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Realizing the Promise of Disease Management

PAYER TRENDS AND OPPORTUNITIES IN THE UNITED STATES

BCG

Realizing the Prom

ise of Disease M

anagement

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BCGREPORT

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Disclosure

Our assessment of the DM industry and its promise for payers is based entirely on our objective research and

independent analysis. For the sake of disclosure, we note the following:

• BCG counts among its clients companies across the health care spectrum that have an interest in the DM

phenomenon

• BCG projects have touched on DM issues for clients that have included payers, pharmaceutical companies,

equipment manufacturers, and disease management organizations themselves

• Two of the authors of this report, Dave Matheson and Anne Wilkins, currently serve on the Strategic Advisory

Board of Healthways, a disease management organization

The Boston Consulting Group publishes other reports and articles on health care that may be of interest to

senior executives. Recent examples include:



DAVID MATHESON

ANNE WILKINS

DAPHNE PSACHAROPOULOS

F E B R U A R Y 2 0 0 6

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© The Boston Consulting Group, Inc. 2006. All rights reserved.

For information or permission to reprint, please contact BCG at:E-mail: [email protected]: +1 617 973 1339, attention BCG/PermissionsMail: BCG/Permissions

The Boston Consulting Group, Inc.Exchange PlaceBoston, MA 02109USA

2 BCG REPORT

3

Table of Contents

Note to the Reader 4

Acknowledgments 6

Summary of Key Findings 7

A Definition and History of Disease Management 8

What Is Disease Management? 8

A Brief History of Disease Management 8

The Current State of Disease Management 12

Disease Management’s Reach Across the Industry Is Broad 12

Penetration into Individual Diseases and Covered Lives Is Limited 13

Payers Are Embracing Both Internal DM Programs and Outsourced Services 15

The Disease-Management-Organization Sector Is Still Growing 16

Employers Are Driving Acceptance of Disease Management 21

The Future of Disease Management 24

Experience and Results Will Drive the Demand for Additional DM Services 25

Disease Management Will Play an Integral—and Integrated—Role in Medical Management 26

What Should Payers Do? 26

Methodology 28

BCG’s DM Landscape Database 28

Interviews with Industry Leaders 28


At The Boston Consulting Group, we are intimately familiar with disease management (DM), having playedan integral role in its conception. Senior Vice President Dave Matheson and his team helped introduce theterm to the health care market in 1987, when they outlined the tenets of disease management in “The NextStage in Managed Care,” published in Best’s Review.1 With the publication of that article, BCG became thefirst to advocate that the U.S. health-care system coordinate the full continuum of care throughout the lifecycle of health conditions.

In 1995 we followed up on this early work with The Promise of Disease Management, a report that has beenwidely cited as a seminal publication in the field. In the report, we highlighted how a comprehensive DMprogram focused on proven and early interventions could shift health care dollars to less invasive care andthus meet two seemingly conflicting goals: improving health care quality while also achieving cost savings.

Note to the Reader

4 BCG REPORT

1. David H.M. Matheson, “The Next Stage in Managed Care,” Best’s Review, October 1987.

Over the decade since we released The Promise ofDisease Management, we have remained both com-mitted to disease management and unabashedlyenthusiastic about its potential for improving thevalue delivered by the health care system. Manyindividuals at BCG, including the authors of thisreport, have worked over the years with leading pay-ers and other organizations to implement DM pro-grams. For example, two of the authors currentlyserve on the Strategic Advisory Board ofHealthways (formerly American Healthways).

Prompted by a client project in the field, BCGrecently undertook a new study, examining indepth just how much disease management haslived up to the promise we envisioned for it in1995 and assessing what might lie in store for it inthe future. The current report presents the resultsof our review of the sector’s progress andprospects, focusing in particular on how payersare integrating DM principles and practices intotheir business systems. Given this focus, the reportincludes only limited discussion of the impact ofthe recent involvement in disease management ofthe government’s Centers for Medicare &Medicaid Services (CMS)—a significant develop-

ment that will surely shape the future of diseasemanagement itself and that has the potential totransform health care as a whole.

Looking back on our 1995 report with the benefitof hindsight and years of experience, we arepleased to find that disease management is, infact, attaining much of the acceptance we origi-nally forecast—even though the pace and form ofthis progress have diverged from our earlierexpectations. Disease management has taken onsubstantially different organizational forms thanwe originally conceived. It has also—and mostnotably—taken longer than we expected toachieve the acceptance and prevalence it nowenjoys. Furthermore, implementing disease man-agement has proved at least as difficult as we ini-tially feared.

Although disease management is currently a perva-sive offering among payers in the United States, itis not yet mature and there is still tremendousopportunity for growth and development. Manyopportunities remain for disease management tobe expanded and adapted so that it covers morelives and diseases and plays a more integral role in

medical management. For example, as a few com-panies are already demonstrating, disease manage-ment can be extended into wellness programs or itcan cover individuals at risk for developing chronicconditions. We are confident that the approach willcontinue to grow and evolve over the next decade,and we remain committed to understanding andfostering that growth.

As a final note, we recognize that disease manage-ment is just one of the medical managementtools—albeit a critical one—at payers’ disposal.Disease management tackles the critical factors thathave the greatest influence on quality of life,health, and health care costs for most populations.Increasingly, medical management must alsoaddress a shift toward consumer-driven care, morecomplex interactions with advancing medical tech-nology, and rising pressures on cost. These trends

5Realizing the Promise of Disease Management

only underscore the opportunity for disease man-agement and for more comprehensive and inte-grated medical management.

If you are interested in exploring disease manage-ment and its impact, please contact:

David Matheson BCG Boston +1 617 973 [email protected]

Anne WilkinsBCG Boston +1 617 973 [email protected]

Daphne PsacharopoulosBCG Boston +1 617 973 [email protected]

We sincerely thank our BCG colleagues Marty Silverstein, M.D., and Akshi Singh for the analysis and insightthat they added to this report. We also express deep gratitude for the invaluable contributions that wereceived from industry participants and experts.

Finally, we thank Mary DeVience for editorial assistance, Julie Eleuteri for research assistance, and BarryAdler, Katherine Andrews, Patricia Berrian, Gary Callahan, Kim Friedman, and Gina Goldstein for design,editorial, and production assistance.

Acknowledgments

6 BCG REPORT

David Matheson Senior Vice President and Director

Anne WilkinsVice President and Director

Daphne PsacharopoulosManager

7

Summary of Key Findings

Today, in its third and latest incarnation, diseasemanagement enjoys widespread use among the vastmajority of U.S. payers.

• All but 5 of the 120 U.S. payers assessed by ourrecent benchmarking study have DM programs in place.

• More than 80 percent of the medical and DM pro-gram directors we interviewed told us that theirplans offered disease management because seniorexecutives viewed it as a competitive necessity.

• Payers and employers have adopted disease man-agement even though no standard methodologyyet exists for measuring whether DM programsproduce cost savings and how much. If such amethodology did exist, DM penetration wouldcertainly be even higher.

Payers rely on a mix of internal DM programs andoutsourced services.

• Overall, payers are about as likely to develop andrun DM programs internally as they are to turn to external disease-management organizations(DMOs) to purchase DM services.

• Using an assembly approach, some payers combineinternal and external resources—such as in-house nurses and purchased software—to exe-cute DM programs.

DMOs have enjoyed rapid growth rates and experi-enced consolidation.

• Companies that sell DM services have grown rap-idly over the last decade. The Disease ManagementPurchasing Consortium estimates that DMO rev-enues increased from about $78 million in 1997 toalmost $1.2 billion in 2005—a compound annualgrowth rate (CAGR) of 40 percent.

• The largest companies have grown at fasterrates—and many others have been acquired—resulting in a more concentrated industry withclear market leaders.

Among payers and DMOs alike, opportunities forgrowth in disease management abound.

• Despite disease management’s reach across theindustry, its penetration among payers and em-ployers still just scratches the surface in terms ofcovered lives, managed conditions, and approachesto patient identification and management.

• Continued growth in the United States will comein the short term through deeper penetration ofcovered lives, particularly at self-insured employ-ers; coverage of more diseases and conditions;increased sophistication in targeting patients andsupporting their care; and expansion intoMedicare and Medicaid.

• Disease management will continue to evolve rap-idly as payers, providers, employers, DMOs, andconsumers all learn and adapt.

