[Senate Hearing 108-295]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-295

                      SQUARE PEG IN A ROUND HOLE?
               DISEASE MANAGEMENT IN TRADITIONAL MEDICARE

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

                                 FORUM

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                            NOVEMBER 4, 2003

                               __________

                           Serial No. 108-26

         Printed for the use of the Special Committee on Aging



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                       SPECIAL COMMITTEE ON AGING

                      LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama              JOHN B. BREAUX, Louisiana, Ranking 
SUSAN COLLINS, Maine                     Member
MIKE ENZI, Wyoming                   HARRY REID, Nevada
GORDON SMITH, Oregon                 HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri            JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois        RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah                 RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina       BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska                  EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania          THOMAS R. CARPER, Delaware
                                     DEBBIE STABENOW, Michigan
                      Lupe Wissel, Staff Director
             Michelle Easton, Ranking Member Staff Director

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator John Breaux.........................     1

                           Panel of Witnesses

Stuart Guterman, Director, Office of Research, Development, and 
  Information, Centers for Medicare and Medicaid Services, 
  Washington, DC.................................................     2
Mark Miller, Executive Director, Medicare Payment Advisory 
  Commission, Washington, DC.....................................     6
Jeff Lemieux, Centrist Policy Network and Progressive Policy 
  Institute, Washington, DC......................................     9

                                APPENDIX

Statement from the American Academy of Family Physicians.........    27

                                 (iii)

  

 
 SQUARE PEG IN A ROUND HOLE? DISEASE MANAGEMENT IN TRADITIONAL MEDICARE

                              ----------                              --



                       TUESDAY, NOVEMBER 4, 2003

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:58 a.m., in 
room SD-628, Dirksen Senate Office Building, Hon. Larry Craig 
(chairman of the committee) presiding.
    Present: Senator Craig.

       OPENING STATEMENT OF SENATOR LARRY CRAIG, CHAIRMAN

    The Chairman. Good morning, everyone. Let me thank you all 
for coming to the Special Committee on Aging's forum on disease 
management.
    We have, for a period of time, studied disease management 
and now, of course, are increasingly concerned about fitting it 
into a variety of health care approaches that we are looking at 
here in the Congress of the United States. Disease management 
for people with chronic illness is a critically important 
emerging innovation in America's health care system. Last fall 
this Committee held a hearing on the challenges of moving 
disease management into Medicare for those with chronic 
conditions. This forum is a follow-up to last year's hearings.
    I am Senator Larry Craig and as Chairman of the Aging 
Committee, as we studied these things through hearings we have 
decided to institute this forum because of the progressive 
nature of these interests and developments. A variety of think 
groups have worked their way through these developments and 
provide them for the Congress. Of course, as you know, we are 
not an authorizing committee. But we believe the special 
committee can play a critical role in building an informational 
base and a record by which the authorizing committees can work. 
We have done that in a variety of ways in the past. Certainly, 
this is one of them.
    Today's panelists will focus on the technical details of 
evaluating disease management demonstrations and how good a fit 
disease management may or may not be with the Medicare fee-for-
service program. Our panelists today are Stuart Guterman, 
Director for the Office of Research, Development and 
Information at the Centers for Medicare and Medicaid Services; 
Mark Miller, Executive Director of the Medicare Payment 
Advisory Commission; and Jeff Lemieux of the Centrist 
Organization and the Progressive Policy Institute.
    The Senate and the House Medicare bills both include 
provisions for disease management and we hope this forum will 
aid the conferees in their deliberations. As you know, those 
deliberations are hopefully shaping to some finality as we 
begin to look at the final product. This forum, I think, is a 
great opportunity for all of us to listen and to learn while 
building a record on policy considerations.
    So with that in mind, let me introduce to you Bruce 
Steinwald. Bruce is the Director of Economics and Payment 
Issues in the Health Division at the U.S. General Accounting 
Office. So, Bruce, we do appreciate your willingness to chair 
and moderate this panel. Thank you very much.
    Mr. Steinwald. Thank you, Senator. I am very pleased to be 
here today for this Special Committee on Aging panel discussion 
of the role that disease management might play in the 
traditional fee-for-service Medicare program. I would like to 
thank Senator Craig for his foresight in setting up this panel 
discussion and for inviting GAO to participate.
    Senator Craig has already introduced me and the panelists 
so I will skip over that. Basically the ground rules will be, 
each of the panelists will speak in turn. The representative 
from CMS will have 10 minutes roughly and the other panels 
about eight. We will not take any questions. We will get 
through all the formal remarks first. Then we will have a 
session of questions and answers. In my role as moderator I 
will ask the first set of questions. But in the meantime, the 
Committee staff will circulate three-by-five note cards giving 
members of the audience an opportunity to write down their 
questions, which will be passed forward. The Committee staff 
have asked me then to cull those questions, summarize them, and 
then ask them on your behalf, if that is OK.
    For most of the session we expect to have a dialog. That is 
to say, the panelists will individually speak but I expect that 
for most of the remainder of the morning we will have a 
discussion among the panelists and the moderator. Our goal is 
to generate--through generating this dialog is to raise 
awareness of what we know and what we do not know, and what we 
need to know about how good the fit is between disease 
management and Medicare fee-for-service, and what we need to do 
and what we need to learn to make that fit better.
    So with no further ado we will turn to our first panelist, 
Stuart Guterman.

  STATEMENT OF STUART GUTERMAN, DIRECTOR, OFFICE OF RESEARCH, 
  DEVELOPMENT AND INFORMATION AT THE CENTERS FOR MEDICARE AND 
               MEDICAID SERVICES, WASHINGTON, DC

