Chairman Johnson, Congressman Stark, distinguished Subcommittee members - first, thank you for inviting me to discuss the significant role that disease management can play in improving people's lives. Also, I want to express my appreciation to you, Chairman Johnson and other Subcommittee members for your leadership on this issue. Analysis of disease management is an integral part of the Centers for Medicare & Medicaid Services' (CMS) efforts to improve and strengthen Medicare and improve the health care services provided to all Medicare beneficiaries. As the delivery of health care has matured, we all know that individual health care providers routinely plan and coordinate services within the realm of their own specialties or types of services. However, rarely does one particular provider have the resources or the ability to meet all of the needs of a chronically ill patient. Ideally, as part of a disease management program, a provider or disease management organization is dedicated to coordinating all health care services to meet a patient's needs fully and in the most cost-effective manner. I want to discuss with you in greater detail the challenges and opportunities in integrating disease management into Medicare. The demonstration projects we are developing can help achieve the President's principles to improve and strengthen Medicare while ensuring that America's seniors and disabled beneficiaries receive high quality care efficiently.

As you may know, last July, the President proposed a framework for strengthening and improving the Medicare program that builds on many ideas developed in this Committee and by other Members of Congress. That framework contains eight principles to guide our efforts:

• All seniors should have the option of a subsidized prescription drug benefit as part of modernized Medicare.
• Modernized Medicare should provide better coverage for preventive care and serious illness.
• Today's beneficiaries and those approaching retirement should have the option of keeping the traditional plan with no changes.
• Medicare should make available better health insurance options, like those available to all Federal employees.
• Medicare legislation should strengthen the program's long-term financial security.
• The management of the government Medicare plan should be strengthened to improve care for seniors.
• Medicare's regulations and administrative procedures should be updated and streamlined, while instances of fraud and abuse should be reduced.
• Medicare should encourage high-quality health care for all seniors.

The President, the Secretary, the Administrator and I are determined to work constructively with Congress to achieve these principles. We believe disease management is a critical element for meeting these goals. We are currently undertaking a series of disease management demonstration projects to explore a variety of ways to improve beneficiary care in the traditional Medicare plan. These demonstrations provide beneficiaries with greater choices, enhance the quality of their care, and offer better value for the dollars spent on health care. The almost complete absence of disease management services in the traditional Medicare plan is another striking indication of how outdated Medicare's benefit package has become. We appreciate this committee's efforts to improve and strengthen the traditional Medicare plan, and we are pleased to be working with you on legislation that will make disease management services more widely available.

Disease management is also one of the principal reasons why the President and Secretary Thompson have advocated immediate action to give seniors reliable private plan options in Medicare, and to prevent further pullouts of private plans from the Medicare program. Disease management services have been available to millions of seniors through private plans, yet inadequate and unfair payments are threatening those benefits. The most important step that Congress could take right now to allow seniors who depend on disease management to keep these valuable services, and to provide rapid access to such services to many more seniors who need them, is to fix the problems with the payment system for private plans.

BACKGROUND

A relatively small number of beneficiaries with certain chronic diseases account for a disproportionate share of Medicare expenditures. These chronic conditions include but are not limited to: asthma, diabetes, congestive heart failure and related cardiac conditions, hypertension, coronary artery disease, cardiovascular and cerebrovascular conditions, and chronic lung disease. Moreover, patients with these conditions typically receive fragmented health care from providers and multiple sites of care. We need to find better ways to improve and coordinate care for these patients and to do so more efficiently. Such disjointed care is confusing and can present difficulties for patients, including an increased risk of medical errors. Additionally, the repeated hospitalizations that frequently accompany such care are extremely costly, and are often an inefficient way to provide quality care. As the nation's population ages, the number of chronically ill Medicare beneficiaries is expected to grow dramatically, with serious implications for Medicare program costs. In the private sector, managed care entities such as health maintenance organizations, as well as private insurers, commercial firms, and academic medical centers, have developed a wide array of cost-control programs that combine adherence to evidence-based medical practices with better coordination of care across providers.

Several studies have suggested that case management and disease management programs can improve medical treatment plans, reduce avoidable hospital admissions, and promote other desirable outcomes. Coordination of care has the potential to improve the health status and quality of life for beneficiaries with chronic illnesses. Although there is a distinction between the two models, the case management approach is generally used to coordinate care to a patient with multiple chronic conditions, while the disease management approach tends to focuses primarily on the patient and one chronic condition, such as congestive heart failure. In the largest sense, both disease management and case management organizations provide services aimed at reaching one or more of the following goals:

• Improving access to services, including prevention services and necessary prescription drugs.
• Improving communication and coordination of services between patient, physician, disease management organization, and other providers.
• Improving physician performance through feedback and/or reports on the patient's progress in compliance with protocols.
• Improving patient self-care through such means as patient education, monitoring, and communication.

These goals echo the President's principles of improving the Medicare program through better care for serious illness, delivering higher quality health care, and protecting Medicare's financial security.