Payers that fully integrate disease management intotheir medical-management efforts will be poised todeliver the most valuable and effective care.

• We believe that disease management will ulti-mately evolve from an intervention applied ontop of existing systems into a central componentof medical management.

• An integrated approach will require much deeperinvolvement from employers, providers, payers,and consumers than has been characteristic inthe industry thus far.

Although private U.S. payers are the largest pur-chasers of disease management today, several othersegments are growing rapidly—notably the direct-to-employer segment, Medicare and Medicaid, andthe international segment.

• Although the majority of self-insured employersoffering disease management access it throughpayers, direct contracting between employers andDMOs is a rising trend.

• Federal and state governments have been experi-menting with the approach for years, but theCMS pilots now under way have raised the profileof disease management.

• Governments abroad are also exhibiting anincreased interest in disease management.


Eleven years ago, BCG first examined disease man-agement in depth.2 Today the latest incarnation of this coordinated approach to health care deliv-ery has been widely adopted and is growing inimportance among the vast majority of U.S.payers.

At BCG, we believe that the popularity of diseasemanagement springs from the fact that the proac-tive management or prevention of chronic condi-tions represents the single largest opportunity toimprove health and contain health care costs. (SeeExhibit 1.) Disease management works by drawingon the commitment and self-interest of patients,expert coaching by nurses, and treatment guide-lines that are grounded in evidence-based medi-cine. It deploys these resources to monitor patients’conditions and coordinate proven treatmentsacross physicians, medical settings, and relatedillnesses.

What Is Disease Management?

According to the Disease Management Associationof America (DMAA), a typical DM program

• focuses on preventing hospitalizations and inva-sive procedures by keeping conditions from wors-ening and patients from experiencing complica-tions of their illnesses or treatments

• deploys practice guidelines focused on proventreatments

• engages physicians and support-service providersin devising and maintaining a plan of care for thepatient

• empowers patients to play a role in their own careby providing them with self-management educa-tion—which may address prevention, behaviormodification, and compliance

• includes process and outcomes measurements forassessing clinical, quality-of-life, and economicoutcomes on an ongoing basis

Given such a complex definition, it is inevitablethat organizations throughout the health careindustry—each with its own business model andcapabilities—emphasize different aspects of diseasemanagement. Moreover, as technology grows moresophisticated and DMOs become more experi-enced and capable, DM tools are increasingly beingapplied to new conditions and ever-broader patientpopulations. As a result, the line between whole pop-ulation management and disease management hasbecome extremely difficult to discern. All the lead-ing DMOs currently manage patients with multiplecomorbidities, and some take on large segments ofa payer’s population regardless of disease or condi-tion—or whether those members have any chronicconditions at all. In a report of this kind, therefore,it is neither feasible nor desirable to impose a sin-gle narrow perspective on which features of diseasemanagement are most important. Instead, we aimto describe the ongoing evolution of the industryaccurately, without getting bogged down in thedetails of its taxonomy.

A Brief History of Disease Management

Understanding the current state of disease man-agement—and predicting its future—require someperspective on how the industry has evolved.

The Seeds of Disease Management. Disease man-agement has many roots and progenitors, making itimpossible to pinpoint the precise moment when itcame into being. One of the earliest and mostprominent developments was the commerciallaunch of blood glucose monitoring (BGM) systemsfor diabetics in the early 1980s. From this point, dis-ease management took hold as a trend.

BGM systems were pivotal because before patientscould be expected to use the technology effectively,the mindset of physicians and patients alike had tochange. Simultaneously, an infrastructure had to bebuilt that would enable patients to take principalresponsibility for managing their own care whilereceiving strong support from the medical system.Investments in marketing, training, and process

A Definition and History of Disease Management

8 BCG REPORT

2. The Promise of Disease Management, BCG report, 1995.

development were made and ultimately paid off—both literally and figuratively. Over time, physiciansbecame more comfortable guiding patients in theself-management of diabetes. Nurse educators dis-covered the best ways to provide training in andsupport for BGM. And patients learned to takemuch greater control of their care.

Throughout the 1980s, several organizations pro-moted these developments and began to imple-ment them in new ways. The logic of organizingcare on a disease-specific basis was particularlyappealing to specialized providers such as theNational Jewish Medical and Research Center,which focuses on respiratory diseases; the TexasHeart Institute; and the Menninger Clinic, whichfocuses on psychiatric disorders. Drawing on theideas behind disease-specific care and the emergingfield of health outcomes, companies such as ValueHealth also built new businesses concentrated onimproving health care delivery, medical system per-formance, and organizational effectiveness.Furthermore, staff-model health maintenanceorganizations (HMOs), such as Harvard Commun-ity Health Plan and Kaiser Permanente, embracedthe general concept quickly. They possessed manyof the assets that the emerging approach required

in order to succeed—namely, systemwide relation-ships among all the physicians treating a patient,common procedures and protocols, and a centralsource of patient data. Although the early adoptershad mixed results, they sowed the seeds for thefuture growth of the industry.

Influenced by these forerunners, several insurancecompanies, HMOs, and provider organizationswaded in to test the waters with disease manage-ment in the late 1980s. They shared an enthusiasmfor the idea that certain types of care are bestorganized around the disease-driven needs ofpatients. As a result, many reforms were imple-mented. Yet the institutional infrastructure at mostpayers and providers could not support the newapproach. And because the infrastructure was noteasy to change—and generally did not change—theimpact of these early efforts, outside of specific suc-cesses such as BGM, was fairly limited.

The First Wave: Pharmaceutical Companies Leadthe Charge in the Early 1990s. From these earlybeginnings, a swell of momentum arose in the1990s, when pharmaceutical companies were intro-duced to the concept of disease management andpopularized the term.

The link between disease management and phar-maceuticals was an obvious one—and one certainlynot lost on pharmaceutical executives. When pre-scribed appropriately and taken diligently, pre-scription drugs help keep many diseases in checkand help prevent patients from requiring hospital-izations as well as surgeries and other invasive treat-ments. Particularly when used to treat chronic con-ditions such as asthma and coronary artery disease(CAD), medications can help all players attain thekey goals of disease management.

For much of the decade, pharmaceutical compa-nies invested heavily in the approach, both buildingand acquiring programs. Many payers, however,were skeptical about pharma-sponsored diseasemanagement, perceiving it as an attempt to marketand sell more drugs. In our opinion, the vast major-ity of DM programs sponsored by pharmaceuticalcompanies were solidly grounded in the strongbelief that they could improve outcomes—whilealso driving sales. Nonetheless, by the end of thedecade the tide had receded, and many pharma-sponsored DM programs simply dried up.


Patientpopulation

Percentage ofplan membership

Percentage ofplan costs

Well

1

64

15

20

15

20

55

10

Diseasemanagement

Lifestyle programs

Wellness and preventionprograms

Terminally ill

Chronically ill

At risk forchronic illness

End-of-life care and case management

Type of intervention

E X H I B I T 1

DISEASE MANAGEMENT ADDRESSES THE MAJORITY OF HEALTH CARE COSTS INCURRED BY AN AVERAGEU.S. HEALTH PLAN

SOURCE: BCG market interviews and analysis.

A number, however, remain today. For example, EliLilly recently announced the launch of two DMprograms for managed care customers. Theprograms—in women’s health and diabetes—have been certified by the National Committee for Quality Assurance (NCQA). And Pfizer main-tains Pfizer Health Solutions (PHS) as a separateorganization built on DM principles. PHS hasundertaken several innovative initiatives, mostnotably its foray into disease management with stateMedicaid programs.

The Second Wave: DMOs Proliferate in the Mid-1990s. A second wave began to develop in the mid-1990s, when hundreds of entrepreneurs zeroed inon the largely unserved market for disease man-agement and began to work diligently to capture it.These entrepreneurs recognized that successful dis-ease management required expertise in health careprocesses, technology, and data mining and man-agement, as well as unique relationships across theentire health-care landscape. They rapidly built anentirely new industry: DM services. Serving payersand hospitals, these companies pioneered manyconcepts in concert with the early adopters of dis-ease management.

The early DMOs generally shared one characteris-tic: the focus on a single disease, which was the solecriterion for entry into the DM program (althoughsome did support all aspects of care once a patientwas enrolled). Many of these companies excelled atimproving care and outcomes in one area—CAD,for example—but failed to treat the patient as awhole. Others were unable to scale up their originalmodels to serve larger numbers of patients.