    Mr. Guterman. Thank you, Bruce. I want to thank Chairman 
Craig and Senator Breaux and the other distinguished Committee 
members for inviting me here today to discuss Medicare's 
efforts to improve the care provided to its beneficiaries 
through disease management.
    The Medicare population increasingly consists of people 
with chronic conditions. Researchers at Johns Hopkins 
University determined that 78 percent of beneficiaries have at 
least one chronic condition. Chronically ill beneficiaries are 
heavily burdened by their illnesses and they often have 
multiple conditions and have to deal with multiple providers. 
The same Johns Hopkins study found that 20 percent of Medicare 
beneficiaries have at least five chronic conditions, and that 
those people see an average of 13.8 different physicians in a 
given year.
    In the traditional Medicare fee-for-service program, 
however, physicians are paid for the individual services they 
provide and there is no incentive to provide the coordinated 
care that chronically ill beneficiaries need. In fact because 
such coordination involves effort and resources and there is no 
payment corresponding to that effort coordinated care is in 
effect discouraged.
    The Medicare+Choice program should be an appropriate for 
providing coordinated care but the current payment system and 
some of the rules under which plans currently operate in fact 
penalize them for enrolling beneficiaries who are chronically 
ill and, therefore, expected to be much more expensive than 
average.
    Chronic diseases play a large role in generating both the 
growing level of utilization under Medicare and the finances of 
the program. The 78 percent of Medicare beneficiaries with at 
least one chronic condition account for 99 percent of Medicare 
spending each year, and the 20 percent of beneficiaries with at 
least five chronic conditions account for almost two-thirds of 
all program spending.
    We need to find better ways to coordinate care for these 
beneficiaries. Toward that end, CMS is looking at disease 
management approaches, which have been developed and applied in 
the private sector, to combine adherence to evidence-based 
medical practice with better coordination of care across 
providers. We are developing an array of demonstration projects 
to test our ability to apply these approaches in the context of 
the Medicare program.
    Let me lay out our objectives. There are multiple 
objectives in this approach. One is to improve access to the 
care that Medicare beneficiaries need. Another is to improve 
the coordination of the care so it can be provided more 
effectively and efficiently. Another is improving the 
performance of physicians by making them more involved and 
responsive to the patient needs. Finally, we are trying to 
improve the ability of patients themselves to be involved and 
participate in their own care.
    These demonstrations will need to test and evaluate what 
needs to be done in order to get disease management programs up 
and running, how best to provide disease management services, 
which of these services work and which do not in the Medicare 
context, which conditions lend themselves best to disease 
management initiatives, and the impact of different approaches.
    This involves answering several sets of questions. One is 
what should be the focus of disease management programs? How 
should these approaches be designed and applied? Another which 
is a major question in the current context of Medicare is what 
are the data requirements and how can it be achieved?
    The data requirements in disease management context are 
related to at least three sets of activities. One is to 
identify potential enrollees. A second is to monitor their 
needs as disease management is applied. A third is to be able 
to evaluate the results of disease management approaches. This 
is a major challenge for the Medicare program. We have a very 
rich database, as most of you know, but that database has been 
designed to process and pay bills for fee-for-service providers 
mostly. Our challenge is to redesign our ability to use our 
data to be able to apply them to these three functions.
    Another question we have to address is what organizational 
structures work best? How do you establish the appropriate 
networks of providers? How do you conduct enrollment? How do 
you provide disease management services in the context of 
Medicare?
    Another question we have to address is which disease 
management approaches work best? Who contacts enrollees? What 
do they do? How do they make sure there is follow-up, et 
cetera?
    We also need to know how payment can be designed to be 
compatible with these approaches. That is another major 
challenge, because again, under the fee-for-service program we 
have a payment system that pays for individual services, and 
under the Medicare+Choice program, as I will address in a 
couple of minutes, there are some drawbacks to being able to 
coordinate care the way Medicare+Choice should be able to.
    There are several alternative approaches to take. One is a 
disease management fee that you can pay specifically for 
disease management services. Another is to incorporate more 
encouragement within the capitated payment systems to do so.
    Another question we have to answer at the end of all this 
is how can these issues be appropriately evaluated? How do we 
know if we have succeeded? How do we know what that indicates 
about how to proceed with these programs?
    Let me briefly review where we are today. The first in our 
series of disease management activities was the coordinated 
care demonstration project. It was mandated in the Balanced 
Budget Act of 1997. It has 15 sites, including commercial 
disease management vendors, academic medical centers, and other 
provider-based programs. It focuses on beneficiaries with 
congestive heart failure, heart, liver, and lung diseases, 
Alzheimer's and other dementia, cancer and HIV/AIDS. We have 
sites in both urban and rural areas. This is in a fee-for-
service context. These organizations are paid a disease 
management fee, and currently they have about 13,000 enrollees 
that are evenly split between intervention and control groups.
    The sites that are included in this coordinated care 
demonstration include Carle Foundation Hospital in eastern 
Illinois, Medical Care Development in Maine, Health Quality 
Partners in eastern Pennsylvania, and Washington University 
Status One in St. Louis, Missouri. There is also a separate 
demonstration that is not formally part of the coordinated care 
demonstration but incorporates approaches that are parallel, 
being conducted by Lovelace Health Systems in Albuquerque, NM, 
to provide coordinated care services to Medicare beneficiaries 
with congestive heart failure or diabetes.
    We are testing whether these coordinated care programs can 
improve medical treatment plans, reduce avoidable hospital 
admissions, and promote other desirable outcomes. As of now, 
all 16 of these plans have been in operation for at least one 
year. As I said, the total enrollment is about 13,000.
    Initial findings indicate that beneficiary recruitment in 
the fee-for-service market can be a challenge. While the 
majority of plans are at or near their enrollment targets, 
several plans have invested more time and resources than they 
had initially expected to get there. The most successful plans, 
we find, have established close ties to physicians and other 
providers and have focused on obtaining physician support 
during the planning stages of the project. Although evaluation 
results are not yet available, the programs overall appear to 
be well-received by both participating physicians and 
enrollees. We are planning to submit a report to Congress on 
this demonstration in the spring of 2004.
    Another project that we have just recently gotten waiver 
approval for is the disease management demonstration for 
beneficiaries with advanced stage congestive heart failure, 
diabetes, or coronary heart disease that was mandated in the 
Benefits Improvement and Protection Act of 2000. This 
demonstration includes three sites. What is interesting about 
this is that these sites receive a disease management fee that 
includes drug coverage not just for drugs related to the target 
conditions but for all drugs being used by enrollees in the 
program.
    Participating organizations in this demonstration are at 
risk for total Medicare costs. The demonstration is limited to 
30,000 enrollees total. The three sites which have just had 
their waiver applications approved by the Office of Management 
and Budget are CorSolutions of Buffalo Grove, IL; Diabetex/
XLHealth of Baltimore, MD; and HeartPartners of Santa Ana, CA, 
which is a joint venture among PacifiCare, QMed, and Alere 
Medical. We are hoping to get these projects started in January 
2004.
    Another project which is in the pipeline is the physician 
group practice project that was mandated in the Benefits 
Improvement and Protection Act of 2000. We released a 
solicitation in which we announced we would make at least six 
awards. We have received the applications which are to 
coordinate Part A and Part B services. We are planning on 
sharing savings if outcomes are improved and if savings are 
achieved. The implementation of this demonstration project is 
pending waiver approval but we are in the stage where the 
waiver package is being developed and considered.
    We have got a couple of other projects in process that 
address the issue of disease management in a capitated 
environment. We have got a capitated disease management project 
for which we put a solicitation out on the street. Under this 
project, we would be paying a 100 percent risk-adjusted 
capitated rate to organizations that take on the responsibility 
for patients with specific diseases and coordinate the care for 
those patients.
    This project is actually designed to overcome two barriers 
that currently exist in the Medicare+Choice program. One is 
that, as of now, only 10 percent of the payment rate is risk-
adjusted, which means that plans that attract more chronically 
ill beneficiaries who are going to be more expensive face a 
financial penalty if they do so. So this capitated disease 
management will involve 100 percent risk-adjusted payment rate 
to be able to adjust the payment to suit the enrollee 
population more appropriately.
    The other is that the current rules prohibit plans from 
specializing in enrollees with certain conditions. Under the 
capitated disease management project, we will waive that 
prohibition so that we will be seeing plans that are able to 
specialize in particular groups of beneficiaries that they feel 
they can treat more effectively.
    We have also got a project that will do the same thing for 
patients with end-stage renal diseases. We are currently in the 
process of evaluating the proposals that we have received in 
response to our solicitation.
    In the future, we plan to piece all of these projects 
together in order to develop a new role for Medicare as of more 
aggressive purchaser of health care for its beneficiaries. We 
want to achieve better coordination of care. We want to be able 
to collect information, to be able to measure and disseminate 
information on quality, and we want to be able to eventually 
pay for quality of care. All of these pieces fit together in 
order to try to fit into our efforts to make Medicare a better, 
more aggressive purchaser of health care, to be able to provide 
better care for our beneficiaries.
    Thanks for having me here, and I will take questions at the 
appropriate time.
    Mr. Steinwald. We will hold onto the questions for a little 
bit. Now we will hear from Mark Miller from MedPAC.

