Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
June 09, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3077 words
HEADLINE:
TESTIMONY June 09, 1999 PETER SMITH CEO RALIN MEDICAL, INC.
SENATE FINANCE HEALTH CARE OVERSIGHT OF RISK
ADJUSTMENT METHODOLOGY AND OTHER IMPLEMENTATION ISSUES
BODY:
Testimony of Peter Smith CEO Ralin Medical,
Inc. Before The Senate Finance Committee June 9, 1999 Let me start by thanking
the Senate Finance Committee for inviting me to testify on "Organizations
Advancing Quality in Managed Care". A lot of positive change has occurred in the
past few years and we are proud to be a part of the progress being made.
Background and Introduction Our company, Ralin Medical, Inc. acquired Cardiac
Solutions in 1994 and through this division began pioneering the development of
disease management. Our program emphasizes the relationship between our nurse
specialist, the patient and the patient s referring physician. We identify
patients who have a primary diagnosis of congestive heart failure (CHF),
coronary artery disease (CAD), chronic obstructive pulmonary disease (COPD) and
diabetes. Together these diseases account for about 8% of the population who in
turn account for about 40% of all Medicare expenses. Our disease management
system called Multifit™ was developed at Stanford. It is primarily a
telephonic program in which our nurse interacts with the patient and the patient
s physician to "extend what the physician can do" between office visits to
manage pharmaceutical compliance, diet and lifestyle. This is accomplished
though contact with the patient and the physician, mostly over the telephone,
utilizing various well- tested tools developed and validated by Stanford. We do
retain the capability to do home encounters with the patient based on our
relationship with over 90 Home Health Agencies sub-contracted nationally. Our
basic philosophy is to educate and motivate patients to be partners in their own
disease management. We believe that an ongoing management and surveillance
program with the patient is much more effective than the traditional response to
acute episodes of care, which are costly and ineffective. The simple value
proposition we offer is that a managed care plan can pay our fees with the
result of better patient care, improved medical management, patient and
physician satisfaction and enough cost savings to cover our fees and still more.
The financial savings, mostly achieved through reduced hospitalizations, have
definitely been achieved with improved clinical results at the same time. In a
survey of approximately 5,000 Medicare risk CHF patients over a three-year
period, we achieved: Reduction of hospital admissions by 62.5% versus historical
benchmark Reduction of hospital days by 61.8% versus historical benchmark
Reduction of total medical expenses by 52.0% versus historical benchmark Sodium
intake decreased by 19.3% Number of patients at target dose of medication
increased 54.9% Number of patients eligible for but not receiving appropriate
medications decreased by 30.9% Functional status (DASI) increased by 10.1% 97%
of patients satisfied by the overall quality of care and services provided by
the program Similar results have been achieved in both CAD and COPD. Our
outcomes are preliminary in diabetes, but again we expect similar results. We
are achieving these outcomes while at the same time assisting plans in achieving
their HEDIS, NCQA and QISMC standards. We are here today representing not only
our own organization, but also 30 or more groups like us who have developed
programs with managed care in disease management. In fact, a group called the
Disease Management Association of America (DMAA) has been formed to help expand
this early stage field. Our customer to this point has been anyone at risk for
the health care dollar and who can decide to use a management system such as
Multifit™. Managed care organizations fit that description and have
aggregated a large number of Medicare-aged patients who are likely to need
disease management services. As a result, since 1994 we have developed over 50
relationships with national, regional and local managed care plans. Our
customers have been the early adopters of a significant change in the healthcare
delivery system. Our program, described above, can be formatted in several
different ways financially. Most often, we are at risk to improve historical
financial results plus clinical, quality of life and patient satisfaction
results. Over the past five years we have developed a strong data collection and
outcomes reporting capability to validate our programs to our customers.
Medicare+Choice Risk Adjustment We are here today to express
our basic agreement with the risk adjustment methodology as
developed and presented by HCFA. The intention to reimburse more for sicker and
costlier patients seems most appropriate. Our concern however is that the
proposed approach may have an unintended, negative impact on programs that would
both promote better health and reduce costs to the system. The goals of our
effort are to describe our concern with one part of the currently proposed
methodology and to propose a solution, which we believe, would prevent that
consequence from occurring. The Concern An unintended consequence likely to
result from the proposed risk adjustment methodology is that it
would financially penalize Medicare+Choice organizations that have invested in
and successfully implemented certain health management programs. Specifically,
this would be true for health promotion programs that improve patient quality of
life and clinical status while reducing hospitalizations. This unintended
negative impact would manifest itself in two ways. First, plans that have been
leaders and innovators in the development of health promotion programs for the
Medicare+Choice population would be penalized during the initial risk
adjustment process. They would exhibit a low number of hospitalizations
relative to the health status of their patient populations. These plans have
invested in focused patient education and behavioral modification programs to
improve clinical status and quality of life for their members while at the same
time reducing hospitalizations. Under the current methodology, the initial
indexing of their populations into PIP-DCG categories would penalize these plans
and their health management partners for their existing innovative programs.