In the face of these shortcomings, many of the earlyDM-service companies have vanished, been

acquired, or evolved. In general, although somespecialists remain, the survivors have shifted to acomprehensive model that spans diseases and takescomorbidities into account. Recent entrants to thefield, such as Health Dialog, did not begin with afocus on a single disease. The capability to servepatients with comorbidities has proved to be partic-ularly valuable in complex market segments such asMedicare and Medicaid, in which beneficiaries withcomorbidities are common. (See the sidebar“Disease Management in Medicare.”)

The Third Wave: Payers Take Disease Managementto Heart—and to the Next Level—in the ComingDecade. Fueled in part by the second wave, as wellas by NCQA accreditation of DM programs, thethird and current wave of disease management iswell under way. Payers have now widely embracedDM initiatives and largely eliminated disease-spe-cific silos from their programs. In addition, becausemany payers have experienced relatively strongfinancial returns in recent years, they possess ade-quate resources to invest in programs such as dis-ease management.

Although widespread, payer initiatives vary widely,from in-house efforts to outsourced services pur-chased from DMOs. Many plans offer a hybrid ofthose two approaches—sometimes called a combina-tion or an assembly approach. DM programs alsorange from small initiatives focused on a narrowsubset of members to widespread programs target-ing almost all chronically ill members across multi-ple payer products. Today many payers are consid-ering how to extend disease management tomembers who are at risk for developing a chroniccondition, and they are working to integrate thisoffering with other aspects of medical manage-ment, such as wellness programs.

10 BCG REPORT


The Medicare Modernization Act of 2003 (MMA)authorized the Centers for Medicare & MedicaidServices (CMS) to develop and test a voluntarychronic-care improvement program, now calledMedicare Health Support (MHS). The stated goal ofMHS is to improve the quality of care and quality oflife for people living with chronic diseases.

Following the enactment of the MMA, CMS con-ducted a competitive three-stage contracting process in December 2004 and awarded nine con-tracts for Phase I pilot programs. The contractawardees were generally large payers or DMOs. (Seethe exhibit below.)

Each of the pilots aims to serve 20,000 Medicarebeneficiaries in a specific region on a free and vol-untary basis. Using historical claims data, CMSidentified beneficiaries for the program by regionand screened them for eligibility. Targeted benefici-aries were randomly assigned to either an interven-tion group or a control group.

Phase I of the two-phase initiative is a pilot phasethat will operate for three years and be evaluatedthrough the randomized control trials. Payments toeach awardee will be based on performance and aresubject to up to a 100 percent refund if the pilotfails to save at least 5 percent in health care costs(when compared with the performance of the controlgroup) over the three-year pilot period. Phase II mayexpand Phase I programs or program componentsthat have proved to be successful at improving clin-ical outcomes, increasing beneficiary satisfaction,and meeting Medicare spending targets for theassigned population.

As of December 2005, seven of the MHS pilots hadbeen launched and were engaging beneficiaries. To

D I S E A S E M A N A G E M E N T I N M E D I C A R E

date, it appears that engagement efforts have beenhighly successful, with rates of greater than 90 per-cent in some cases. Of the two remaining pilot pro-grams, the XLHealth pilot in Tennessee was sched-uled to begin on January 1, 2006, and the contractawarded to the Visiting Nurse Service of New Yorkand UnitedHealth Group’s Evercare subsidiary wascanceled.

We anticipate that the Medicare pilots will yield sub-stantial insights and rich data for comparing a vari-ety of DM interventions. The results should alsoinform the debate on outcomes and reveal whetheror not disease management delivers financial resultswithin the Medicare population.

Aetna Selected counties in and around Chicago

Cigna HealthCare Northwest Georgia

Health Dialog Western Pennsylvania

Healthways Maryland and Washington, D.C.

Humana Central and South Florida

LifeMasters Supported Selfcare Oklahoma

McKesson Corporation Mississippi

Visiting Nurse Service of New York Brooklyn and Queens, New Yorkand Evercare1

XLHealth Selected counties in Tennessee

Organization Regions served

MEDICARE AWARDED CONTRACTS TO LARGE PAYERSAND DMOs IN 2004

SOURCE: U.S. Department of Health and Human Services, Centers for

Medicare & Medicaid Services.

1This program has been canceled.

to improve members’ health, boost value for cus-tomers, and contain costs.

Disease Management’s Reach Across the Industry Is Broad

In the last few years, U.S. payers have adopted dis-ease management in droves, and plans offering theservice represent an overwhelming 96 percent ofthe 120 U.S. payers captured in BCG’s DM Land-scape Database.3 (See Exhibit 2.)

The Current State of Disease Management

12 BCG REPORT

With nearly every major payer in the United Statescurrently offering disease management in someform, the expansive reach that it enjoys may leadsome to wonder whether its glory days are not al-ready over.

In truth, millions of patients and many diseaseshave yet to be touched by disease management, andmuch of the industry’s territory still remains to becharted and claimed. As a result, the door is wideopen for payers to offer DM programs to more indi-viduals and to apply the approach more rigorouslyand in more innovative ways. Moreover, the avail-ability of improving technology, databases, anddiagnostic tools, along with the accumulation ofpractical management experience, can facilitatethe development of new forms of service.Opportunities abound for payers in search of ways

No DM Outsourced DM Internal DM

Percentage of payers offering disease management

0

20

40

60

80

100

50

65

41

12

3847

17

33

50

88

6249

94

33

2

Fewer than100,000 lives

500,000 to1 million lives

1 million to5 million lives

More than5 million lives

Overall100,000 to500,000 lives

E X H I B I T 2

THE MAJORITY OF PAYERS OFFERED SOME FORM OF DISEASE MANAGEMENT IN 2005

SOURCE: BCG’s DM Landscape Database.

NOTE: Payers are 120 of the 150 largest payers in the United States at the end of 2004 (as measured by the number of commercially insured lives), representing about

96 percent of commercially insured lives. Payers were considered to be using the outsourced model if they hired at least one DMO. Data on whether plans offer disease

management are from year-end 2004; data on the DM model used are from 2005.

3. BCG’s DM Landscape Database captures DM information for 120 of the150 largest payers in the United States at the end of 2004 (as measured bythe number of commercially insured lives), representing about 96 per-cent of commercially insured lives. Information at the disease-specificlevel is available for 111 of these payers. In addition to compiling thesedata, we conducted interviews with nearly 40 of the payers included in thedatabase. All of this information was gathered during 2005.

Without a doubt, payers have been driven to dis-ease management by several factors: the rising costof health care, pressure from employers andemployees for enhanced value in health care, andattempts by payers to differentiate themselves fromcompetitors. When we asked representatives fromthe payers themselves why they had adopted diseasemanagement, however, the answers weren’t exactlywhat we had expected. Fewer than 60 percent ofthe medical directors and DM program directorswe interviewed cited health-care cost savings—themuch-touted advantage of the approach—as theirprimary reason for adopting it.

Rather, more than 80 percent of the medical andDM program directors we interviewed told us thattheir plans offered disease management becausesenior executives viewed it as a competitive neces-sity. (See Exhibit 3.) “DM is simply the price ofadmission—just like NCQA accreditation,” onedirector explained. Another noted that “DM is nowpart of every request for proposal that we receive.”In short, payers have adopted disease managementbecause their customers are demanding it.

Market expectations aren’t the only forces at work.Almost two-thirds of the payers we interviewed said

that their plans offered DM because managementviewed it as “the right thing to do” in terms of pro-viding the highest-quality care and improving mem-bers’ health.

Expected savings may fail to top the list of reasonsfor adopting disease management because a debatestill rages in the industry about how best to meas-ure the savings that accrue when well-executedapproaches prevent catastrophic health events andmore invasive care. Our interviews and analysisindicate that payers and employers alike are clam-oring for standardized methods to quantify thefinancial impact of disease management. A com-mon standard would permit comparisons acrossprograms. (See the sidebar “A Call to Action onOutcomes Measurement,” page 14.)

Interestingly, disease management has enjoyedwidespread acceptance even though no standardmethodology yet exists for measuring how muchDM programs produce in cost savings—or whetherthey produce cost savings at all. The vast majorityof payers have adopted the approach because they have a conceptual understanding of its poten-tial and a belief in the results to date. But ifsavings had been documented with a greaterdegree of certainty, payers and employers wouldby now have applied disease management morebroadly.