STATEMENT OF MARK MILLER, EXECUTIVE DIRECTOR, MEDICARE PAYMENT 
              ADVISORY COMMISSION, WASHINGTON, DC

    Mr. Miller. I would also like to thank Senator Craig, 
Senator Breaux, and the members of the Committee for holding 
this forum. I am the Executive Director of the Medicare Payment 
Advisory Commission. As probably many of you know, we make 
recommendations and put analysis in front of the Congress in a 
couple of reports during the course of the year.
    I am pleased to be here this morning to discuss the role of 
disease management and coordinated care. But the forum comes at 
sort of an awkward time for us. We have just begun our work on 
this issue, looking at disease management and how you integrate 
it into the traditional Medicare program. What I can say at 
this point is that the Commission believes that these programs 
do have promise to improve the quality of care for Medicare 
beneficiaries, but there are a number of questions that need to 
be addressed. As part of my talk today I am going to discuss 
those issues.
    I will try and walk through our work plan and the questions 
that I think are outstanding. You can think of the questions 
that we are going to address in the following way: This is 
summarized, of course. Issues of targeting the program to 
beneficiaries most likely to benefit from them; the notion of 
defining the relationship between the physician, the 
beneficiary, and the program; aligning payments to program 
objectives; and measuring the effectiveness of the program. 
Many of the things that I am going to say coincide with what 
Stu has said, so some of this should sound relatively familiar.
    Our analysis is going to approach this in a couple of 
different ways. We are going to look at Medicare claims data. 
We are going to look at Medicare beneficiary survey data. We 
are going to review the literature on disease management. There 
we are also going to work with stakeholders out in the field to 
gather information on what the state-of-the-art is out there.
    The reason that I think this issue attracts policymakers 
and the Commission's attention is that when you look at fee-
for-service, and some of these statistics are going to sound 
familiar, you see things like 5 percent of the beneficiaries 
account for about half of the expenditures in Medicare; in the 
case of congestive heart failure, 14 percent of the 
beneficiaries accounts for 40-some-odd percent of the 
expenditures; beneficiaries with three chronic conditions or 
more account for more than 80 percent of Medicare expenditures. 
I think it is statistics like these that capture policymakers' 
attention and make them want to think about how disease 
management models can be applied to traditional Medicare.
    What the Commission is interested in is how disease 
management can improve the delivery and coordination of care, 
whether it can maintain or improve the quality of care and 
functioning of patients in Medicare, and whether it can reduce 
program and beneficiary expenditures.
    Disease management comes in a lot of different varieties 
and has a lot of different ways that it approaches the issues, 
but fundamentally, beneficiaries who are either high-cost are 
targeted--or you target beneficiaries who are either high-cost 
or expected to become high-cost, and then you engage in things 
like coordinating care, patient education, monitoring signs and 
symptoms, assuring that the patient follows their treatment 
regimen, and then ultimately help the physician practice 
evidence-based medicine.
    There are a number of populations that MedPAC is going to 
focus on in its analysis. We are going to look at the claims 
data to identify beneficiaries that have certain conditions. 
These are the conditions that disease management programs are 
usually designed for, now in the non-elderly population: 
congestive heart failure, diabetes, end-stage renal disease, 
conditions like that. But we are also going to try to look at 
the population and determine whether we can identify 
populations that have conditions that lead to more serious 
conditions. So, for example, we will look at chronic kidney 
disease because that is the precursor to ESRD.
    A couple of other sets of beneficiaries that we will look 
at are beneficiaries with multiple chronic conditions and 
beneficiaries who are high-cost as identified through claims 
analysis. The notion here is that if you can identify a 
beneficiary who is already expensive or has chronic conditions, 
the question becomes, does it still present an opportunity for 
disease management to have an impact either on their quality of 
care, or the program or beneficiary expenditures.
    Two other populations that we are going to look at are dual 
eligibles, beneficiaries who are eligible for both Medicare and 
Medicaid, and beneficiaries at the end of life. Expenditures in 
the last year of life in the Medicare population obviously 
account for a lot of expenditures in Medicare in total.
    We are looking at these populations, and a broad-brush they 
can be identified, they are often growing, they account for 
large blocks of expenditures, and either have conditions that 
could benefit from evidence-based medical care, or 
alternatively from better coordination of their care.
    What I would like to do with my remaining time is walk 
through a couple of policy issues. This list is not exhaustive 
and I think in many ways overlaps with Stuart's list. There are 
issues of targeting, which I have already mentioned. I have 
tried to identify for you at the macro level the kinds of 
beneficiaries that we are going to focus our analysis on. But 
we also need to get inside disease management programs because 
they also target within those populations. So you may have a 
set of diabetics, rank them according to their risk, and have 
different interventions for different levels of risk. There are 
issues like that that we think need to be explored and put 
before the Congress.
    Stuart touched on this issue as well. We think that the 
physician's role is absolutely critical. If the physician is 
involved and accepting of these programs, these programs have a 
much greater degree of success. But a physician's involvement 
can be thought of as a continuum. You can think of consulting 
with the physicians at the front end to create protocols, 
making them aware of the program, but have the disease 
management program delivered by other professionals such as 
nurses. Or you can try and build your disease management model 
around the physician, have the physician target the patient, 
educate the patient, and so forth. Most often what occurs in 
the field is that physicians are consulted and know about the 
program but the programs are delivered by nurses. But as I 
said, it is important to have the physician's buy-in.
    There is a set of questions that involve the beneficiaries. 
I will not go through all of them, but one key question will be 
whether these programs should be designed as opt-in or opt-out 
programs. An opting-in program maximizes the beneficiaries' 
choice. They can choose whether they want to go into the 
program. An opting-out program is where the beneficiary is 
identified as a candidate for the program but chooses to get 
out of it. There the notion is that you may have a greater 
ability to capture a population that might be affected by 
disease management.
    Payment issues are huge and I am not going to go through 
all of them but a couple of issues are: who should get paid, 
what should be the size of the payment, what services are 
expected in exchange for the payment, and then finally, whether 
the disease managers bear any risk at all. Currently in the 
field, if a disease management organization accepts risk it 
accepts it only for its administrative fee. It does not accept 
insurance risk, at least that I am aware of.
    There are also some administrative issues. These include 
questions like what entities in traditional fee-for-service 
would be delivering the disease management. Will it be 
physicians, group practices, disease management organizations, 
managed care plans, that type of thing. Next there is the issue 
of data. Programs will have to start with Medicare claims data, 
which is not unreasonable, but there are questions about how 
the data have to be enriched. The timeliness of the data will 
be important in order to support these programs.
    Here I am mostly talking about delivering data to whatever 
entity is administering the disease management. There also 
other data issues obviously.
    The very last issue I will mention, and again Stuart has 
already done this is, the notion of measurement and 
accountability. It becomes very complicated--within a 
demonstration environment you can do things like identify a 
control group. If you have a national program, how you measure 
success will become a little bit more difficult if you do not 
have a clearly defined control group. It is not impossible but 
it becomes more difficult.
    Then finally, some of these programs have to have a time 
period in order to demonstrate results and there is a question 
about how much time should elapse before you should expect to 
see results in terms of quality or savings, if they 
materialize.
    With that, I look forward to your questions.
    Mr. Steinwald. Thank you, Mark. Now let us hear from a non-
fed, Jeff Lemieux.

