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Implement a Disease Management Program for Medicaid Patients


Disease Management (DM) is a term that describes health care assistance programs designed to improve the quality of health for persons with chronic illnesses while decreasing the costs of health care, usually by reducing hospitalizations and emergency room visits. Texas should contract with private companies to provide DM services with guaranteed savings for some of the state’s Medicaid patients.


Evidence suggests that the health care most patients with chronic illnesses (such as asthma, diabetes and hypertension) receive is not managed well.[1] Chronically ill people need adequate support and medical services to prevent their conditions from becoming more serious.

Disease management (DM) is a term that describes health care assistance programs designed to improve the quality of health for individuals with chronic illnesses while decreasing the cost of their care, usually by reducing hospitalizations and emergency room visits. DM programs can improve chronically ill patients’ health by managing and coordinating the health care services they receive; ensuring that they take the proper medicines; and helping them take additional responsibility for their own care.

DM programs provide high-risk, potentially high-cost individuals with assistance to help them understand how to better manage their own diseases. Patients may be given routine information and advice via the telephone, mail or personal contact. DM programs also offer patients access to 24-hour-a-day, seven-day-a-week telephone assistance in case of a crisis. They also provide medical personnel with health care guidelines and instructions outlining how patients should care for themselves.

DM programs give patients a greater understanding of their diseases, allowing them to make positive lifestyle changes and follow their medication regimens more closely. Consequently, DM programs help patients use hospital and emergency facilities less frequently. Researchers have found education, social support and behavioral changes—the products of DM—improve the health of individuals with chronic illnesses.[2] A Duke University study of congestive heart failure patients, for instance, found that the use of DM reduced both hospital usage and costs per patient.[3]

DM has existed in its current form since early 1996. “Current form,” in this case, means contracts between DM providers and insurers that cover a defined population with a specific condition or disease. The vendors provide patient education and monitoring and feedback on patient conditions to their insurers and health care providers, and guarantee improvements in both financial and clinical outcomes.

Since 1996, the DM industry has grown by roughly 30 percent a year, making it the fastest growing of the major outsourced clinical services.[4] In 2002, health care insurers spent roughly $600 million on outsourced DM, in addition to money spent on establishing their own programs.[5]

Most private health insurance plans and a small but growing number of state Medicaid plans (in Florida, Indiana, Washington and Oregon) now offer disease management. The largest publicly traded DM company is American Healthways. Two health insurance plans prominent in Texas, Humana and Pacificare, also administer DM programs.[6] Many DM contracts are written to include a guarantee to produce savings for their clients. Some vendors claim to have produced savings in roughly 90 percent of their contracts.[7]

Medicaid and DM

While states’ use of DM programs for Medicaid patients is relatively recent, their experiences still can offer useful information.

Florida: In 1997, Florida contracted with five DM vendors, one for asthma, one for diabetes, one for HIV and two for hemophilia. Later, the state contracted for End Stage Renal Disease (ESRD) and congestive heart failure.[8] Some of these contracts cover the entire state, while others cover portions of the state.[9]

Florida shifted to DM after it became clear that a small percentage of Medicaid patients accounted for most of its spending. In fiscal 1997, 10 percent of Florida’s Medicaid recipients accounted for about $4 billion or 57 percent of the program’s entire cost.[10] Likewise in Texas, seniors and the blind and disabled, or 24 percent of the recipients, account for 65 percent of Texas Medicaid expenditures.[11]

Florida’s DM programs have produced varying results depending on the contract and how the program is implemented. The AIDS program reported first-year savings of $5.8 million.[12] Cost of drugs was $150 per member per month. Spending on hospitalizations dropped by $350 per member per month.[13]

Florida requires all of its DM vendors to guarantee 6.5 percent in savings. One of its contracts is with the pharmaceutical company Pfizer, which provides DM through its subsidiary, Pfizer Health Solutions. Pfizer uses a call center and contracts with hospitals for care managers to provide patient outreach services and self-help instruction. The company has guaranteed Florida $15 million in savings in the first year of its contract, and $18 million in the second year. It also covers any startup costs associated with the program.[14]

Washington: In 2002, Washington contracted with a vendor for DM programs in asthma, heart disease, ESRD and diabetes, with guaranteed savings of 5 percent. Washington will pay a monthly client fee of $30 per member for asthma, heart disease and diabetes and $300 per person per month for ESRD.

