was a small sub-set of members that were 
the most expensive, and part of what a health plan does or an 
insurance company does is underwrite. You take information and 
you assign a financial risk or a price to it. Well, that same 
information can direct your services.
    Those people that are your members that have a likelihood 
of consuming resources deserve an opportunity to do better. It 
does not make the disease go away. It just kind of puts things 
off, delays or decreases complications, and that is all we are 
hoping to get with disease management programs.
    Senator Craig. Well, then ultimately the question is have 
these management programs met your expectation?
    Dr. Rusche. I would have to say definitely yes and no.
    Senator Craig. OK. I would like to hear why yes and why no, 
but more about why no?
    Dr. Rusche. Why yes, because I do think they showed 
demonstrated cost savings. No I think is two reasons. One is 
that the way the medical system is structured, the way I was 
trained, the way most doctors are trained, is to work one-on-
one with a patient without coordination into a system. To do 
things otherwise is kind of like walking uphill. You know it 
really is not the easiest thing to do. So I think that is 
difficult.
    The second is that while we have in the subset of the 
population that we have looked at or treated for a particular 
condition shown an effect in their costs, we have not done a 
whole lot to lower the high rate of premium increase for our 
members, and that has been somewhat disappointing.
    Senator Craig. Not only obviously providing the service but 
controlling costs, and then that cost being reflected in 
premiums was part of----
    Dr. Rusche. That is right.
    Senator Craig [continuing]. Your goal that you did not 
achieve as well?
    Dr. Rusche. That is true, Senator.
    Senator Craig. OK. Thank you very much, Doctor. Dr. Wright, 
you notice that I picked up on tele-medicine as an extension of 
capabilities and services. You have mentioned the technologies. 
Could you tell us about any that you have used in the tele-
medicine area?
    Dr. Wright. Well, yes, over the years, we have had numerous 
tele-medicine pilots, anywhere from devices that were 
essentially alarm clocks that would remind people when to take 
their medication to peak flow meters that could assess how 
lungs were functioning, and you could put these in a holster 
and it would upload clinical parameters to glucometers.
    One of the issues that we encountered through our pilots 
was that the tele-medicine, the medical device industry in this 
particular sector is emerging, and is unstable. Companies are 
in business. They go out of business, and working with these 
new and emerging companies and bringing them along remains a 
challenge in that industry.
    Currently, we are working with a program looking at blood 
pressure cuffs that we distribute in populations and they 
upload their blood pressures and make that determination, and 
it seems to be working well right now on a pilot basis.
    Senator Craig. Good, good. You also discussed the necessity 
of Medicare payment reform before a large-scale implementation 
of disease management could be undertaken. Would you elaborate 
on that statement?
    Dr. Wright. I think that the thought process of approaching 
management of disease as a system rather than individual 
transactions between paying for the device, paying for the 
physician, how do we reimburse tele-medicine, for instance, how 
do we work that into payment schemes?
    How do we make sure when we are modifying physician 
reimbursement, we are not adversely affecting the delivery of a 
new biotech drug, or does the compensation for a particular 
device correctly reflect in the reimbursement of the health 
care professional of getting that device up and running or 
installed or educating the patient? In particular, with tele-
medicine, training of individuals, you give a senior a 
computer-based, internet-based device in the home, that 
requires training and installation. As an example, how is that 
going to work into the 21st century reimbursement scheme?
    Senator Craig. Good points. Thank you very much. Matthew, 
you have talked about an unpublished study in Hawaii, 17 
percent reduction in health care spending over a 10-month 
period. Based on what you know now, do you think those results 
are sustainable?
    Mr. Michela. Those results are absolutely sustainable. We 
have multiple years of experience in the commercial marketplace 
working with health plans, and our typical contractual 
relationships start at a minimum of 3 years, and are typically 
five, and we even have 10-year agreements with health plans 
that require sustained clinical and financial improvement every 
successive year of that agreement, and we have internal studies 
and some studies that are published and to be published that 
demonstrate how that is measured and how that is accomplished.