    STATEMENT OF JEFF LEMIEUX, CENTRIST POLICY, NETWORK AND 
          PROGRESSIVE POLICY INSTITUTE, WASHINGTON, DC

    Mr. Lemieux. Thank you. Ex-fed, I guess. My name is Jeff 
Lemieux and I work for a small startup think tank called 
Centrists.org, and I also work for the well-established 
Progressive Policy Institute. I would like to echo Stu and 
Mark's thanks for the Committee members inviting us here to 
talk about disease management and Medicare.
    Let me start with a few theoretical comments and then move 
to the disease management and chronic care initiatives in the 
Medicare bills that are being negotiated in conference 
committee, and to some thoughts about how those might come out 
and what impacts they might have.
    The Progressive Policy Institute definitely agrees that 
finding better ways to treat people with chronic illnesses is 
the next great challenge in health care delivery, and that any 
new benefits or other changes in Medicare should work toward 
better chronic care and be consistent with chronic care 
improvements.
    There are two main approaches to chronic care. One is a 
disease management approach where an organization targets 
people with a particular ailment and reaches out to them and 
their families and their health care providers with 
information, with self-care initiatives, home monitoring, and 
things like that. Then there are more intense case management 
services for people with multiple chronic illnesses where they 
literally need to have a health provider, a physician or a 
nurse or a doctor's office taking charge of their care, 
coordinating their care with community services and with 
various health providers to try and avoid duplication and avoid 
health providers working at cross-purposes.
    In economic theory, comprehensive health plans like HMOs 
generally have a good incentive to provide excellent chronic 
care services. They can evaluate investments in chronic care 
improvements and make tradeoffs. They may be able to spend more 
money on improving a patient's compliance with medication 
regimens on one hand, so they can save money on 
hospitalizations on the other. They can evaluate payoffs from 
improving chronic care services.
    Now in general, traditional fee-for-service in Medicare 
does not have this easy way of making tradeoffs. Medicare's 
benefit contractors are separated into different silos. We have 
Part A contractors that pay for hospitalization, Part B pay for 
outpatient services, and if we pass this Medicare bill we will 
have a Part D to pay for drug benefits for at least most 
beneficiaries. It is awkward for each of those contractors to 
say, if I invest more in chronic care services within my area, 
someone else will get the payoff. So that is a problem in fee-
for-service.
    Besides encouraging HMOs and PPOs to join or rejoin 
Medicare, the House and Senate prescription drug bills address 
chronic care in the fee-for-service program with two basic 
approaches. The first approach is highlighted in the House bill 
where instead of having demonstrations they would move to a 
complete, full-fledged program for disease management that 
would encourage disease management providers, organizational 
entities, to come forward and contract with CMS. They would 
also break the country up into separate chronic care 
improvement areas where the administration of this program 
could be devolved down more to the local level. I will get back 
to that in just a second.
    The second approach is something that was highlighted in 
the Senate's complex care demonstration program which would 
establish--the program as written in the law is vague but I 
think as it is coming out of the conference committee it would 
establish--essentially pay for performance procedures like both 
Mark and Stuart talked about, which would attempt to reimburse 
physicians in a way that I will talk about in just a minute.
    Before I get to the details of the conference agreement, 
let me go back and just mention this idea of experimenting in 
lots of different ways. No health policy analyst can really say 
we know how to improve chronic care. Even the clinicians, who 
know much more about it than certainly I do, do not have a 
magic answer to the chronic care problem. So I think the theme 
of everything we do in Medicare should evolve around 
experimentation, especially localized experimentation close to 
the health providers and the problems of local communities, and 
evaluation where organizations like GAO and CBO and MedPAC and 
other groups spend a great deal of time trying to figure out 
what works so that local areas can do what works and avoid what 
does not.
    Back to the conference agreement. There is some progress 
moving toward trying to go beyond just the standard disease 
management organization approach to trying to find ways to 
compensate individual health care providers, especially in 
geriatrics, taking care of complex cases. The problem with this 
has always been a budgetary problem. If we provide additional 
reimbursements, how do we know we are going to get more and 
better health care as a result? Can we be sure as a public 
program that everybody is not just signing up for these extra 
reimbursements?
    What I think they are moving toward, which I think is a 
very good idea, is a situation where providers could enroll 
with local quality improvement organizations and say, ``Look, I 
will volunteer to make investments in chronic care, in 
information technology, and in working with my patients, and in 
return I will open the books for CMS and the local quality 
improvement organization to evaluate how this is going, so that 
CMS can really get a good idea of whether or not these programs 
are working.'' This is the sort of thing that I think can work 
in fee-for-service where you are not saying to one provider, 
you are going to get this reimbursement and denying it to 
another. It would be a partnership between the local 
organization and the provider.
    Whether or the conferees will stick with this localized 
structure that was in the House bill is unclear. There was also 
a big pool of funds in the Senate bill, and whether or not that 
will still be available at the end for chronic care 
improvements is unclear.
    Finally, I think the conferees will have to make a tough 
choice on whether or not they are going to emphasize 
straightforward disease management with the organizational 
approach or to invest a lot of time in this effort to try to 
find a way to reimburse physicians directly for chronic care 
services and then evaluate those very carefully for cost 
effectiveness.
    Thanks.
    Mr. Steinwald. Thank you, Jeff.
    Once again, I would like to remind you that we are 
accepting questions from the audience on cards and I encourage 
you to fill out a card if you have a question. If you would 
like the panelist to address a particular issue related to 
disease management, please avail yourself of this opportunity.
    OK, guys--we are a bit gender deprived up here today. Here 
is what I plan to do, if it is OK with you. I want to start out 
with directing the first set of questions to an individual but 
give every panelist the opportunity to weigh in. So I will 
start with Stuart, ask him a question and then by weighing in 
then we will get our dialog going.
    We are short on data about outcomes. We seem to be long on 
data about who the potential targets of disease management 
programs might be. We know what we spend and for what. We think 
that there is a population that could benefit, but the question 
is how to get to them and how to affect programmatic changes 
that yield the kinds of outcomes that we would like, both for 
the beneficiaries and for the program. Stuart, in your 
testimony you noted that some of the disease management 
demonstration programs to date have had some difficulty 
recruiting beneficiaries. I wonder what implications this might 
have for a broader disease management program under Medicare.
    Mr. Guterman. Actually I heard two questions there, one 
embedded in your preamble, so let me address both of them. One 
is in terms of enrolling beneficiaries, we found that they tend 
to be reluctant to sign up for programs where they are not 
familiar with the organization that is running the program. 
That is one of the reasons why the disease management 
organizations that have worked through the physicians have been 
much more successful in enrolling beneficiaries. But I think we 
are going to face that issue. Disease management is something 
that is different. Medicare beneficiaries particularly tend to 
be fairly reluctant to try new things unless they have a very 
well-established reason from someone they trust that it is 
going to work.
    We think as these things build momentum it will be easier 
to enroll beneficiaries. We are also trying to focus--one of 
the major things so far that we have learned from the chronic 
care demonstration is what people have done right and what they 
have done wrong in terms of how to enroll beneficiaries. We 
hope to take advantage of what they have done right and apply 
it in future efforts.
    You did mention outcomes, however, and--I guess there are a 
couple ways to describe our attitude going into this. One is, 
that is why we do demonstrations, to be able to get evidence on 
whether things we want to try out work and how they work. One 
of the things we will be looking at, clearly, is whether 
beneficiaries are better off, whether they think they are 
better off, whether they have better health outcomes under 
disease management.
    But the thing really preceding that is we are very excited 
about this because, as a couple of us mentioned, there is a lot 
of money on the table here, and it is hard to believe that we 
cannot do a better job than is currently being done. If 
beneficiaries see 13.8 physicians a year, different physicians 
in a given year, it is hard to believe that a system that 
emphasizes those physicians coordinating their care cannot do 
better than a system that currently does not provide any 
incentive for them to interact.
    Mr. Steinwald. Mark or Jeff?
    Mr. Miller. I think I would emphasize the notion that you 
have to have the physician at some level involved, because I 
think that beneficiaries will listen to their physicians. Also, 
it will help if the beneficiary views it as an additional 
service and something that they can benefit from. I do not 
necessarily have the answer, as to how that is communicated. 
Also I think that the beneficiary has to feel that in making 
this choice it does not somehow affect their benefits more 
broadly. I think they need to understand that before they will 
move towards it.
    Mr. Steinwald. Stuart, I am not picking on you, I am just 
going in order. The BIPA demonstrations are required to 
guarantee savings to the Medicare, as I recall, and that was in 
your testimony. One open issue is, what is a reasonable 
timeframe to expect savings from disease management programs to 
be realized? How is this all set up in the demonstration 
program so that you will know whether and when savings are in 
fact realized?
    Mr. Guterman. Under the BIPA demonstration, actually the 
terms were very explicit in the legislation so that we--and 
since it is a 3-year demo the assumption, I guess, of Congress 
was that we could see savings before the end of that timeframe. 
The thing is that the organizations that are participating at 
the three sites actually are quite enthusiastic about their 
ability to save money right away under this demo, partly 
because what they are focusing on is people with more advanced 
stages of the diseases that they are focusing on, and partly 
because the demonstration project gives them the ability to use 
drugs to help manage diseases. Pharmaceuticals have a major 
role in trying to manage some of these chronic conditions.
    So we expect to see savings right away. Now clearly there 
are some other circumstances and other conditions where the 
timeline would be different.
    Mr. Steinwald. Jeff.
    Mr. Lemieux. One of the things I just wanted to point out 
is that in the bills being conferenced, they all talk about 
budget neutrality, but they do not really define what the 
period of budget neutrality is. Some of them have pots of money 
available as if they assume that this will require some upfront 
investment to get a longer-term payoff.
    What I wanted to point out is that for these programs to 
work there is going to have to be a fair degree of stability 
that could have to last a long time. For example, I mentioned 
that HMOs, Medicare+Choice plans, have an incentive built in to 
provide good chronic care services only if they believe that 
those patients are going to still be enrolled two or three or 
four or five or six years down the road. If the program seems 
less stable or if they do not know what their enrollment will 
be or cannot guess it with some probability, then they will 
have less of an incentive to make investments in chronic care. 
The same thing would apply to disease management organizations. 
The stability and the length of the program, and knowing that 
Congress and CMS are behind these programs for a long period of 
time would be important in the investments they would want to 
try and make.
    Mr. Steinwald. Thank you. Mark, you mentioned targeting 