Penetration into Individual Diseases and CoveredLives Is Limited

Disease management’s reach across the industry isclearly wide, but its penetration into individualhealth plans still just scratches the surface. Only ahandful of chronic conditions have been clearlyidentified and widely accepted as suited to theapproach: diabetes, asthma, CAD, congestive heartfailure (CHF), and chronic obstructive pulmonarydisease (COPD)—conditions often referred to asthe “five core chronics.” Furthermore, even thoughdiabetes and cardiac conditions are common DMtargets, only 21 percent of the payers that offer dis-ease management apply the approach to all five ofthese expensive and debilitating diseases.4 (SeeExhibit 4, page 14.)


Why does your company offer disease management?

Percentage of interviewees citing this reason

0

20

40

60

80

100

59

66

83

It’s a competitivenecessity

It’s the rightthing to do

It will bringcost savings

E X H I B I T 3

MOST HEALTH PLANS VIEW DISEASE MANAGEMENT AS A COMPETITIVE IMPERATIVE

SOURCE: BCG market interviews.

4. The conventional wisdom in the industry suggests that although DMprograms for asthma yield positive health outcomes, they do not neces-sarily generate meaningful financial savings.

Similarly, few payers bring DM approaches to bearon cancer, end-stage renal disease, low-back pain,and other diseases that result in millions of dollarsin health care costs and lost productivity for bothpayers and employers. Payers also vary substantiallyin terms of how deep into the risk pool they gowhen reaching out to members, with some target-ing only those at the highest risk. The result of thisnarrow application of disease management is that,although an overwhelming number of plans offerthe approach, only a small fraction of memberswho could benefit from it are actually targeted orreached by DM initiatives.

The number of covered lives touched by diseasemanagement is further limited by the fact thatmore than half of all commercially insured lives—54 percent in both 2004 and 2005—are self-insured;that is, they are covered by self-insured employersthat purchase administrative services only (ASO)products. Although disease management is avail-able today to a large number of self-insuredemployers—JPMorgan estimates that 77 percent ofpayers offer disease management to their self-

14 BCG REPORT

Outcomes measurement is a major unknown fac-tor—and a major obstacle—in disease management.No standard industry methodology exists today formeasuring savings. Although various industrygroups, such as the Disease Management Associa-tion of America (DMAA) and the Disease Manage-ment Purchasing Consortium, have issued guidelinesfor measurement methodologies, and although mostparties agree that earlier methodologies were seri-ously flawed, there is no agreement on a sharedapproach.

Several studies have attempted to determinewhether disease management really does delivercost savings and health improvements, and thesehave produced quite different results. The DM pilotsmandated by the Centers for Medicare & MedicaidServices were designed to determine whether dis-ease management in general—and which DM modelin particular—can achieve improvements in healthand financial savings for Medicare fee-for-servicebeneficiaries. Similarly, the DMAA plans to tackleoutcomes measurement as a major initiative in

A C A L L T O A C T I O N O N O U T C O M E S M E A S U R E M E N T

2006. We believe that the success of such an ini-tiative will be greatly enhanced if other constituen-cies—such as payer, provider, and employergroups—become strongly involved.

Interestingly, our survey found that more than 50percent of the payers interviewed reported satisfac-tion with the outcomes they have achieved. Theremainder reported that either they did not know thelevel of outcomes achieved or it was too early to tell.Surprisingly, not one payer professed dissatisfactionwith its DM outcomes—a finding that is less likely toreflect sweeping satisfaction with all DM programsthan the relative youth of these programs and pay-ers’ discomfort with existing measurement method-ologies.

In our work with payers, DMOs, and other clientswith an interest in disease management, we haveseen numerous cases in which the approach hasproduced positive financial results. However, we rec-ognize that such results depend critically on thequality of the design and implementation of eachindividual program.

0

20

40

60

80

10092

6864

23 21

Percentage of payers applying disease management to these conditions

Diabetes Asthma COPD All fiveconditions

Cardiacconditions

(CAD and CHF)

E X H I B I T 4

MANY PAYERS STILL DON’T APPLY DISEASE MANAGEMENT TO ALL FIVE CORE CHRONIC CONDITIONS


NOTE: Payers are 120 of the 150 largest payers in the United States at the

end of 2004 (as measured by the number of commercially insured lives),

representing about 96 percent of commercially insured lives.

insured customers (compared with 86 percent ofpayers that offer it to their fully insured cus-tomers)—these employers do not always choose topurchase DM programs.5 Typically, they face a sepa-rate fee for incorporating such programs into theirASO products, especially when the payer contractswith a DMO.

Payers Are Embracing Both Internal DM Programs and Outsourced Services

As Exhibit 2 illustrates, payers overall are about aslikely to develop and run DM programs internally asthey are to turn to external DMOs for purchasedservices. Our research reveals, however, that largerplans with more covered lives have a slight biastoward using DMOs. Still, a plan’s size is not the bestpredictor of its approach to disease management.

Consider, for example, that among the ten largestplans, seven contract with DMOs for at least someaspect of their DM services, whereas five have signif-icant internal programs. (See Exhibit 5.) This mixsuggests that it’s not the payer’s size but the per-spective of senior management that largely deter-mines whether the payer develops its own DM approach or turns to the market for externaloptions.

We believe that the very largest payers have signifi-cant experience with disease management and thusrecognize the capabilities required to implementthe approach and the difficulties involved. Theymay also view disease management as a highly spe-cialized set of skills that are difficult to master orreplicate at low cost. As a result, all but one of theten largest players have partnered with externalsuppliers to assemble or purchase DM services, orhave brought the approach in-house by purchasinga DMO outright. For example, WellPoint and


Health plan DM model

WellPoint Internal: Health Management Corporation

UnitedHealth Group Internal: Optum

Aetna

Health Care Service Corporation

Cigna HealthCare

Kaiser Permanente

Health Net

Humana

WellChoice1

Blue Cross Blue Shield of Michigan

DMOs: Accordant Health Services and LifeMasters Supported SelfcareInternal: ActiveHealth Management

Each local Blue Cross and Blue Shield plan chooses its own vendorDMOs: Health Dialog, Healthways, Landacorp, LifeMasters Supported Selfcare,and Matria Healthcare

DMO: Healthways

Internal

DMOs: Health Dialog, ParadigmHealth, and Renaissance Health Care

DMOs: Accordant Health Services, AirLogix Corporation, Alere Medical, CorSolutions,ParadigmHealth, QMed, Quality Oncology, and RMS Disease Management

DMO: Healthways

DMO: Accordant Health ServicesInternal

E X H I B I T 5

SEVEN OF THE TEN LARGEST PAYERS PURCHASE AT LEAST SOME ASPECT OF DISEASE MANAGEMENT FROM DMOs


1WellChoice was acquired by WellPoint in December 2005.

5. An In-Depth Look at Disease Management, JPMorgan North AmericaEquity Research, May 2004.

UnitedHealth Group have acquired vendors andappear committed to retaining disease manage-ment in-house, whereas plans such as CignaHealthCare and Health Care Service Corporationrun aspects of their programs in coordination withDMOs. At the other end of the spectrum, planssuch as Kaiser Permanente have built internal pro-grams on the basis of a legacy of striving to improvechronic care in an integrated system.

Many plans actually make the build-or-buy decisionon a condition-by-condition basis. Harvard PilgrimHealth Care exemplifies this approach, having builtinternal programs for some conditions, such asasthma and diabetes, while also contracting with oneDMO for a cardiac program and with another for themanagement of rare diseases. Furthermore, somepayers blend in-house resources with external ser-vices within the same program—for example, using

in-house nurses in coordination with data analyticsand software purchased from a vendor. (For casestudies of both approaches, see the sidebars“Handling Disease Management Internally at KaiserPermanente,” below, and “Outsourcing DiseaseManagement at Blue Cross and Blue Shield ofMinnesota,” page 18.)

The Disease-Management-Organization Sector Is Still Growing

The entrepreneurial companies that sell DM ser-vices have enjoyed rapid growth over the lastdecade. Indeed, the Disease Management Pur-chasing Consortium (DMPC) estimates that DMOrevenues grew from about $78 million in 1997 toalmost $1.2 billion in 2005—a CAGR of 40 percent.(See Exhibit 6.) Between 2000 and 2005, however,

16 BCG REPORT

For Kaiser Permanente, population-based diseasemanagement is an absolutely integral component ofcare for chronically ill members. The DM effort atKaiser, in contrast to other payers, is led and largelydelivered by physicians themselves—an approachthat offers critical advantages in establishing andfostering buy-in to standards of care and DMprocesses. As disease management has maturedwithin Kaiser, the program has expanded to includeself-management by members and patient-to-nursecommunication between office visits.