    So the answer to the question is, yes, it is sustainable. 
Additionally, with our programs, which is very important in the 
commercial marketplace, we produce results, both clinical and 
financial results, in the first year of operation, which has 
historically been a problem in this industry in the sense that 
you have an infrastructure investment that you need to buildup, 
plus getting out and establishing relationships in many ways 
with the physician community takes time to do. But we have been 
able to demonstrate that that is achievable in all of our 
programs here.
    The other thing I guess I would add is we have also 
demonstrated to our satisfaction and to our customer 
satisfactions with some studies that when you remove the 
interventions that you are providing in disease management, 
presuming you are applying them correctly, those cost savings 
do return.
    So as you are effecting behavior change, which ultimately 
is improving health, which ultimately reduces cost, if you stop 
applying those interventions, then it returns back to the trend 
that it would have been previously.
    Senator Craig. Good. Good. If you have seen one disease 
management program, you have seen one disease management 
program. Now that is a comment I heard recently and I guess the 
implication is that there are many ways to deliver disease 
management services and many different results.
    You have mentioned that program design, method of delivery, 
and outcomes can be different with different programs. What 
contracting arrangements seem to have the best results from 
your experience?
    Mr. Michela. I think the comment that if you have seen one, 
you have seen one is absolutely correct, which is why we 
advocate and challenge everyone to become accredited by 
external third parties so that that can be obvious on where 
those differences are to everyone.
    But specifically to your question, disease management 
achieves its best success when it interacts with patients in a 
variety of settings and interacts both with patients and 
physicians. When you talk about contracting for disease 
management services, what we would maintain is the best way to 
do that is to contract for outcomes, not for the process 
itself. Be less concerned about how many pieces of mail or 
reminder cards a person gets and be far more concerned with 
what actually is achieved on a clinical basis and what actually 
is achieved on a financial basis, and that is the umbrella 
under which you can balance both costs and quality.
    Additionally, we would maintain that you need to contract 
for a total population with an identified disease condition. Do 
not attempt to identify a condition such as diabetes and then 
apply interventions to only 1 or 2 percent of that disease 
condition population, because you will over time encounter what 
had in the previous testimony this morning been discussed about 
regression to the mean.
    On a population-based approach, what you do is you start to 
prevent folks from becoming more chronic over time before they 
would have otherwise been identified in only the sickest of the 
sick category here. That is a fundamental part of success of 
the long-term viability of these programs is to engage as many 
people as possible in a variety of ways.
    The third is to support the patient, not the disease. 
Manage all of the co-morbidities and conditions that that 
patient occurs or may have in the first place, because they do 
develop certainly over time multiple conditions that need to be 
managed, and one of the problems in the industry historically 
has been with an approach that will manage only the impacts of 
a cardiovascular problem on a patient and not recognize that 
that may be caused by conditions with diabetes or over time 
develop into COPD, as an example.
    The third in the contracting approach and how we work in 
the commercial market is to balance a risk-reward relationship, 
not to just pay for services on a fee-for-service unit cost 
basis, but provide incentives that if targets are met, clinical 
and financial targets are met and exceeded, that there may be 
opportunity for bonuses and other incentives that continue to 
drive the industry to achieve beyond the targets that are 
accomplished within a specific contract.
    Senator Craig. Thank you very much. To all of you, thank 
you. We appreciate your testimony and the record that is being 
built here. This is the first of I suspect a good number of 
hearings this committee will hold over the next few years as we 
develop a record on this, as other, well, as some of 
demonstration programs in CMS mature and evidence comes from 
those. Clearly, as we debate and deal with Medicare reform and 
prescription drug programs, this kind of information or policy 
development is going to be, I suspect, very important in cost 
management and quality of delivery over the next number of 
years.
    Thank you all very much. With that, the committee will 
stand adjourned.
    Mr. Michela. Thank you.
    [Whereupon, at 10:58 a.m., the committee was adjourned.]


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