several times. I have got a two-part question for you. One is, 
if you rely on program data, claims and other program data, 
what is the lag between the time that a beneficiary develops 
the conditions which might be suitable for participation in a 
disease management program and the time in fact the program can 
identify them?
    A second related question is, is there any reason why we 
could not identify these people upon enrollment to the program? 
Do we know what proportion of those with chronic conditions 
have them upon enrollment, or are they developed after 
enrollment?
    Mr. Miller. In terms of targeting, I think the claims data 
gives you the starting point and you can look at diagnoses and 
services used. If that is given to a disease management entity, 
they can often start with that population and drill down and 
gather additional information to sort out who is at risk. That 
is some of what they do. So that is one point.
    I think that a person does not necessarily have to have an 
acute episode in order to be identified, if a person is going 
to a physician and their comorbidities are put onto physician 
claims. I know there have been some issues with the diagnosis 
codes on physician claims but they do seem to be getting 
better. Even before they hit a hospitalization for a diabetic 
event you might be able to pull that person out of the data. 
But the administrative data is fairly clumsy. It is not 
impossible to do that, but it is a clumsy way.
    But I do believe that it offers information to begin to 
identify populations, and I think it is probably not all that 
different than what disease management organizations in the 
non-elderly sector start with, except that those databases 
often have drug data in addition to this and that can be an 
indicator.
    As to enrollment, I think if you listen to disease 
management organizations--and I am not saying that this is my 
view--if they will tell you that you can discern a lot of 
information in a conversation with a beneficiary just about 
their home situation, what kinds of drugs they are taking, how 
they are feeling. I mean, literally whether they are feeling 
depressed and those types of things. One would argue that 
perhaps when somebody is enrolling in Medicare you could do 
something like that. But I think there is a real issue of 
resources if you are going to do that for every person who is 
enrolling into Medicare, and there may be issues of privacy.
    Mr. Guterman. On the use of data, I think that is one of 
our major challenges. I think that is clearly something we are 
going to have to deal with. As we develop future projects we 
are trying to figure out better ways to get a hold of our own 
data faster so that we can use them more effectively to 
identify beneficiaries who would be more amenable to this kind 
of approach.
    But if you look at the data, there are still--these are 
chronic illnesses. They are not acute illnesses. So even under 
current conditions you can still capture a lot of manageable 
time with a condition with the data we have. So I think there 
is always an incentive to get better and to capture these 
beneficiaries before their first spike, the first serious 
hospital admission. But even if you wait until the clinical 
data are in through the claims system as it stands now, you can 
still capture these people for a long enough time that you can 
use to manage their conditions better than they are being 
managed.
    Mr. Lemieux. I just wanted to say, Mark's comment about 
drug data I think is extremely important. It is a little bit of 
water under the bridge, but the idea of having a drug benefit 
under which virtually every Medicare beneficiary has a card 
with electronic transfer of information would be a pretty good 
early predictor of people with certain conditions that CMS 
could turn around very quickly.
    I just also wanted to mention the importance of physicians 
in the community knowing about these programs and being able to 
refer their patients at that point.
    Then finally, consider for patients with multiple chronic 
conditions. These are the most expensive patients, the patients 
most in need of having care coordination. Even the lagged 
claims data that CMS currently has is going to be able to point 
out these people. Maybe not in time to do a lot of prevention, 
but certainly in time to do some management and care 
coordination.
    Mr. Steinwald. Let me follow up on the matter of the drug 
benefit. Mark, in your view, and others as well, if the 
Congress passes a prescription drug benefit, does that heighten 
the need for or the potential benefit from disease management?
    Mr. Miller. I do not know that it heightens the need. I 
think it gives two additional tools to a disease management 
effort. He provides data that you can use to identify patients, 
just as Jeff and Stuart just said, and it is one of the tools 
that disease management organizations use to manage patients.
    Mr. Steinwald. Jeff, in your testimony you observed that 
disease management is ideal for an integrated care environment. 
But you also observed that so far Medicare+Choice plans have 
had mixed success in implementing disease management. Would you 
elaborate on that? Why is that? Should we be more or less 
optimistic about disease management in an expanded managed care 
proposal as envisioned in the Medicare reform bills?
    Mr. Lemieux. Let me take off that very last clause, as 
envisioned in the Medicare reform bills and just speak a little 
bit more theoretically. I think that the HMOs and 
Medicare+Choice, and even to some extent looser managed 
integrated health plans like PPOs, if they have the full range 
of benefits available, if they can afford to provide the full 
range of benefits under the Medicare system, then they can 
initiate programs that would in fact involve tradeoffs. 
Investments in home monitoring, investments in compliance with 
drug regimens, and so on, can pay off in other areas. I think 
that is a powerful investment.
    I think that over the last five to 10 years the 
Medicare+Choice program has been volatile enough that only some 
of the plans are making these investments. Some feel as though 
they have a stable enough situation in Medicare that it pays to 
make investments in a big way. Others rushed into the program 
in the mid-1990's to take advantage of what were perceived to 
be favorable reimbursement rates. When the reimbursement rates 
turned unfavorable, they left just as quickly. So it has not 
been a stable place where an executive of these plans can say, 
look, we can make investments that will pay off five and 10 
years down the road because we are in this market for good.
    Now in another semi-theoretical point, if we were to go to 
a working competitive system that encouraged private plans to 
enter Medicare, we would probably also benefit by giving the 
Government-run fee-for-service plan more flexibility. If it 
turned out, under a competitive, say, premium support system, 
that these private plans were more efficient than the 
Government-run plan, then Congress would be sure to give 
Medicare the sorts of flexibility that it needs to compete with 
them. This could be a win-win situation.
    Whereas, if we had a stable place for the private plans, 
they could do disease management better. If we had a more 
flexible situation for the public plans, the public plan 
managers could really go to work on this in a bigger way.
    Mr. Steinwald. Stuart.
    Mr. Guterman. As I mentioned in my testimony, there are two 
non-theoretical barriers that Medicare+Choice plans face now. 
One is that, currently plans, the rates that plans are paid are 
only risk-adjusted for 10 percent of their payment, which means 
that--and the rest of it is determined by a rate that is more 
or less geared to the cost of the average Medicare beneficiary. 
At least they do not get paid more for enrolling costlier than 
average Medicare beneficiaries. So we think that as we 
transition to a fully risk-adjusted payment rate that will 
provide the financial cover for plans that engage in programs 
that make them more attractive to chronically ill beneficiaries 
and remove the current financial disincentive for them doing 
so.
    The other is that in the capitated disease management 
project that we have got on the street, the other feature is 
that we are trying to encourage plans to specialize in groups 
of beneficiaries that they can deal with most effectively. We 
think that giving them that kind of leeway will allow us to see 
how the demonstration works out, and it might also open up the 
Medicare+Choice environment- or whatever it involves into--to 
being more open to disease management.
    Mr. Steinwald. Jeff, in your testimony you suggested that a 
national disease management program should have a degree of 
decentralization. Why do you believe that Medicare's 
centralized structure hampers coordinated care? What do you 
think are the tradeoffs between a centralized and decentralized 
program?
    Mr. Lemieux. I do not have any evidence. It is a 
speculation. But I think it is a speculation that is based on a 
decent logic. Different areas of the country have different 
issues that might be the most important issues. In certain 
parts of the country, diabetes might be extremely important. In 
other parts of the country, the most important disease 
management might be remote monitoring and communications in 
rural areas.
    So it just seems to make sense to me to do as much as we 
can in Medicare to get local Medicare officials, administrators 
and clinicians, medical directors, on the ground in as many 
different localities as possible to see what is available, to 
see what the local hospitals and clinics and community 
organizations can do, and to try and coordinate those efforts 
locally rather than through headquarters.
    That is not a knock against headquarters. Headquarters has 
enough to do. I am advocating that we expand Medicare's 
administrative capability to include a local administrative 
component that would be specifically charged with working the 
chronic care and disease management angle so that it would just 
be better able to find out what is available and try as many 
alternatives as possible and then evaluate them to see what 
works.
    My feeling is that if we put an administrator in northern 
Louisiana and another one in southern Arkansas, and the 
northern Louisiana folks could show dramatic improvements in a 
variety of areas, and the people in southern Arkansas were not 
doing very much, then we could take a couple people from 
northern Louisiana and put them in Arkansas. In other words, 
just see what works in different areas and let the areas almost 
compete against each other to try and make progress in these 
areas.
    Mr. Steinwald. Mark or Stuart, any reaction to that?
    Mr. Miller. I think this goes back to Jeff's earlier 
comment, along the lines of creating a stable environment for 
plans and giving greater flexibility to the traditional program 
in order to administer these types of programs. I think that is 
an issue that is key if they are going to have any success.
    Mr. Guterman. On the issue of doing things at the local 
level, all of the disease management organizations that are 
participating in our demonstration projects have specified 
service areas. We recognize that it is necessary to work pretty 
close to the ground to be able to perform disease management. 
We anticipate that even if we ended up getting to the point 
where we could apply this program-wide it would still be 
locally administered in terms of actually doing the disease 
management, and maybe centrally administered in terms of 
coordinating the different areas.
    Mr. Steinwald. Thanks. Those are my initial questions. Now 
I would like to turn to questions from the audience, if that is 
OK. We still have an opportunity, if anyone would like to ask a 
question, write it on a card and send it forward. We can still 
accept them. Keep those cards and letters coming, please.
    To what degree is the goal of disease management--by the 
way, I think every one of these questions is directed to the 
panel, so anybody who wants to, jump in. To what degree is the 
goal of disease management cost reduction? Is there a cost-
quality tradeoff in disease management?
    Mr. Guterman. I can take that. I have frequently been 
asked, is the purpose of this to provide better care and 
perhaps save money, or to save money and perhaps provide better 
care? My answer is, to provide better care and perhaps save 
money, although I think it that we can do both. We have got 
possibilities, an area under the possibilities curve where we 
are where I think we can improve both in terms of coordinating 
care better and providing better quality care for beneficiaries 
and in saving money. In fact, they are not necessarily even 
tradeoffs because--let me give you an example.
    If a person with congestive heart failure goes to his 
cardiologist and gets a blood-thinning medication and then 
feels light-headed and goes to his internist to get a blood-
thickening medication, that is neither good for the patient nor 
is it good for the program. If the person ends up in the 
hospital it ends up being a major expense for the program. If 
we could have avoided that conflict and avoided that 
unnecessary utilization, then we would make both the program 