Kaiser takes a unique approach to identifying can-didate members for its DM program. Rather thanrelying solely on information technology to mineclaims data, it deploys teams that include physi-cians, nurses, and other care providers to reviewthe records of chronically ill patients and determinethe best next steps. Every patient interaction isthus coordinated with the provider and supportsthe primacy of the central physician-patient rela-tionship.

The Kaiser Health Plan itself is involved in execut-ing disease management in a number of ways. Firstand foremost, Kaiser Permanente’s CareManagement Institute (CMI), jointly supported bythe Health Plan and Medical Groups, prepares anddisseminates care guidelines and utilizes associ-

H A N D L I N G D I S E A S E M A N A G E M E N T I N T E R N A L L Y A T K A I S E R P E R M A N E N T E

ated measurement tools. CMI works closely withregional operations leaders to ensure that physi-cians are given decision-making tools for use dur-ing office visits that support care in accordancewith guidelines. And to supplement their office vis-its, members receive self-management resourcessuch as community education, nurse outreach, andeducational materials.

After studying outcomes extensively, Kaiserrecently concluded unequivocally that health out-comes improve as a result of disease management.In a 2004 article, representatives from the payerconcluded that “the rationale for DM programs, likethe rationale for any medical treatments, shouldrest on their effectiveness and value.”1 However,the authors did not conclude that disease manage-ment reduced costs in an absolute sense, althoughthey did highlight an impact on cost trends.

Paul Wallace, director of CMI, explains that Kaisersees itself as maintaining its commitment topatient care by “sustaining and growing its invest-ments in DM.” Recently, Kaiser began offeringhealth coaching to members outside of the Kaisernetwork.

1. B. Fireman, J. Bartlett, and J. Selby, “Can Disease Management ReduceHealth Care Costs by Improving Quality?” Health Affairs, Volume 23,Issue 6, November/December 2004.


All othersEvercare

McKesson CorporationAlere Medical Accordant Health ServicesMatria Healthcare

LifeMasters Supported SelfcareCorSolutionsHealth DialogHealthways

Caremark (excluding its Accordant Health Services and Specialty Pharmacy Services subsidiaries)

Industry revenues($millions)

0

200

400

600

800

1,000

1,200

1,400

Annual growth rate(%)

96

62

39

34

27

25

29

24

78

153

249

346

462

589

737

951

1,181

1997 1998 1999 2000

1997–2005(%)

40

2000–2005(%)

28

2001

CAGR

2002 2003 2004 2005

E X H I B I T 6

THE DM SERVICES INDUSTRY IS STILL GROWING RAPIDLY

SOURCE: Disease Management Purchasing Consortium.

NOTE: All figures are estimates rather than actual company-reported data.

as the revenue base broadened, growth slowedsomewhat to a CAGR of about 28 percent. Still, thelargest companies have grown at significantly fasterrates—often through mergers and acquisitions—resulting in a more concentrated industry withclear market leaders. (See Exhibit 7.)

Today dozens of businesses continue to offer DMservices, with most DMOs having expandedbeyond their original focus on a single disease. Inother cases, DMOs have retained their ambition tobe best of breed in one area, as AirLogixCorporation has done in respiratory diseases.6

New competitors have also emerged, such asHealth Dialog, an organization with roots in elim-inating “unwarranted variation in health care”across multiple conditions for chronically ill andother members.

Looking ahead, the DMPC anticipates that DMOswill claim industry revenues of more than $1.8 bil-

lion by 2008, with the fastest growth arising fromthe Medicare, Medicaid, and employer sectors.(See Exhibit 8.) Within the commercial-payer seg-ment alone, BCG’s analysis conservatively pegs theindustry’s maximum potential revenues at $3 bil-lion to $4 billion.

Among DMOs, the top five companies ranked bymarket revenues are Healthways, Health Dialog,CorSolutions, LifeMasters Supported Selfcare,and Matria Healthcare.7 In our interviews withmedical and DM program directors, respondentsmost frequently cited the market leaders asHealthways, LifeMasters, Matria, and HealthDialog. (For more details on these market leaders,see the sidebar “DMO Profiles,” page 20.)

18 BCG REPORT

Blue Cross and Blue Shield of Minnesota (BCBS-MN) embraced disease management early andremains a pioneer in the field. Beginning in the late1990s, largely in response to the NationalCommittee for Quality Assurance’s accreditationrequirements, the payer launched in-house DM pro-grams focusing on a few silos of chronic diseases,such as diabetes and CAD. Early successes with dis-ease management, coupled with a realization of theenormous capabilities that would be required inorder to achieve its vision, encouraged BCBS-MN tocontinue to push forward with leading-edgeapproaches. In 2001 the payer made what its chiefmedical officer, Bill Gold, describes as a particularlybig bet: shifting to a much larger program run incoordination with a DMO.

Some feared that moving such a critical capabilityoutside of BCBS-MN would put the success of theprogram—and the payer—at risk. But Gold and oth-ers strongly believed that partnering with the rightDMO would afford them accelerated access to thehighest-quality capabilities in disease manage-ment—capabilities that the payer simply lacked thetime and resources to develop internally. Goldexplains that BCBS-MN selected its partner,Healthways, because the two organizations shared a

O U T S O U R C I N G D I S E A S E M A N A G E M E N T A T B L U E C R O S S A N D B L U E S H I E L D O F M I N N E S O T A

common vision and committed leadership—factorsthat Gold says have proved essential to success.BCBS-MN is also using Accordant Health Services toprovide disease management for members with rarediseases.

Progress has been impressive. In the early days,BCBS-MN’s DM programs touched only about 2 per-cent of the overall population, but today they engageabout 13 to 14 percent. (Note that this is the per-centage of BCBS-MN’s entire membership, not justits chronically ill members.) BCBS-MN has nowmoved from disease- and medical-management silosto an integrated approach involving dozens ofchronic conditions as well as wellness and preven-tion programs. It also strives to ensure seamlesscare and smooth back-end processes.

The value of this approach, Gold contends, isrevealed in the plan’s outcomes. Despite the contro-versy that rages in outcomes measurement, heremains confident that disease management hasdelivered legitimate and significant health improve-ments as well as cost savings at BCBS-MN. Theplan’s financial results have been certified internallyand externally. “We believe we have a uniqueapproach to DM,” Gold explains, “and we will con-tinue to innovate and improve our programs.”

6. AirLogix was acquired in 2005 by Centene Corporation, a provider ofmanaged care through Medicare- and Medicaid-related programs.

7. In December 2005, Matria announced its agreement to acquireCorSolutions.


Acquirer

Healthplans

DMOs

Year acquiredAcquired DM or wellness company

Aetna ActiveHealth Management 2005Anthem Insurance Companies Health Management Corporation 2002BlueCross BlueShield of Tennessee Gordian Health Solutions 2005Centene Corporation AirLogix Corporation 2005

Caremark Accordant Health Services 2002

CorSolutions MyoPoint 2001

Healthways Empower Health 2001 CareSteps 2001 StatusOne Health Systems 2003 Health IQ Diagnostics 2005

LifeMasters Supported Selfcare Medical Scientists 2004

Matria Healthcare Quality Oncology 2002 Miavita 2005 Winning Habits 2005 CorSolutions announced in 2005

ParadigmHealth Paidos Health Management Services 2003

SHPS Holdings Landacorp 2004

E X H I B I T 7

A NUMBER OF MERGERS AND ACQUISITIONS ARE CONSOLIDATING THE DM SERVICES SECTOR

SOURCE: BCG literature review.

MedicaidMedicare

Commercial payers, self-insured Employers or third-party administratorsCommercial payers, fully insured

22

53

56

6

9

CAGR2005–2008

(%)18

$1.122 billion

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000DMO revenues($millions)

520

2005 2008

250

91

215

46

669

300

324

386

175

$1.854 billion

E X H I B I T 8

THE DMPC ANTICIPATES SIGNIFICANT GROWTH IN REVENUES AMONG DMOs

SOURCES: Health Industries Research Companies (2005); data were updated by the Disease Management Purchasing Consortium in November 2005.