Second, going forward, plans would have a financial disincentive to developing
or maintaining such health-promoting programs. Given that there are costs
associated with the development, implementation and maintenance of these
programs, Medicare+Choice organizations would be less inclined to bear those
costs, knowing that program savings would be offset or even dwarfed by reduced
reimbursement. In summary, the unintended consequence of the risk
adjustment methodology would be to stifle the development of programs
and initiatives which have been shown to be beneficial to patients and to
contain medical costs through health promotion, disease prevention, and
reduction in hospitalizations. Numerical Illustration of the Concern To analyze
this issue in greater detail, Ralin Medical commissioned a study, performed by
Integrated Healthcare Information Services, Inc. (IHIS). The Team Leader of the
project was Daniel Dunn, Ph.D. Dr. Dunn spent 13 years as a health economist at
Harvard University where he worked closely with HCFA as the Technical Director
of the RBRVS Research Project. In addition, Dr. Dunn spent three years
evaluating various health risk assessment methodologies, including the PIP-DCG
methodology, and authored a study on the topic for the U.S. Society of
Actuaries. Using DxCG, Inc. software for PIP-DCG grouping based on current
Medicare methodology, IHIS analyzed claims data of 1,015 Medicare-aged patients.
These patients were selected based on two criteria. First, during a designated
12-month period, they experienced a hospitalization for congestive heart failure
(CHF) which, under the currently proposed PIP-DCG methodology, would qualify as
a CHF admission. Second, throughout the duration of the subsequent 12-month
period, they were enrolled in Ralin s CHF Disease Management Program. The study
revealed that during the full year of disease management program enrollment,
only 29% of these patients experienced a PIP-DCG-qualifying admission and only
16% of them had a PIP-DCG assignment in the CHF grouping (PIP-DCG 16/CHF) or a
higher grouping. In contrast, data provided by Ralin s customers and supported
by independent academic studies, indicate that the same population left
"unmanaged" would typically exhibit a re-hospitalization rate well above 50%,
most of which would fall into the PIP-DCG 16/CHF or higher PIP-DCG groupings.
Further analysis by Ralin reveals that the medical claims dollars saved by the
health plan (net of program administrative costs) via the implementation of a
health promotion program for these 1,015 patients would be outweighed by the
reduction in premiums received the following year under the currently proposed
PIP-DCG grouping methodology. That is, the cost savings created through health
promotion would be more than offset by the reduction in risk-adjusted payments
that would result from fewer patients being hospitalized. To illustrate this
point using the current example, assuming a program impact of a 40% reduction in
total medical claims costs for these 1,015 patients minus the typical program
fees, medical claims costs (net of program fees) for this population decline by
roughly $3.7 million. Meanwhile, reimbursement the following year under the
PIP-DCG model declines, due to the reduced hospitalizations, by roughly $4.1
million. Thus, financially speaking, the payor would have fared better by not
investing in the health-promoting program. In other words, the unintended
negative impact of the proposed risk adjustment methodology
would be a disincentive for payors to invest in programs that have been proven
to benefit patients by promoting better health while also reducing
hospitalizations. It should also be noted that, for the 1,015 patients studied,
in addition to the dramatic reductions in hospitalizations cited above, clinical
outcomes, functional status, and patient satisfaction indicators all exhibited
extremely positive program results, as shown below: Sodium intake for patients
decreased by 19.3%. The number of patients at target doses of medication
increased by 54.9%. The number of patients eligible for but not receiving
appropriate medications decreased by 30.9%. Functional status, as measured by
the Duke Activity Status Index (an indicator of patients quality of life),
increased by 10.1% - - particularly impressive, given that CHF is a progressive,
degenerative condition. 97% of patients were satisfied by the overall quality of
care and services provided through the program. These data clearly indicate that
such programs serve to benefit patients by promoting better health while also
reducing hospitalizations. In addition to PIP-DCGs, IHIS employed the
Hierarchical Condition Categories (HCC) DCG model in order to estimate the
relative risk of the same population of 1,015 patients using both inpatient and
outpatient data. The goal of doing so was to determine whether HCFA s ultimate
evolution to such a model would eliminate the unintended negative consequence
related to the current PIP-DCG model. The IHIS study showed that while the
health risk estimate for this population did increase using the HCC-DCG model,
it only increased by 18%. With this increase, the reduction in HCFA
reimbursement versus not implementing the health promotion program becomes
roughly $3 million (compared to the $4.1 million under PIP-DCG methodology, as
cited above). Ralin s experience with payors indicates that this change would
still result in an unintended disincentive for payors to invest in proven
health- promoting programs, since the return on the large investment for the
program remains quite low. While we recognize that the changes to risk adjusted
payment will occur gradually once the legislation becomes effective (i.e., via
the proposed phased-in approach), we are concerned that as the phase-in occurs,
the magnitude of the unintended negative consequence described herein increases.