better off in a purely fiscal sense, but also, more 
importantly, make the patient better off because they would not 
have had to go through the illness in the first place.
    Mr. Lemieux. Just a quick comment. Your question points out 
what was so interesting about the $6 billion pool of money that 
was put in the Senate bill. It started in 2009, and if at that 
point we had done enough experimentation to know that we had 
lots of ways to do disease management and chronic care that did 
save money or that were budget neutral, we could continue 
those. But if we found some that were not budget neutral, or 
that we could not prove were budget neutral but they still 
seemed like very worthy initiatives that were really good for 
beneficiaries and good for the program, then that pool of money 
would allow those to continue, which is an interesting idea.
    Mr. Miller. I think this is the kind of question that 
ultimately has to be answered, in my instance, by the 
Commission. It is not an answer that I can give. But I think a 
way to think about the question for the Commission and the 
Congress ultimately is, if all of these things improve quality 
but did not raise costs any more, they would probably still be 
interested in moving forward with them. That would be my sense.
    Mr. Steinwald. This is a longer one so pay attention. The 
private sector (insurers and corporations) for the working age 
population seems to be moving away from the disease management 
approach with the exception of congestive heart failure. They 
seem to be finding that disease management does not save money. 
First, do you agree with this characterization of the private 
sector experience? Second, what makes us think that Medicare's 
experience will be any different?
    Mr. Guterman. This issue has come up, and I am no expert as 
to what is happening in the private sector but I will cite some 
testimony that was actually made before MedPAC, I think at 
their last meeting when Glen Mays of the Center for Studying 
Health Systems Change pointed out that there was a lot of 
excitement in the private sector about disease management but 
that there was relatively little evidence that it saved them a 
whole lot of money at this point. You probably would want to 
look at, for those who have become disenchanted, with disease 
management, what they did and why they became disenchanted.
    But I will address the issue of what makes Medicare 
different because I think that is a very important distinction. 
I think Medicare has two big advantages. One is that the 
chronically ill population is a very large chunk of our 
beneficiary population, and a growing one. So I think we have 
the mass there to make it more worthwhile to devote some effort 
to figuring out how to deal with those chronic illnesses 
better.
    The other is that unlike private plans which have enrollees 
for maybe a year or two at a time, we have them for life. So we 
can make the kind of investment that it takes to really get 
these programs to work because we have a longer timeframe where 
we know that we will be the recipient of the benefits, to the 
extent that there are financial benefits, and to the extent 
that there are benefits in terms of improved treatment of our 
beneficiaries.
    Mr. Miller. I was going to say that I think the experience 
in the private sector has been mixed. I agree that there is 
no--I think I say that both in the testimony and I think this 
came out at our public meeting--there is no clear evidence that 
it saves money. I think there has been a mixed experience. I 
think some of our work in going out and talking to stakeholders 
is to try and get a feel for some of that, why some of them 
went into it, why some of them walked away from it, if we can 
identify those people. The other part of my answer was going to 
be what Stuart said, you do end up with the beneficiary for a 
longer period of time in Medicare.
    Mr. Steinwald. Could you discuss the role that e-health 
currently plays in disease management, and how it could be 
better utilized in the future?
    Mr. Guterman. E-health is a very interesting subset of 
this. I believe that disease management organizations can use 
e-health to improve their ability to manage conditions for an 
enrolled population. We have in fact got a demonstration 
project underway to look at it the impact of better 
communication and computerized communication techniques to 
manage populations.
    But it has been asserted that we should pay for those 
services, because after all how much does an e-mail cost and so 
many physicians have found e-mail to be a very effective way of 
communicating to the populations. The answer is simply that we 
have found that if you pay for it, it will happen. It will not 
be restricted to e-mails that are tremendously productive.
    So our approach right now is to encourage disease 
management organizations to use whatever methods they can 
without specifying what methods they should use, so that they 
have the freedom to put together a package that is successful 
for them, and to just put them at risk for, in most cases, for 
some part of their fee or their whole fee and let them deal 
with the consequences.
    Mr. Lemieux. I was just going to add, in addition to 
communications through e-mail, it seems like it would be 
important to try and use these programs to leverage the 
creation of electronic medical records. It could be a 
requirement on the part of patients wishes to enroll in these 
programs and getting additional benefits and services, then you 
have to have had developed for you an electronic medical record 
that you keep. Or it could be part of the physician's 
responsibility in one of these programs. But using these 
initiatives to spur the creation of electronic medical records 
to prevent duplication or working at cross-purposes would be a 
nice outcome if it could be arranged.
    Mr. Guterman. Actually, in response to Jeff's comment, 
there is a tremendous amount of interest, not only in CMS but 
throughout the Department of Health and Human Services, in 
improving the state of information technology in the health 
care sector. We are actually trying to develop some projects 
where we can combine the advances in information technology and 
the ability to manage people with chronic conditions. The 
physician group practice demonstration is one example of that, 
where all of the sites in that demonstration will be large, 
multispecialty group practices with pretty sophisticated 
information technology systems. We think that that is something 
that eventually is going to really be a big help in trying to 
manage people with chronic conditions as well.
    Mr. Steinwald. Here is a question about nutrition, although 
I think it maybe could be enlarged a little bit to include the 
treatment of potentially beneficial services that are not 
currently benefits. The specific question is, nutrition is not 
typically incorporated into disease management protocols even 
though it has proven to be cost-effective. How will nutrition 
be incorporated into disease management programs? As I say, we 
could enlarge that to include other kinds of services that are 
not typically covered.
    Mr. Lemieux. This brings up the same point that Stuart just 
made on e-mail. If you provide payment for it, lots of it will 
happen. This is why it is so important to make sure that these 
initiatives are tightly controlled and evaluated, and that they 
involve some investment on the part of the providers or the 
patients or their families, so that it is not just a new fee 
that Medicare is going to pay that does not really turn out to 
change much clinically on the ground.
    Mr. Steinwald. If you build it and pay for it, they will 
come.
    Risk adjustment. How effective are risk adjustment methods 
for Medicare beneficiaries, and have they ever been implemented 
with any success in disease management models?
    Mr. Guterman. Let me address the first part of that, as I 
understand it. We are unveiling a new, improved risk-adjustment 
methodology beginning January 1 in the Medicare+Choice program. 
It is going to be applied to 30 percent of the payment rate for 
Medicare+Choice plans. We think that it does pretty well in 
capturing the higher cost of riskier beneficiaries. We are 
going to continue trying to improve that approach, because 
there are always questions of how precise you have to be, and 
there are always limits on how precise you can be in terms of 
predicting each individual's cost.
    But we think it overall makes the system much more amenable 
to having payment reflect the populations that are actually 
enrolled in various Medicare+Choice plans. We think it is 
important, particularly in Medicare+Choice, in encouraging 
plans to do more disease management because, as I said, right 
now there is a fairly substantial penalty potentially for 
attracting beneficiaries who are chronically ill.
    In terms of the fee-for-service side, I do not know 
particularly of any risk-adjustment applications. I have heard 
of disease management organizations stratifying enrollees with 
particular conditions. So they will take a congestive heart 
failure patient and they will group them into stages and charge 
a higher fee for managing patients who have more advanced 
stages of their condition. That is a sort of risk adjustment. 
But we are not planning to formally apply risk adjustment 
beyond anything like that to our fee-for-service disease 
management projects.
    Mr. Miller. Actually I do not think I have much to add to 
that. That is what I was going to say. Within the capitated 
plans you have the issue of risk adjustment, and I am not aware 
on the fee-for-service side in the private sector specifically 
beyond the tiering of risk among patients with certain 
conditions. So I am not sure I follow the question.
    Mr. Lemieux. Maybe the question is, can risk adjustment 
really ever work? Because there is a group of people who are 
skeptical that it is really going to work well, and a group of 
people who are very optimistic that it will continue to get 
better and better and less burdensome for the health plans and 
more predictive.
    Certainly drug data, if we had it in Medicare, might be 
able to help risk adjusters a little bit, and maybe 
significantly. I think that any time we are looking forward to 
additional use of private health plans, or if our disease 
management organizations turn toward extensive case management 
and near capitation or partial capitation, then we will have to 
have good risk adjusters.
    In the past, the health plans have viewed risk adjusters 
as--in mid-1990's they felt as though a risk adjuster might not 
be so good for them because they felt as though maybe they had 
healthier than average patients. Then the risk-adjusters got a 
reputation in the community for being very burdensome and also 
being coupled with other formula changes that would reduce 
private health plan payments, so there became a fear factor.
    No one knows but it seems probable, just looking at the 
marketplace, that the enrollees of private health plans have 
gradually moved toward something that is very close to a 
neutral risk with respect to comparisons with the fee-for-
service program. I think if health plans will get over their 
fear factor a little bit, begin to really embrace risk 
adjustment in the coming five to 10 years as they realize that 
it could be to their advantage.
    Mr. Steinwald. Just to follow up, what about instead of 
risk adjustment, risk assumption? A number of the disease 
management models involve the assumption of risk by some entity 
who presumably performs services for a fee or a capitation. Is 
that essential in your view, to make disease management work in 
Medicare, or is that just one of several models?
    Mr. Guterman. I think, another way of putting risk 
assumption is that you are paying these organizations a price 
for managing the beneficiaries that they work with, and that if 
they are going to do that effectively I think they have to have 
some incentive to be able--some responsibility for the outcome 
of what they do. In return for that, I think we would rather 
not be very prescriptive about what they do to manage the 
conditions as long as it leads to better care.
    So I think it is a less intrusive way to give the 
organizations the freedom to do what they do, and of course, 
protect the program, but also to put the responsibility with 
the organizations that are doing the disease management.
    Mr. Miller. The hard answer of yes or no, the way you put 
the question, would be one that I would have to have the 
Commission opine on, but I certainly think that it would be one 
of the models that they would want considered in fee-for-
service.
    Mr. Steinwald. We have a couple of questions here that 
relate to the Medicare bill and the Medicare conference. Jeff, 
they are both directed to you although I am sure Mark and Stu 
will want to weigh in. What are the best and worst disease 
management proposals in the house and Senate bills?
    Mr. Lemieux. They are all good. They are trying really hard 
to do the right thing. It is not easy. Fee-for-service is not 
naturally amenable to chronic care. But the House bill, as I 
said, has a permanent program with a regional evaluation and 
organization structure that seems very promising. It is more 