20 BCG REPORT

Healthways

Healthways is the largest DM vendor in the UnitedStates, managing nearly 2 million lives. The com-pany is publicly traded and primarily serves fullyinsured payers, employers, and—through its involve-ment in the Centers for Medicare & MedicaidServices (CMS) pilots—the Medicare market.According to the Disease Management PurchasingConsortium (DMPC), Healthways is the marketleader, and its share of the DM services sector hasbeen growing over time.

Healthways’ roots lie in hospital-based diabetesmanagement. Today the company offers programsfor 27 conditions and, through acquisitions, hasbranched out to bolster its offerings across theentire continuum of care, into both care manage-ment for the highest-risk members and wellnessprograms offered to payers and employers.According to Bob Stone, executive vice presidentand chief strategy officer, the company’s differenti-ation is grounded primarily in its proven outcomes.He also notes that Healthways has pioneered sev-eral concepts that have become standards in theindustry—for example, the opt-out model forpatient engagement.

According to Stone, Healthways’ next big area offocus will be to extend its capabilities beyondmembers already diagnosed with chronic condi-tions in order to ensure that those who are healthyor at risk for chronic conditions maintain theirhealth.

LifeMasters Supported Selfcare

LifeMasters, founded in 1994, is a private DMO thatfocused initially on CHF. As LifeMasters has grownover time, it has expanded to cover other chronicconditions. Today the company offers programs forthe five core chronics (diabetes, asthma, CAD, CHF,and COPD), as well as for back pain, hypertension,and hyperlipidemia. It also has three upcoming pro-grams for cancer, metabolic syndrome, and comor-bid depression.

LifeMasters’ current focus, according to its executivechairman, Chris Selecky, is working with membersto modify behavioral risk factors. The company dif-

D M O P R O F I L E S

ferentiates itself, Selecky says, along three keydimensions: a strong orientation toward engagingphysicians, clinical depth, and the degree to whichit encourages transparency in its operations to fosterintegration with customers.

In addition to payers such as Aetna, LifeMasters’customers include employers, retirement systems,and Medicaid (it is also involved in the CMSpilots). Today the DMO has approximately560,000 lives under contract. In the future, itanticipates adding many new employer contracts,through both payers and direct contracting, andincreasing its focus on government. Indeed,approximately half of LifeMasters’ $90 million inestimated 2005 revenues was generated throughMedicare and Medicaid.

Matria Healthcare

Matria, a company with roots in monitoring tech-nologies and maternity management, offers DMservices for multiple conditions including the fivecore chronics, back and other pain, depression, can-cer, and maternity, in addition to wellness programs.Matria has more than 30 million lives under contractand, according to the DMPC, annual DM revenues of$77 million.1

Although Matria provides DM and wellness pro-grams for payers as well, its focus over the past fewyears has been primarily on employers. Employersbenefit from working directly with Matria, the com-pany’s CFO, Steve Mengert, contends, becausemany large employers offer multiple health plansand change their health-plan offerings every two tothree years. Furthermore, says Mengert, employersrepresent a highly attractive market for DM servicesbecause they can actively engage employees toincrease participation in disease management. InDecember 2005, Matria announced its agreement toacquire CorSolutions, which the company says willresult in more balanced revenues across employersand payers.

Matria is among the first vendors to export diseasemanagement beyond U.S. borders, according to

1. Matria and the DMPC provided different figures for the company’s DMrevenues; for the sake of consistency, we have used the DMPC’s estimates.

Employers Are Driving Acceptance of Disease Management

Large employers are currently taking a more activerole in managing and coordinating employeehealth benefits and wellness programs, and diseasemanagement is part of this trend. Disease manage-ment is an increasingly well-known concept to mostlarge companies, which frequently request it forparticular conditions when contracting for healthcare service. Today the majority of self-insuredemployers that offer disease management do sothrough payers. But large self-insured employersare showing an increased propensity to contractdirectly for disease management.

Some of the largest U.S. employers are taking thistack, up from just a handful of companies a decadeago. Employers choosing the direct-contractingroute typically have multiple health plans and seeka single coordinated DM benefit that they can pro-mote internally and apply to all employees andtheir dependents.

Fueling this trend is the rise in self-insurance, upfrom 44 percent in 1999 to approximately 54 per-

cent today—and that trend is even more prevalentamong the so-called jumbo employers (those withmore than 5,000 employees), 82 percent of whichwere self-insured in 2005. (See Exhibit 9, page 22.)When they self-insure, employers typically don’treceive automatic access to disease management. Inmost cases, these companies must pay an additionalfee to the payer for outsourced DM programs. Forsome self-insured employers, the extra fee repre-sents a prohibitive barrier to DM adoption.

Still, many payers have found innovative ways tomarket their DM programs, and one regional payerwe interviewed had achieved penetration of 80 per-cent among self-insured lives—even with a fee for theDMO-provided programs. A representative fromone regional payer—ranked among the top 20 pay-ers in the nation—told BCG that 40 percent of thepayer’s self-insured lives were covered by diseasemanagement through employers’ direct contract-ing with DMOs. Before the rise of direct contract-ing, many of these self-insured lives might not havebeen touched by the approach at all.

Increasing interest among employers is making dis-ease management more pervasive in the market-


Mengert, who cites the company’s collaborationwith IBM in Japan. In addition to its internationalaspirations, a major focus for Matria is its expansioninto the business of informatics: selling data andanalysis to employers and pharmaceutical compa-nies in order to allow them to assess both employeehealth and the performance of their health plans andproviders in managing employee health.

Health Dialog

Health Dialog, a private company, was founded in1995 with the goal of improving medical care byaddressing unwarranted variation in treatment pat-terns. The company has evolved into what GeorgeBennett, its cofounder and CEO, describes as ananalytics and care management company.

According to Bennett, Health Dialog’s strengths arethe management of comorbidities in the chronicallyill population, an emphasis on behavioral changeamong patients, and programs that foster patients’

self-reliance. Although focusing on the chronically illthrough health coaching was and still is a key com-ponent of the company’s programs, Health Dialog’sofferings now extend to other issues, such as treat-ment decisions in areas as diverse as hysterectomy,knee surgery, and back pain.

Today Health Dialog primarily serves payers, but itscustomers also include employers and internationalgovernments—as well as the U.S. governmentthrough the company’s involvement in the CMSpilots. Altogether, Bennett reports, approximately 14 million people have access to Health Dialog’sprograms.

The DMPC lists Health Dialog’s 2005 estimated rev-enues at $110 million, but Bennett told BCG that heexpected revenues to reach nearly $136 million for2005 and to grow to between $230 million and$250 million in 2006. These figures reflect a con-siderable jump from the $3 million in revenues thecompany earned in 1999.

place through both direct contracting and the extended reach of payers’ own DM efforts.This heightened interest also reinforces promo-tion of DM services by payers, creates scaleeconomies, and raises the profile and perceivedvalue of the approach among employers, payers,and consumers—and even among payers abroad.(See the sidebar “Disease Management GoesGlobal.”)

Among the companies that have embraced directcontracting for disease management is AmericanStandard, a large manufacturing company with morethan 20,000 U.S.-based employees. American Stan-dard sees a unique role for itself in promoting thewell-being of its employees, according to Joe Check-ley, global director of employee benefits for the com-pany. To that end, it has contracted with multiplevendors to assemble a single, seamless health andwell-being program that is coordinated by HealthDialog.

In an interview with BCG, Checkley explained thatAmerican Standard’s approach has enabled thecompany to achieve superior health improvement,cost savings, and employee satisfaction beyond anygains the company could have achieved by relyingon multiple DM, wellness, and other programs pro-vided directly through health plans. In some ways,Checkley said, American Standard has actually cre-ated its own health plan, since its programs are sohighly customized and so closely integrated acrossits multiple suppliers. The employee benefits thatthe company offers include disease management,health coaching, decision-making support, health-risk assessments, and on-site wellness screeningsand programs.