While methodology changes certainly could be made downstream during that
phase-in period, we fear that once the program is initially implemented, it will
become more difficult to change. The ideal time to try different methodologies,
even if on a limited basis, would be now, prior to the phased-in implementation
of the new program. Overview of Proposed Solution In order to encourage the
implementation of favorable health promotion programs within the risk
adjustment methodology, HCFA s challenge will be to align incentives
accordingly. One possible approach would be for HCFA to identify patients
enrolled in such programs and compensate the patients Medicare+Choice
organization for investing in the program. This creates two challenges. First,
HCFA would need to define a set of standards to determine what constitutes a
HCFA-endorsed health promotion program. Second, HCFA would need to develop the
appropriate methodology to determine risk-adjusted payment for patients
appropriately enrolled in such programs. To meet the first challenge, HCFA need
look no further than its own regulatory approach to supporting disease
management. Over the past several years, HCFA has been promoting program
standards through QISMC. The QISMC quality assurance regulations, guidelines,
and other like measures could be used as a base of reference by HCFA to define
specific acceptable program standards to be met by Medicare+Choice organizations
for patient care. These standards are outlined in Sections 1.3 and 1.4 of Domain
1: Quality Assessment and Performance Improvement Program. Assistance could be
solicited from the Disease Management Association of America (DMAA), the largest
disease management and health promotion industry association, to define
standards for HCFA endorsement of a plan s health promotion program using QISMC
as a reference point. This could be done on a fast track basis to meet HCFA s
implementation timetable of January 2000. Under this approach, if a patient is
in a plan that meets HCFA s program standards for a specific PIP-DCG into which
the patient is indexed, then as long as the plan continues to meet standards the
patient could remain in the PIP-DCG category regardless of hospitalizations.
Alternatively, HCFA could apply some modest reduction to the reimbursement of
the non-hospitalized patients in that PIP-DCG category, so as to allow it to
share in the medical cost savings created. Conversely, if the plan s program at
any time fails to maintain HCFA program standards for the involved PIP-DCG
category, the patient s reimbursement would be reduced to baseline until the
plan again meets the standards. The above mentioned approach would therefore
differentiate between innovative plans providing health promotion programs and
organizations that have not yet made such an investment. Finally, at the time of
initial PIP-DCG indexing, Medicare+Choice organizations should have the
opportunity to submit evidence of patients previously and appropriately enrolled
in a health promotion plan meeting HCFA standards. Such evidence, once approved,
would render those patients eligible for the higher level PIP-DCG reimbursements
as described above, thereby avoiding penalties for the innovative organizations
that have already made investments in improving patient health. As noted
earlier, there might be great benefits to HCFA in implementing such changes,
even if only on a limited basis, prior to the beginning of the phased-in program
rollout. One suggestion is that HCFA might consider initially implementing this
solution on a "pilot basis" in the CHF population. CHF is the leading cause of
hospitalizations in the Medicare population, and, as illustrated herein, is
clearly a condition for which there is much opportunity via health-promoting
programs to positively impact both patient health and medical costs. Such an
approach would simplify implementation by limiting it to a single PIP-DCG
category and could be expanded upon over time to other relevant PIP-DCGs once
deemed successful. Regulatory Decisions on Risk Adjustments
Hinder or Promote Quality Throughout most of the 1990 s managed care companies
have been successful at reducing the alarming rate of growth in health care
costs that occurred in the prior decade. This trend which now appears to be
reversing its course, seems to have been attributed largely to a focus by payors
on negotiating better unit costs. With that opportunity seemingly tapped, a key
part of the next generation of managed care is likely to be a focus on
utilization and quality of care via the implementation of health promotion
programs such as the disease management efforts outlined above. This positive
trend has already taken hold and can be enhanced by the appropriate
implementation of risk adjustment methodology. On the other
hand, failure to address possible disincentives in the currently proposed
methodology will likely have the unintended and most unfortunate impact of
reversing a positive trend already underway. It is important to note that
several other publically based health programs have embraced our programs such
as the FEHBP which has started a program with us for CHF and diabetes in the
Maryland/DC area, the United Mine Workers Retirement Fund working with us on CHF
in several of their regions and the Department of Defense currently rolling out
a CHF program with us and the University of Texas Health Science Center in San
Antonio. These projects are validations of the basic disease management concept
involving Medicare-aged populations outside of the managed care areas. It should
not go unsaid that we also believe disease management should be a part of the
Medicare Fee-for-Service program administered by HCFA. Last September, after
three years of discussion with HCFA, we submitted a proposal on a demonstration
project for CHF in the Fee-for-Service arena. We are hoping for positive action
on that proposal which addresses HCFA s number one quality and cost disease
issue. In summary, I would like again to thank the Committee for soliciting our
views primarily on the Risk Adjustment Methodology, but also on
the whole issue of disease management in the Medicare population. I hope our
information, analysis and proposals prove helpful as Congress and HCFA decide
upon these important changes.
LOAD-DATE: June 9, 1999