dedicated toward organization disease management than 
individual physician disease management. The Senate bill is 
moving toward, or has at least one component that would create 
a large demonstration that would involve individual physician 
or clinic-based payment systems. As I mentioned, I think they 
are working with CMS and others to try and figure out how best 
to do that so that physicians can actually enroll and be 
monitored so that we will be sure that these programs were 
achieving a good cost-effectiveness.
    But I think they are doing exactly what needs to be done, 
which is experimenting in as many ways as they think might be 
workable and then trying to evaluate them very carefully and 
see what works, because we cannot sit down and write a law that 
will be the right law, but we can try lots of different things 
and see what happens.
    Mr. Steinwald. Given that the conference will need to 
reconcile the House and Senate approaches, where would you like 
to see that come out, within the realm of political 
feasibility?
    Mr. Lemieux. Personally, I think that the more investment 
we try to make in this area is probably a good idea. So I would 
try and take the House's proposal for a permanent program 
instead of the Senate's demonstration for organizationally 
based disease management. I think with the right safeguards, 
the Senate's physician-based disease management program could 
also be included.
    As I mentioned before, the extra pot of money that they put 
in at the last minute in the Senate after 2009 is also very 
intriguing. It would give the flexibility to continue some 
programs that did not necessarily save money, but that could be 
very effective from a clinical point of view, and that might be 
worth considering.
    Now the flip side of all this is that the bills already 
probably cost a lot more than $400 billion, which was the 
ostensible limit, so not all these things are going to be kept 
in the bill. I would just hope that disease management is one 
of the things that they do try to emphasize.
    Mr. Steinwald. A follow-on to that though is, given the 
fact that the demonstration programs currently underway have 
not yielded findings yet, is it not somewhat premature to be 
enacting such a large-scale continuation of demonstrations or 
even programmatic changes? That is for all of you.
    Mr. Miller. The only thing I would say about that is that 
our analysis is headed toward the June 2004 report. If they 
have acted prior to that point then I think our research agenda 
will be how to make these programs work. For our organization, 
we would just turn to that type of analysis as opposed to the 
analysis that we are doing now which is exploring the 
landscape.
    Mr. Steinwald. Of course, the conference might still be in 
session in June 2004.
    Mr. Miller. I just want to be clear that you said that. 
[Laughter.]
    Mr. Lemieux. You have to consider the alternative. If the 
alternative is to not try to make changes in fee-for-service 
Medicare and to allow fee-for-service Medicare to continue to 
be a payer that is essentially blind to how things are working 
out, and that allows uncoordinated care to flourish, and that 
does not compensate coordinated care very well and the extra 
efforts that are needed, that is not really a tenable situation 
in the long run. So the investment that we make now to try to 
teach fee-for-service how to better manage its care and be more 
like a private health plan, in a sense, that is a good 
investment.
    Mr. Steinwald. Let us take a different tack. Here is 
someone that is thinking outside the box. We admire that. Is 
there any evidence that disease management in Medicare fee-for-
service could reduce variations in practice patterns across the 
country? Should this be a goal?
    Mr. Miller. I am not aware of any evidence in the 
literature that would drive it to reduce the geographic 
variations. Arguably, to the extent that there is evidence-
based medicine and that becomes much more widely understood and 
practiced, in theory it might have that outcome. But I am not 
aware of any evidence that I could cite that it actually does 
that.
    Mr. Lemieux. Let me just throw in that the goal of having a 
decentralized evaluation structure is precisely to drive that 
change, to force people to look at different regions of the 
country and see what they are doing right and wrong, and try 
and mimic those successes and avoid the failures, in a more 
systematic way.
    Mr. Steinwald. We have not talked a lot about models from 
other programs. What about Medicaid in its primary care case 
management demonstrations, and even its less well known cash 
and counseling demonstrations? Are there any lessons there for 
Medicare? Are these models applicable to Medicare?
    Mr. Guterman. I am far from an expert on the Medicaid side 
of it, but my understanding is that at least some of the 
programs are fairly excited about what they are experiencing in 
terms of improved results, and savings as well. Certainly, we 
need to consider what the Medicaid program is doing in order to 
apply to Medicare. In fact there is some overlap because some 
of the projects that we have got in development are 
specifically designed to look dually eligible Medicare-Medicaid 
beneficiaries.
    Mr. Steinwald. Anything that constitutes low-hanging fruit? 
Let us say from the experience of private sector programs, if 
we could figure out a way to fit it into Medicare that would 
almost certainly yield benefits to beneficiaries and/or the 
program, in particular certain disease areas? I suppose the 
ones that were selected for demonstrations were selected for a 
reason.
    Mr. Miller. I think that the private sector has gone after 
specific conditions like congestive heart failure, diabetes, 
end-stage renal disease because one of the ways that they can 
actually have a benefit relatively soon is to forestall 
hospitalizations that are associated with those conditions. 
Hospitalization are expensive and they see that as a way to get 
savings and improve the quality of care for the beneficiary.
    I think your point stands. It is those programs that are 
most common because I think they believe that they are the most 
approachable on the admissions and most clear where there is 
evidence-based medicine to guide the decision.
    Mr. Guterman. Actually, I would point out a private sector 
program that has hit the street already called Bridges to 
Excellence where General Electric and Verizon and Federal 
Express and several other large employers have collaborated. 
They are currently operating in, I believe, Cincinnati, in the 
Cincinnati-Louisville area. Their broader plan is to have three 
components, and this brings in the IT component as well. They 
are going to have an office system called physician office link 
where they are going to have physician practices sign up and if 
they meet certain conditions they will be willing to put money 
on the table for each patient that is enrolled that is a member 
of one of those employers plans. Then they also have separate 
components that they are developing for cardiac and for 
diabetes patients.
    We are interested in that actually and we have been talking 
to them about how we could adapt that kind of approach to 
Medicare. But it is clear that if these private employers are 
willing to put money on a table for better management of these 
conditions that they view them--the argument is convincing that 
they might reap some benefits from that.
    Mr. Steinwald. At this time we have exhausted the questions 
from the audience and most of mine. I would like to give the 
panel an opportunity, each individually, to make one closing 
statement. Maybe the orientation of this is what you think the 
audience should take home from today's panel. Stuart, why don't 
you begin?
    Mr. Guterman. Our approach is to try and work to improve 
the way the Medicare program operates, and we are developing 
initiatives in several areas that we are excited about. One of 
them is disease management. We have an array of disease 
management projects. We have got a couple more in the pipeline 
that are going to come out soon. There is overlap between 
disease management and developments in information technology 
that I think ought to be recognized because you need--the 
better the information systems available, the more able you are 
to manage people with chronic conditions, where you need to 
communicate across providers and you need to keep information 
over time for these beneficiaries.
    Also, I would mention, the initiative we have to collect 
information on quality, and to disseminate that information, 
and then even in one of our projects to pay for performance 
based on that information. These things all link together 
because I think the availability of information technology 
makes it easier to coordinate care. In fact one might argue 
that it is necessary to coordinate care. It also makes it 
easier to have information available on quality of care by 
allowing providers to report that information and the Medicare 
program to disseminate that information and act on that 
information eventually by modifying the payment system to 
reflect quality of care.
    So all those things fit together and we envision that in 
the future we will be able to work toward a better Medicare 
program. One that is more effective both in terms of delivering 
higher quality care and also in terms of being more efficient, 
and a more efficient.
    Mr. Miller. What I would say is just to remind listeners 
that we are the front end of our work and we have just started. 
I think the Commission thinks that this is an important area to 
look at, both for private plans in Medicare but also for fee-
for-service Medicare, and that it can be useful in 
strengthening that program and making it a more rational 
purchaser and a more rational provider of care.
    While disease management may have promise, there are a lot 
of questions that are unanswered about whether the models work 
in and of themselves. Even if they do work, how do you 
integrate them into Medicare fee-for-service's current 
structure? That is some of the issues that I tried to lay out.
    I also think, and this is sort of along the lines of what 
Stuart was saying, we also have other recommendations that we 
believe play into this. We have made recommendations in terms 
of linking payment and quality outcomes as well as other areas 
where we are trying to make fee-for-service a more prudent 
purchaser. This could, if the evidence supports it, become part 
of that overall picture.
    In the work that we are doing for the June report, if there 
is no action on the part of Congress then we will help lay out 
the issues for the Congress. If the Congress does take action, 
then we have done the groundwork in terms of building data and 
looking at the literature to get in behind that and begin to 
figure out how to make those programs work.
    Mr. Lemieux. I would just like to try and remind the 
audience of what we originally meant by Medicare reform. In the 
original vision of Medicare reform, which started percolating 
the mid-1990's, there were two basic ideas. One was to try and 
slow down the growth of Medicare costs, and the other was to 
try and accelerate the modernization of Medicare benefits. The 
idea was that we should have a large component, or at least a 
substantial component of private sector involvement in Medicare 
precisely to spur innovation on both of those fronts, to see 
what sorts of benefits people like, and see what sorts of cost-
saving possibilities can be invented in the private sector.
    Then the other half of it was to try and give the 
Government-run program, which most beneficiaries are going to 
remain in for decades and decades, a more flexible and 
business-like approach and be less involved with having to 
write regulations for tightly prescribed Federal laws, and more 
involved with running the program as a business. Now the flip 
side of giving the Government-run program that sort of 
flexibility is accountability, either directly through public 
evaluation of results and so on, and then accountability 
through competition to some extent.
    But the original goals were to do precisely these things 
increase the speed of benefit modernization and slow the growth 
of costs, and that is why we are having this discussion and 
that is why it is so important that we think about disease 
management as a way to do both of those things.
    Mr. Steinwald. Thank you, panelists. I guess where I come 
out, relating back to the title of the panel session, square 
peg in a round hole; well, maybe, but sometimes you can force 
that peg in and make it stick. We seem to be somewhere between 
a feeling of cautious optimism and open-minded skepticism about 
the workability of disease management in fee-for-service 
Medicare. I guess we do not have the answers to those questions 
or that question, but at least we have the prospect of 
obtaining more information in the not-too--distant future, and 
we certainly have a Congress that is interested in the concept 
and pursuing it.
    So please join me in thanking our panelists for their 
presentations. [Applause.]
    Thanks to the Senate Special Committee on Aging for 
sponsoring this session. Thank you. We are adjourned.
    [Whereupon, at 11:29 a.m., the Committee was adjourned.]