Many of Checkley’s observations were echoed byother employers that have contracted directly fordisease management and other health benefits. Incontrast, representatives from companies that donot contract for disease management—either

22 BCG REPORT

0

20

40

60

80

100

1999 2000 2001 2002 2003 2004 2005

545452

44

49 4949

Jumbo employers (more than 5,000 employees) All employers

Percentage of covered workers in self-insured health plans

828079

727070

62

E X H I B I T 9

SELF- INSURANCE, RISING MARGINALLY AMONG EMPLOYERS OVERALL, IS MORE PREVALENT AMONG JUMBO EMPLOYERS

SOURCE: Employer Health Benefits, annual surveys for 1999 through 2005, published jointly by the Kaiser Family Foundation and the Health Research and Educational

Trust.

directly or through payers—generally said thateither the demographics of their employees or lowexpected utilization has prevented them from pur-suing the approach.

At least one employer, Delta Air Lines, is buckingthe trend toward direct contracting for diseasemanagement, reversing its own earlier initiative.Several years ago, Delta contracted directly with twoDMOs—Quality Oncology and CorSolutions—forthe management of oncology, diabetes, CAD, andCHF. Lynn Zonakis, director of health strategy forthe airline, told BCG that Delta had opted fordirect contracting because it desired greater detail

in plan reporting and in customized outcomesmeasurement than was available through its payers’DM programs at the time. Although Zonakisreported high levels of satisfaction with Delta’s DMprograms and their impact on trends in health carecosts, she explained that she is now shifting diseasemanagement back under the purview of Delta’s pri-mary national payer, United Healthcare. Thisreturn to payer-provided disease management, shesaid, is driven in part by improvements in United’soffering. More important, she noted that the air-line seeks to avoid the complexities of managingmultiple “carve-outs” and duplication in servicessuch as online health content.


Because containing health care costs and improvinghealth are goals with appeal worldwide, disease man-agement is expanding internationally. European andAsian interest in the approach is increasing, spurredin part by its growth in the United States and partic-ularly by its expansion into Medicare and Medicaid. Inaddition, influential groups such as the World HealthOrganization have voiced support for disease man-agement as they prepare to deal with the burden ofchronic diseases. Similarly, associations such as theInternational Disease Management Association(IDMA) have been working to promote the approachin individual countries throughout the world.

In many cases, disease management abroad differssubstantially from the forms it has taken in theUnited States, in part because overseas efforts arestill in their infancy and payers and health care sys-tems differ. According to Warren Todd, executive

D I S E A S E M A N A G E M E N T G O E S G L O B A L

director of the IDMA, some form of disease manage-ment has taken hold on all five continents: “Australiahas been very active via many pilots and the recent‘mainstreaming’ of DM into the public sector,” heexplains. “Germany was a relatively early adopter ofDM, but it experienced some problems when itattempted to implement a version of ‘lite’ DMthrough sick funds. Singapore provides anotherexample of where government has invested signifi-cantly in DM, led by the pioneering efforts of theNational Healthcare Group in 2000. There are manyother examples of DM around the world: Brazil hasfreestanding DMOs, South Africa has a number ofcombined wellness and DM programs and is forminga new DM Association, and of course the NationalHealth Service in the United Kingdom and theCalgary Health Region in Canada are organizingimportant initiatives in DM and prevention.”

meet the rising demand for these programs fromemployers. “We were just recently asked [by oneprospective customer] to describe our DM pro-grams for gastroesophageal reflux disease, bladderdisease, and low-back pain,” the director of one ofthe top 40 payers noted. The directors whoreported that their plans did not intend to applythe approach to additional conditions in the nearterm said they were waiting to assess returns fromcurrent programs before proceeding with newefforts.

The planned expansion into more covered livesand conditions is a key factor in our assessment thatdisease management still has significant potentialfor growth among commercial payers. Our researchshows that industry leaders and outside analystsalike tend to view disease management as being inits adolescence rather than its middle age, in par-ticular because of the growth opportunities avail-able among self-insured customers. Indeed, the vast

The Future of Disease Management

24 BCG REPORT

We expect disease management’s penetration andreach to increase dramatically in the next few years.In particular, the majority of payers we interviewedsaid they intended to add covered lives to their DMprograms. In 2004, JPMorgan’s research similarlyconcluded that plans with more than 1 million cov-ered lives were expecting double-digit growth ratesin DM enrollment in coming years. Plans with fewerthan 1 million lives were estimating growth rates inthe single digits.8

Many of the payer representatives whom we inter-viewed said they were counting on accomplishingsuch growth by penetrating deeper into the riskpool or by covering more diseases. Others wereseeking to make disease management availableunder new health-plan products for the first time.Frequently, payers cited the opportunity to bringdisease management to a larger percentage of self-insured lives.

Applying disease management more broadly is par-ticularly popular among payers, with 83 percent ofthe medical or DM directors we interviewed report-ing that they intended to apply the approach toadditional areas in the next year or two. Wellness,obesity, cardiac conditions, and cancer were cited most frequently as new target areas. (SeeExhibit 10.)

Interestingly, wellness was cited most frequently ofall—even though it falls beyond the traditionalscope of disease management. Employers, payers,and DMOs alike are turning with increasing inter-est to wellness initiatives and other health-manage-ment programs for healthy or undiagnosed individ-uals who have not yet generated claims for chronicor other conditions. Indeed, more and more, pay-ers are being called on to offer the full gamut ofmedical management—of which disease manage-ment is a central element.

The medical and DM directors whom we inter-viewed told us that their reasons for adding newconditions to existing DM efforts included thedesire to capture additional financial savings and

8. An In-Depth Look at Disease Management, JPMorgan North AmericaEquity Research, May 2004.

Percentage of interviewees

0

20

40

60

80

100

Specific new areas cited by payer representatives

1313131717

25

50

83

Wellness ObesityYes Cardiacconditions

(CAD and CHF)

Cancer COPD DepressionRenaldisease

Does your company intend to apply disease management to new areas in one to two years?

If so, which areas?

E X H I B I T 1 0

MORE THAN 80 PERCENT OF PAYER REPRESENTATIVESANTICIPATE APPLYING DISEASE MANAGEMENT TO NEW AREAS


majority—93 percent—of the medical and DMdirectors we interviewed perceived disease manage-ment to be still in the growth phase of the productlife cycle. (See Exhibit 11.) Likewise, analysts pre-dicted that the DM-based revenues earned byDMOs will rise about 18 percent annually over thenext few years, with some specific segments—suchas DM programs provided directly to employers—growing by more than 50 percent annually. A num-ber of DMOs anticipate even faster growth.

Experience and Results Will Drive the Demand for Additional DM Services

BCG’s research indicates that the in-house and out-sourced approaches to disease management arelikely to continue to coexist for some time, with nei-ther approach winning out entirely. About two-thirds of the medical and DM program directors weinterviewed said they planned to continue withtheir current approach; the remaining one-thirdtold us that they planned to reevaluate theirapproach in the near term—and their vendors, ifapplicable—as outcomes data become available.

Some payers may view disease management as socentral to their business that they will make everyeffort to keep or bring the approach in-house.Others may feel that they cannot afford the feesassociated with outsourcing or that they can bestlimit their expenditures by relying on an internalor assembly program. At the same time, we expectstill other payers to find disease management soresource intensive and difficult to manage effec-tively that they will turn to DMOs when their ser-vice-delivery or internal outcomes prove unsatisfac-tory. We also anticipate that the trend towardassembly offerings will increase as customerdemand for seamless offerings grows.

In the near term, several factors may influencewhether particular payers opt for largely in-houseor largely outsourced disease management. Onekey factor will be how successfully DMOs can dif-ferentiate their offerings and market them toemployers. A second will be how sophisticated theemployer base becomes in selecting DM servicesand distinguishing among particular providers. Athird factor will be how effectively internal pro-grams compete with outsourced programs in tar-geting and communicating to employer groups. A

fourth and final factor will be the preferences ofbenefits consultants and third-party administrators,which also play a role in DM-sourcing decisions.

In the long run, we expect a turning point to comeas employers gain even more experience with dis-ease management. Already employers are begin-ning to request customized reporting on the out-comes of DM programs—including detailedevidence of savings and health improvements. Thegreater the availability and credibility of data of thiskind, the clearer the path forward will be. In addi-tion, disease management’s fortunes will surely riseor fall as a result of the CMS pilots now under way.

To the extent that employers realize measurablecost savings or enhanced worker productivity, webelieve that they—and their payers and DMOs—will trumpet their findings at conferences and inpublications. Such results will only fuel the demandfor more disease management as part of a nation-wide effort to reduce health care costs and improvecorporate bottom lines. Those disappointed withtheir results will either switch to other payers orDMOs or withdraw their support for disease man-agement altogether. As with any innovation, theproof will be found in customer experience andoutcomes. We anticipate positive results.