Washington expects that its $400,000 contract with the DM vendor will allow the state to realize $1 million in gross savings or $600,000 in net savings. Asthma, heart disease and ESRD DM managers will reconcile their estimated savings with the state after one year, while diabetes program managers will reconcile savings after two years. The state will determine the amount of actual savings based on measures such as the frequency of hospital visits. If the state does not realize a 5 percent savings in the disease areas covered by its contract, the DMO must pay the state the difference.[15]

Other states: Other states are pursuing or have recently completed contracts with DM vendors. Each may offer new approaches. In Mississippi, DM vendors will work with local physician advisory groups and the University of Mississippi’s medical schools. Because of the rural nature of much of the state, DM vendors will place nurses in local communities and will receive assignments over the Internet.[16]

Pennsylvania has eight health maintenance organizations (HMOs) managing Medicaid populations. Pennsylvania is considering legislation that would allow all eight health plans to seek combined DM services, so that they can negotiate a more cost-effective deal.[17]

DM in Texas Medicaid

Previous Comptroller reports have recommended DM pilot projects aimed at patients with diabetes and asthma.[18] The Texas Department of Health (TDH) developed and conducted a pilot project in Bexar County to study and publicize preventive measures to delay or prevent the onset of diabetes-related illnesses. TDH did not consider outsourcing these services, in part because few vendors existed at that time. The pilot had few participants, found it difficult to provide outreach services and did not report savings.

In October 2002, the Texas Health and Human Services Commission will begin an in-house pilot project to provide disease management for an estimated 450 Medicaid-eligible asthma patients in Austin, San Antonio, Corpus Christi, Houston, San Angelo and El Paso.

A DM program for Medicaid is more likely to require caseworker visits because impoverished patients may lack phones, have lower literacy rates and need more personal education. This level of contact would involve higher costs, but could produce greater net savings, since it would reduce hospitalization rates.

Some segments of Texas’ Medicaid program should be excluded from a DM program because they are already eligible for other similar services offered through HMOs or primary care case management (PCCM) programs. To avoid program duplication, DM should focus on groups of recipients who have qualified for Medicaid and Supplemental Security Income (SSI) and are not required by HHSC to participate in HMOs, as well as Medicaid recipients who live in areas that lack HMOs.

Texas Medicaid spent about $1 billion in fiscal 2001 on health care for those with disabilities; an estimated $984 million served clients living in areas without HMOs or PCCMs.[19]


The Texas Health and Human Services Commission (HHSC) should seek competitive bids for disease management services for some Medicaid patients. The bids should guarantee savings.

Texas should enter guaranteed contracts to cover several diseases. These contracts could include heart disease, diabetes, respiratory illnesses (including asthma and chronic obstructive pulmonary disease), end-stage renal disease (ESRD) and HIV.

HHSC may need technical assistance to write the request for proposals, determine how savings will be measured, identify populations that need disease management and develop appropriate contracts. A statewide analysis would be required to prioritize the diseases that incur the highest Medicaid costs and those providing the largest opportunity for potential savings.

DM contracts should be issued to cover children and pregnant women in the Rio Grande Valley for asthma. The other specifics of the contract(s) should be left to HHSC.

Fiscal Impact

The vendor contract should guarantee savings. The estimate assumes that the contract would take effect March 1, 2004 and produce six months of savings in fiscal 2004.

The estimate’s assumptions concerning diseases, costs and savings reflect the experiences of Washington state. State-paid client fees are based on $30 per patient per month for all diseases except ESRD. ESRD client fees are calculated at $300 per patient per month. The estimate also assumes that 19,000 chronically ill, disabled Texans who do not participate in HMOs would be enrolled, as well as 6,000 Medicaid recipients residing in the Rio Grande Valley who do not participate in HMOs.

A one-time cost of $30,000 would be used to pay consultants to assist in the development of this program. This cost would be split 50/50 with the federal government, since the state and federal governments share responsibility for Medicaid. To achieve the savings estimated below, HHSC appropriations should be reduced by $8,583,000 in general revenue for the biennium.