                            A P P E N D I X

                              ----------                              


        Statement from the American Academy of Family Physicians

    The 94,300 members of the American Academy of Family 
Physicians offer this statement for the record on ``Disease 
Management in Traditional Medicare.''
    The Academy applauds your Committee for holding a hearing 
that recognizes federal funds are increasingly directed toward 
beneficiaries with chronic illness within the Medicare program. 
The Robert Wood Johnson Foundation Partnership for Solutions 
initiative estimates that about two-thirds of Medicare dollars 
go to participants with 5 or more longstanding conditions. This 
is a startling figure for a program that not only costs 
taxpayers billions of dollars, but also is not geared toward 
chronic care management. Examining ``what works'' for chronic 
care is crucial as Medicare costs spiral upward and budget 
pressures to hold down spending increase.
    The Academy has a continuing and expanding interest in 
improving chronic care. Specifically, we are in the second 
generation of a project entitled ``Quality Enhancement 
Program'' (QEP), which includes a focus on improving chronic 
illness care within family physicians' offices. The impetus for 
this initiative has been the Chronic Care Model (CCM), which 
was developed by Edward Wager, MD, who is National Program 
Director for the Partnership for Solutions program. The model 
is premised on the fact that care for most people with chronic 
illness takes place in primary care settings.
    In November 2003, the AAFP convened an advisory committee 
to discuss specific initiatives to help family physicians 
design, document and be recognized for quality health care. 
Although quality improvement was the reason for the meeting, 
chronic care management was a particular focus. As a result of 
this 2-day session, the Academy has decided to improve family 
physician training through web-based information, one-on-one 
interventions, new and innovative residency programs and the 
media. The new program will begin as a demonstration project 
targeting 2500 members. While a significant activity for a 
private organization, our focus on improving chronic care 
management for our members is only a fraction of what federal 
support could do to support disease care in the US health car 
system.

          IMPORTANCE OF PRIMACY CARE TO HEALTH CARE IN THE US

    According to the Graham Center for Policy Studies in Family 
Practice and Primary Care, 82 percent of Americans have a usual 
source of medical care and a majority of them, 62 percent, name 
a family physician as that source of care. And, regardless of 
self-reported health status, people benefit from having a usual 
source of care even if they are uninsured. Specifically, 
utilization of health services by individuals with a usual 
source of care (doctor's office visits, admission to a hospital 
and purchase of prescription medicine) was higher than for 
those without a usual source of care. Moreover, difficulties 
obtaining health care and doing without needed services was 
higher in people without a usual source of care.
    Furthermore, according to the Center, of people 65 years 
and older who report a usual source of care, 60 percent 
identify a family physician. The Medicare population not only 
relies heavily on family doctors but 72 percent of respondents 
identified an individual. Family physicians were also more 
likely to be identified as the source of care for rural and 
Hispanic seniors, and those with less than a high school 
education.
    Moreover, another Graham Center study shows that Americans 
depend on family physicians more than any other specialty. Of 
the 3142 counties in the United States, 1184 (38 percent) are 
designated full or partial county HPSAs, which translates to 
more than 41 million Americans. In a hypothetical exercise, the 
study removed all family physicians from the US counties. When 
this was done, that figure nearly doubled--the large majority 
of US counties became full or partial county HPSAs.
    These data lead to our view that care for patients with 
chronic diseases must be integrated by the primary care 
physician--rather than disease management companies or other 
entities.

                     IMPORTANCE OF CARE INTEGRATION

    Additional information from Partnership for Solutions 
reveals that 66 percent of Americans over the age of 65 
currently have a least one chronic condition, and the majority 
go on to be afflicted with a number of illnesses. Data from the 
Medicare Standard Analytic File (1999) shows that the number of 
physicians actually increases with each condition. 
Specifically, Medicare beneficiaries without chronic conditions 
saw an average of 1.3 physicians in 1999. Beneficiaries with a 
single chronic illness saw an average of 3.5 physicians while 
those with two saw an average of 4.5 physicians. Seniors with 
six chronic conditions saw an average of 9.2 physicians in 
1999. These figures argue for a single primary care physician 
who can provide cost-effective and integrated care for those in 
Medicare.
    In addition, the most common chronic conditions, i.e. 
hypertension, heart disease, diabetes and arthritis, can be 
cared for and controlled in ambulatory settings. When care for 
these conditions is poorly coordinated, increased 
hospitalization and higher costs are the result. For example, 
an article published in the Annals of Internal Medicine (Wolff 
et al.) showed that 7 out of 1,000 Medicare beneficiaries with 
a single chronic condition were hospitalized for a condition 
that was unnecessary. Eighteen out of 1,000 beneficiaries with 
two conditions were needlessly admitted, while 36 out of 1,000 
seniors with three conditions were sent to the hospital. The 
figure for Medicare beneficiaries with six conditions was 161 
out of 1,000.
    Appropriate care integration could ensure patients get the 
care they need, keep them out of the hospital and save them and 
the Medicare program substantial amounts of money.

                ACTIONS THE FEDERAL GOVERNMENT CAN TAKE

    The AAFP has made it a priority to support the efforts of 
family physicians in the US who every day coordinate the care 
of their chronically ill patients. After all, it is the 
nation's family doctors who provide the most care to the 
chronically ill. The federal government should support these 
efforts, as well. Specifically, this support should come in 
additional Medicare demonstration projects that provide 
financial, consultative and best practice models to encourage 
primary care practices to move from their current acute care 
focus to one that is based on managing chronic care. While 
individual practices develop novel and innovative ways to 
manage care, these efforts are not supported, systematized or 
made available nationally.

                 CURRENT LEGISLATION IN THE US CONGRESS

    The House and Senate Medicare bills both contain provisions 
on chronic care management. Some provisions focus more on 
disease management companies, while others rely more on a 
``payment for performance'' structure.
    Our concern is that legislation focusing primarily on 
disease management companies, absent the integral role of an 
integrating physician, is counterproductive. We believe that 
federal support of disease management entities will take 
chronic care in the wrong direction: many insurers will work 
with many organizations, which will manage many diseases--in 
many, many different ways. The health care system will become 
further fragmented, more costly and without any perceptible 
health benefit for the elderly, chronically ill patient, who, 
in fact, should be our chief concern.
    The Academy is concerned particularly about a focus on 
disease management organizations and single, targeted 
conditions. Not only do these entities lack experience in 
managing multiple conditions, but Medicare beneficiaries 
typically have more than one disease.
    We are also concerned about the lack of physician 
involvement in some of the disease management programs; systems 
vary. For example, under the current House Medicare bill 
provisions, the Center on Medicare and Medicaid Services (CMS) 
would contact the beneficiaries, inform them of these voluntary 
disease management programs, and then ask disease management 
organizations to follow up absent any requirement for primary 
care physician involvement. Not only do patients enroll at 
higher rates in these programs when a physician they know is 
involved, according to current CMS demonstration projects, but, 
more importantly, a patients' primary care physician must work 
in collaboration with the patient to coordinate and oversee the 
care.
    While we understand that there is an impetus to incorporate 
the Institute of Medicine's call for patient-centered care, 
enrolling patients in several contracts and agreements to 
manage their diseases is directly contrary to the notion of 
patient-centeredness. What patients tell us is that they want a 
physician who will work with them, as an individual, to manage 
and coordinate their care.
    Consequently, the Academy is more supportive, in general, 
of projects that focus on physicians serving eligible 
beneficiaries. Specifically, ``pay-for performance'' programs, 
such as those in S1, the Senate Medicare bill, that allow 
physicians to contract through quality improvement entities 
seem better geared toward primary care. Physicians would serve 
as the primary contact; maintain health information; meet 
outcome measures; promote self-care and report quality and 
outcomes measures electronically.
    The Academy is at the vanguard of a movement to incorporate 
electronic medical records in physicians' offices. This project 
is part of our goal to provide tools to physicians so that they 
can redesign their offices for our current health system, and 
provide better quality care. Specifically, on November 12, 
2003, we announced an initiative called ``Partners for 
Patients,'' which involves a number of strategic business 
alliances to provide electronic health record technology to 
medical practices. We believe that in small- or medium-sized 
medical practices, an electronic health record system is the 
``central nervous system'' for clinical patient management, 
including chronic care. The electronic health records systems 
that our partners and we are developing will help to ensure 
patients receive the most timely, appropriate and efficient 
medical care available.

                               CONCLUSION

    The AAFP understands that the demonstration projects in the 
Medicare bills are different means to seek additional 
information on what constitutes effective chronic care. We also 
realize that CMS currently has several demonstrations in 
progress that seek answers to the same question, and that the 
Medicare Payment Advisory Commission (MedPAC) is also seeking 
data on ways to provide quality chronic care in a cost-
effective manner.
    As an emerging issue of crucial significance, care for 
chronically ill patients should be on everyone's policy agenda. 
Our belief, however, is that any new system must use primary 
care practice as the foundation on which to build this care. 
Americans are currently receiving most of their health care 
from primary care physicians and they are satisfied with it. 
The federal government's role should be to ensure that primary 
care is at the core of any chronic care program.

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