Percentage of interviewees

0

93

7 0

Decline(less than

0% growth)

Infancy Growth(greater than 5% growth)

Maturity(0% to 5%

growth)

Disease management is at what stage of the product life cycle?

E X H I B I T 1 1

INDUSTRY LEADERS PERCEIVE DISEASE MANAGEMENTTO BE IN THE GROWTH STAGE OF ITS LIFE CYCLE


Disease Management Will Play an Integral—and Integrated—Role in Medical Management

For some payers, disease management will serve asthe cornerstone of their strategy; for others, it willbe a component of their strategy but not a point ofdifferentiation. Some payers are beginning to inte-grate disease management into care delivery—in afew cases, to such a degree that it can’t be extractedfrom the overall offering. Other payers are main-taining it as a distinct intervention focused on anarrow segment of members. Which approach willwin out?

The precise form that disease management takes inthe future will hinge on the care management sys-tems that payers deploy, the management philoso-phies that employers embrace, and the capabilitiesthat payers and DMOs master. Some attributes ofthe industry’s future are already becoming clear.For example, many payers are working diligently toincorporate disease management into theirresponses to the most pressing issues facing seniormanagement in health care: quality of care, the riseof consumer-directed care and of pay-for-perfor-mance programs, and the increasing interoperabil-ity among all the various information systems usedby payers, providers, and hospitals.

Payers in the vanguard are finding ways to over-come the complex organizational challenges inher-ent in addressing all these issues with a single inte-grated offering. However, for most companies,although they can envision this type of integration,implementing and achieving it are extremely diffi-cult from an operational perspective.

The fact that integrated medical management islacking at some of even the largest payers reflectsjust how substantial the opportunity is to enhancemembers’ health, improve provider quality, andcontain growth in health care costs. Today thislargely represents a lost opportunity. Tomorrow itwill likely serve as the basis for intense competition.

What Should Payers Do?

In our view, payers should address four key areaswith respect to disease management. These areasare of utmost importance to payers and are thusCEO-level agenda items.

• Deploy disease management to build competitiveadvantage. In general, payers can attain competi-tive advantage through three central elements:excellence in customer (including channel) seg-mentation and management, excellence in med-ical management, and excellence in the manage-ment of administrative and informationtechnology costs. Disease management addressesmedical management—often payers’ largest costcategory—by improving quality and providerrelationships and by containing costs. Given itsimportance, we were surprised that so many ofthe industry leaders we interviewed have not yetmade innovation in disease management a prior-ity; few told us that they were trying to use diseaseand medical management strategically.

• Push the organization to climb three successiverungs of the integration ladder in medical man-agement. The first rung involves ensuring that allmember-facing interactions are coordinated andappear seamless to the member. The secondinvolves ensuring that all the data available onmembers—not just claims data but also demo-graphic data and data on a specific member’s eval-uated readiness to change—are effectively ana-lyzed so that members can be specifically targetedand appropriately engaged. The third runginvolves breaking down silos between disease man-agement and the rest of the payer organization. Anintegrated strategy that spans disease manage-ment, product design, network management, con-tracting, and initiatives such as pay-for-perfor-mance programs will enable payers to realizemaximum benefits in the cost and quality of care.

• Actively engage consumers in preventing andmanaging chronic conditions. Payers that deter-mine the best ways to engage members as con-sumers while also tackling cost and quality issuesacross the delivery system will emerge as winners.Simply providing high-deductible plans is notenough. Indeed, the jury is still out on the impactof consumer-directed plans for those with or atrisk for developing chronic conditions.

• Treat the public sector as a learning laboratory.The power of the federal government to shapehealth care delivery in the United States is undis-puted, and its involvement in disease manage-ment through the CMS pilots is no exception.

26 BCG REPORT

The sheer number of Medicare and Medicaidbeneficiaries, their higher rates of chronic illnessand comorbidities, and their higher health-carecosts compared with the general populationmake the CMS pilots the most important devel-opment in disease management of the lastdecade. Astute payers that can quickly absorb thelessons of the pilots will find opportunities to rollout innovations in their commercial productsand improve their offerings to employers inter-ested in managing the health benefits of retirees.

We believe that within a few years, the bar will havebeen raised to such a level that few payers will beable to deploy token DM programs as a way tomerely “check the box” on medical managementofferings for competitive purposes. Still, no singlestrategy will suffice, and disease management willbe far from a monolithic approach. Each payer willneed to examine a variety of issues, such as theretention and penetration of self-insured lives by itsDM programs and the magnitude and reliability ofits savings measurements. Each payer will also needto tailor its offerings according to member mix,

employer mix, and turnover, as well as the relativeemphasis on wellness, consumer involvement, cus-tomer service, health care quality, and cost man-agement.

Given all the possible variations in medical man-agement and the degree of potential integration,we believe that payers face a tremendous opportu-nity to innovate, develop unique capabilities, andrationalize disparate and uncoordinated initiatives.The approach that ultimately emerges isn’t likely tobe called disease management, particularly since itwill be far more comprehensive than traditional dis-ease management has been. Still, the capabilitiesthat make up the traditional approach will be essen-tial to delivering high-quality and customized careto an increasingly activist and engaged population.The DMOs that have been pioneers in the field willsurely continue to help drive innovation and col-laborate with payers to provide new means of cap-turing value. And payers themselves will continueto invest heavily to achieve their objectives in med-ical management. No doubt, it will be an interest-ing few years.


Interviews with Industry Leaders

To augment this database, BCG conducted inter-views during 2005 with representatives from nearly40 payers. To ensure that the most accurate andconsistent picture possible would emerge, we spokewith executives holding similar positions in theircompanies, focusing specifically on medical direc-tors or program directors responsible for the pay-ers’ DM programs.

We also took steps to ensure that our interviewsspanned the full spectrum of payers: national,regional, and small local payers, as well as payerswith in-house DM programs and those that useDMOs. We supplemented the payer interviews withseveral discussions with benefits officers and repre-sentatives from large employers and DMOs.

As a condition of participation in the study, BCGagreed not to disclose the names of the interview-ees or their companies. In this report, therefore, weprovide only aggregated industry data. We haveincluded information and quotations that revealindividual companies or their competitive positionsonly when we have received explicit permission todo so.

Methodology

28 BCG REPORT

In 2005, BCG conducted a study to assess the stateof the disease management industry.

BCG’s DM Landscape Database

BCG compiled the DM Landscape Database byculling publicly available information from payers,newspapers and periodicals, industry conferences,and industry associations. We supplemented thisbenchmarking information by conducting inter-views with representatives from selected payers.

BCG’s DM Landscape Database captures DM infor-mation for 120 of the 150 largest payers in theUnited States at the end of 2004 (as measured bythe number of commercially insured lives), repre-senting about 96 percent of commercially insuredlives. The database includes all of the 30 largestpayers and 92 of the largest 100.

For each of the 120 plans detailed in the database,BCG assessed whether the plan provides diseasemanagement by drawing on in-house resources,sourcing it externally, or both. For 111 of theseplans, the DM Landscape Database also capturesinformation on which specific diseases are managedby the plan and which DMO, if applicable, is used.

Since its founding in 1963, The Boston Consulting Group has focusedon helping clients achieve competitive advantage. Our firm believes thatbest practices or benchmarks are rarely enough to create lasting valueand that positive change requires new insight into economics, markets,and organizational dynamics. We consider every assignment a unique setof opportunities and constraints for which no standard solution will beadequate. BCG has 60 offices in 36 countries and serves companies inall industries and markets. For further information, please visit our Website at www.bcg.com.

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Disclosure

Our assessment of the DM industry and its promise for payers is based entirely on our objective research and

independent analysis. For the sake of disclosure, we note the following:

• BCG counts among its clients companies across the health care spectrum that have an interest in the DM

phenomenon

• BCG projects have touched on DM issues for clients that have included payers, pharmaceutical companies,

equipment manufacturers, and disease management organizations themselves

• Two of the authors of this report, Dave Matheson and Anne Wilkins, currently serve on the Strategic Advisory

Board of Healthways, a disease management organization

The Boston Consulting Group publishes other reports and articles on health care that may be of interest to

senior executives. Recent examples include:



BCG

Realizing the Prom

ise of Disease M

anagement

www.bcg.com

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