Reprinted from the Sept. 23, 2005, issue of INSIDE DISEASE MANAGEMENT, a biweekly newsletter with timely news and analysis of financial results and outcomes for new disease management programs.

Disease management vendors, driven by benefits brokers who believe they now have more precise data tools that can show smaller, self-insured employers the need for stand-alone DM programs, are beginning to develop products aimed at smaller, self-funded companies. But other industry experts say that inadequate claims data and small employee pools make it very difficult for smaller firms to provide cost-effective DM programs.

SHPS, Inc. in August launched a new program, CareWise Personal Health Management, straight at what it terms "the underserved middle market." And more DM vendors are likely to follow, says Joe Marlowe, national health care practice leader at Aon Consulting, Inc. "I think they are starting to get interested," Marlowe says. "The major stumbling block has been the problem of dealing with the claims data -— it's very difficult to work with. For a 2,000-life group, a DM company may spend as much time reformulating the data as they do with 20,000 employees."

Marlowe says he's been working with a DM vendor that is developing a product for the middle market, but he declines to name the vendor. He also notes that approximately 40% of employers with between 500 and 5,000 workers either are self-funded or have their health insurance with small carriers, making them prime candidates for a stand-alone DM program and offering a potentially huge new market for vendors that can take advantage.

But those vendors offering products to employers smaller than 5,000 workers must contend with skimpy or nonexistent claims data and with the inherent difficulties in proving return on investment (ROI) with small numbers. Smaller employers typically don't have the clout with their third-party administrators (TPAs) to be able to get high-quality data feeds, and also don't have the staffing resources that they would need to collect and analyze much data in-house.

Because of these problems, a DM program for this market is likely to be more expensive. Middle-market employers, in fact, should expect to pay about 10% more per beneficiary to a DM vendor than would large firms for the same services, Marlowe says, adding that "obviously they're not going to pay a lot more, but they have to be willing to pay a little bit more."

Marlowe notes that "American businesses in general have been becoming much more aware of the possibilities of disease management and the role it can play in helping them better manage medical costs. Unfortunately, most of the largest DM companies have not offered services directly to groups smaller than 3,000. And there are literally thousands of companies with [more than 1,000 and] below 3,000 people."

Those companies, Marlowe says, have been forced to resort to "second or third-tier DM firms that have not benefited from the rigor involved in serving large FORTUNE 500 companies or large health plans."

Marlowe says more traditional case management firms may be offering DM without having the experience, staffing systems and informatics to do DM well. He also points to "the rapid growth in health promotion or wellness vendors offering DM lite," a term industry insiders often use to describe programs with some patient education but no real data analysis or patient engagement.

Disease Management Purchasing Consortium President Al Lewis says that smaller employers are "five years behind" when it comes to understanding the data needs of a DM program. And that poses a real problem because, with the smaller numbers involved, it's so important to measure much more carefully, Lewis says.

"Interest is absolutely growing" among smaller employers, he says, but he warns that there are few products aimed at those employers that he would recommend.

"The middle-market person needs to go through a TPA that knows how to do this stuff, or go to one of the very few vendors [offering programs to the middle market] that know this stuff," Lewis says. Those companies include FutureHealth Corp., American Health Holdings, Inc., SHPS and Avidyn, Inc., he says.

Analytical Tools Drive Trend

New data tools are driving the push for DM programs that target mid-sized employers, says Janis Moebus, senior vice president for healthcare product management at SHPS, which boosted its DM stake when it in March 2004 acquired Landacorp, Inc., an Atlanta firm that earlier had acquired DM firm ProMedex Inc. "The brokers suddenly have some new analytical tools, and when they look at their customers' data, they see a huge need for effective DM programs," she says.

In fact, they're demanding new programs; SHPS' program is a response to requests from smaller employers and brokers interested in DM for that market, Moebus says. SHPS' new product, which was piloted for nearly a year with four customers before being launched on a large-scale basis in August, differs from the DM products SHPS offers to large employers in several respects, Moebus says.

For example, large employers must provide claims data "at a minimum," and SHPS likes to have pharmacy data as well, she says. But smaller employers sometimes cannot get claims data, so SHPS relies more on a highly targeted health risk assessment to identify and stratify potential DM program participants, she adds.

Until the formal launch of the program, SHPS had about 16 TPA/carrier clients that sold the DM product to the middle market wholesale, totaling about 2.9 million covered lives, according to Moebus. SHPS' recent launch of the retail product has been in a trial phase since January, she says, with four employer groups that represent approximately 40,000 covered lives.

Performance guarantees for contracts with smaller employers will be less likely to involve ROI and more likely to involve "things we can measure and be accountable for," such as "did we execute our call campaign? And did we get a certain number of people involved?" says Moebus.

SHPS will provide reporting to customers, she says, "but because the group is so small, it's subject to the law of small numbers - we tell them it's not actuarily certified." More accurate data can be developed by aggregating data across a broker's book of business, she says.

Avidyn Health, Inc. Chief Medical Officer Elaine Mischler, M.D., says she agrees that data is the major stumbling block in serving middle-market clients, and says that hiring a TPA associated with a DM vendor may be the best approach for these employers to take.

"We grew up with many, many middle-market employers that we do this service for," says Mischler. Avidyn serves customers of four TPAs owned by Fiserv Health, Inc., Avidyn's parent company. Since Avidyn is associated with TPAs, the DM vendor is able to get access to the necessary data, she notes, adding that "there's no set-up fee to bring in the data I need."

If Avidyn is asked to serve a middle-market employer that's not also served by a Fiserv TPA, then Mischler requires at least two and possibly three data feeds from that company's TPA: eligibility, claims and pharmacy if available. These feeds cost between $5,000 and $10,000 each, she says.

This becomes cost-effective for employers with around 3,000 or more workers, she explains.

Avidyn has about 600,000 lives covered by DM programs, and 240,000 of these are in small groups of 1,000 to 5,000 employees, Mischler says.

CorSolutions Stresses Population Management

CorSolutions, Inc. also focuses heavily on small and mid-range companies, but takes a "more population health management approach" to DM in these employers, says Ron Loeppke, M.D., chief medical officer. The approach includes DM for more than 50 conditions, including rare diseases, Loeppke says.

"The reality is this: They're suffering from the same pressures that large employers are, and they need similar interventions to address those pressures," he says.

CorSolutions also uses HRAs to stratify populations into low, medium and high-risk lifestyle management, says Loeppke. "It behooves all of us in the industry to move beyond a claims-based approach," he says. "If [an employer] only has x-thousands of dollars, then they can put that money into the area of highest need."

CorSolutions has three different categories of products for small to mid-sized employers, including HRAs; its lifestyle management products, which include Web-based health tools and "more intensive nurse coaching"; and its DM products, which cover more than 50 diseases, Loeppke says. Employers can buy these products either bundled or unbundled.

"In no way is our product a 'DM lite,'" Loeppke says. "It's very vigorous, even when compared with more traditional, single-disease programs."

DM vendors can shave some costs for the middle-market employer in how they set up their interventions, Mischler says. For example, a large employer might want the vendor to contact everyone identified with a particular disease state, regardless of whether those people are rated high, medium or low risk. But a smaller employer might want to limit those contacts to just the high-risk group, she says.