Fiscal Year Savings to General Revenue Savings to Federal Funds (Cost) to General Revenue (Cost) to Federal Funds Net Savings to General Revenue Net Savings to Federal Funds
2004 $4,777,000 $ 7,162,000 ($1,926,000) ($2,880,000) $ 2,851,000 $4,282,000
2005 $9,554,000 $14,325,000 ($3,822,000) ($5,730,000) $5,732, 000 $8,595,000
2006 $9,554,000 $14,325,000 ($3,822,000) ($5,730,000) $5,732, 000 $8,595,000
2007 $9,554,000 $14,325,000 ($3,822,000) ($5,730,000) $5,732, 000 $8,595,000
2008 $9,554,000 $14,325,000 ($3,822,000) ($5,730,000) $5,732, 000 $8,595,000


[1]B. Bender, H. Milgram and C. Rand, “Nonadherence in Asthmatic Patients: Is there a Solution to the Problem?” Annals of Allergy, Asthma, & Immunology (1997), pp. 177-186; R. Aubert, W. Herman, J. Walters, et al, “Nurse Case Management to Improve Glycemic Control in Diabetic Patients in a Health Maintenance Organization: A Randomized Controlled Trial,” Annual Internal Medicine (1998), pp.605-612; and M. Alexander, E. Hunkeler, et al, “Evaluating Hypertension Control in a Managed Care Setting,” Archives of Internal Medicine (1999), pp. 2,673-2,677.

[2]Wayne Katon, “Improvement of Outcomes in Chronic Illness,” Archives of Family Medicine (August 2000), p. 2.

[3]David Whellan, Laura Gaulden, Wendy A. Gatis, et al, “The Benefit of Implementing a Heart Failure Disease Management Program,” Archives of Internal Medicine (2001), pp. 2,223-2,228.

[4]Interview with Al Lewis, director of Disease Management Purchasing Consortium, Wellesley, Massachusetts, October 1, 2002.

[5]Interview with Al Lewis, October 1, 2002.

[6]Interview with Al Lewis, director of Disease Management Purchasing Consortium, Wellesley, Massachusetts, August 14, 2002.

[7]Interview with David Wysntra, Arthur J. Gallagher & Co., Itasca, Illinois, October 1, 2002.

[8]Rueben J. King-Shaw, Jr., executive director, Florida Agency for Health Care Administration, “Florida Medicaid’s Disease Management Initiative,” a presentation before the Texas Medical Association Specialty Forum on Disease Management, December 16, 1999.

[9]Florida Agency for Health Care Administration, “Florida Medicaid Disease Management Initiative,” a presentation before the Florida Senate Health and Human Services Appropriations Subcommittee, February 13, 2002.

[10]Rueben J. King-Shaw, Jr., “Florida Medicaid’s Disease Management Initiative.”

[11]Texas Health and Human Services Commission, “Texas Medicaid in Perspective,” Fourth Edition, April 2002, pp. 5-15.

[12]Florida Agency for Health Care Administration, “Florida Medicaid Disease Management Initiative.”

[13]Interview with Frederic S. Goldstein, Specialty Disease Management Services, Jacksonville, Florida, September 23, 2002.

[14]Christopher Swope, “Treating Medicaid,” Governing (July 2002), pp. 25-27.

[15]Washington State Department of Social and Health Services, Disease Management Request for Proposals (Olympia, Washington, October 16, 2001), p. 5.

[16]Telephone interview with Frederic S. Goldstein.

[17]Interview with Al Lewis, October 1, 2002.

[18]Texas Comptroller of Public Accounts, “Increase Diabetes Prevention,” in Disturbing the Peace: The Challenge of Change in Texas Government (Austin, Texas, December 1999), pp. 149-152; and Texas Comptroller of Public Accounts, “Improve Asthma Treatment Programs,” in e-Texas: Smaller, Smarter, Faster Government (Austin, Texas, December 2000), pp. 195-198.

[19]Health and Human Services Commission, “Overall Premium Forecast, FY 2000-2005,” Austin, Texas, October 11, 2002. (Spreadsheet.)