PROVIDING RELIABLE COVERAGE OPTIONS THAT INCLUDE DISEASE MANAGEMENT

We are already taking advantage of private sector expertise in disease management to give Medicare beneficiaries more services for their premiums, often with lower cost sharing and more benefits than are available under traditional Medicare. For example, Medicare+Choice plans provide many benefits that are valuable to seniors with serious and chronic health conditions, such as:

• A Medicare+Choice plan in Boston that has a comprehensive disease management program for its enrollees with diabetes. This has resulted in significant increases in the share of enrollees who received annual retinal eye exams and are monitored for diabetic nephropathy and substantial improvements in the management of their Hemoglobin and cholesterol levels.
• A Medicare+Choice plan in Florida that has a comprehensive disease management program to monitor, facilitate, and coordinate care for enrollees with cancer. As a result, the number of acute hospital days per cancer case dropped by about 15% over two years and the share of inpatient admissions for complications with cancer has declined by 10 percent.
• A Medicare+Choice plan in New York that has a case management program for those hospitalized for mental health disorders and nearly doubled the share of its enrollees who received follow-up care within 7 days of their hospital discharge. This is consistent with research that has shown that individuals who receive after-care following hospital stays for mental illness are more likely to be compliant with their treatment regimens and less likely to be readmitted to the hospital.

We are also undertaking several demonstration programs improve the disease management options available to seniors in private plans. The projects represent a wide range of programs and approaches, and they address a number of chronic conditions. First, we just announced yesterday a demonstration project to expand health plan options in Medicare+Choice. Preferred Provider Organizations (PPOs) have been successful in non-Medicare markets in providing disease management services and other valuable benefits for patients with chronic illnesses, yet they are almost nonexistent in Medicare. CMS is conducting the demonstration to test ways to provide more health plan options to people with Medicare. We hope to award demonstrations later this year in up to 12 geographic areas that will be available to enroll beneficiaries during the Fall open enrollment period and begin to serve enrollees next January. This demonstration program will test changes in methods of payment for Medicare services that may be more efficient and cost effective while improving the quality of services available to beneficiaries. The demonstration plans will be considered Medicare+Choice plans and must offer all of Medicare's required benefits, but will also have the flexibility to offer greater access to drug benefits. Second, we are giving Medicare+Choice organizations that meet specific quality indicators extra payments recognizing the costs of successful outpatient management of congestive heart failure (CHF).

DEMONSTRATION PROGRAMS IN FEE-FOR-SERVICE MEDICARE

The outdated benefit package in fee-for-service Medicare does not include disease management, and so beneficiaries in fee-for-service have not had access to these valuable services. To identify innovative ways to include coordinated disease management services in an inherently uncoordinated fee-for-service system, we have a number of demonstrations both underway and in development. This includes demonstrations that are being implemented under legislation developed with bipartisan support in this committee. In one fee-for-service project at Lovelace Health Systems in New Mexico, we are testing whether intensive case management services for CHF and diabetes mellitus can be a cost-effective means of improving the clinical outcomes, quality of life, and satisfaction with services for high-risk patients with these conditions. As part of the evaluation, we will be looking at mortality, hospitalization rates, emergency room use, satisfaction with care, and changes in health status and functioning.

We also have implemented an End Stage Renal Disease (ESRD) Managed Care Demonstration project that began in September 1996. Among other things, the demonstration was designed to test whether: integrated acute and chronic care services, and case management for ESRD patients improve health outcomes; and whether additional benefits are cost-effective. Services were provided for 3 years at each site -- Kaiser Permanente in Southern California and Advanced Renal Options in Southern Florida. We measured outcomes such as: survival, hospitalizations, patient satisfaction, transplantation, vascular access, hematocrit and adequacy of dialysis. In general, enrollees in the demonstration exhibited comparable or better outcomes when compared to those in fee-for-service. This demonstration provided us with valuable information as we consider new ways to better serve ESRD beneficiaries, including the possibility of developing a new ESRD demonstration.

In another demonstration, we have selected 15 sites to provide case management and disease management services to certain Medicare fee-for-service beneficiaries with complex chronic conditions. These conditions include congestive heart failure, heart, liver and lung diseases, diabetes, psychiatric disorders, major depressive disorders, drug or alcohol dependence, Alzheimer=s disease or other dementia, cancer, and HIV/AIDS. This demonstration was authorized by the Balanced Budget Act of 1997 to examine whether private sector case management tools adopted by health maintenance organizations, insurers, and academic medical centers to promote the use of evidence-based medical practices could be applied to fee-for-service beneficiaries. This program was designed to address important implications for the future of the Medicare program as the beneficiary population ages, and the number of beneficiaries with chronic illnesses increases. We are testing whether coordinated care programs can improve medical treatment plans, reduce avoidable hospital admissions, and promote other desirable outcomes among Medicare beneficiaries with chronic diseases. The projects have just begun enrolling patients. The statute that authorizes these projects allows for the effective projects to be continued and the number of projects to be expanded based on positive evaluation results -- if the projects are found to be cost-effective and that quality of care and satisfaction are improved. In addition, the components of the effective projects that are beneficial to the Medicare program may be made a permanent part of the Medicare program. These initial projects are varied in their scope and include both provider organizations as well as commercial companies, utilize both case and disease management approaches, are located in urban and rural areas, and provide a range of services from conventional case management to high-tech patient monitoring. For example:

• CorSolutions Medical, Inc. of Buffalo Grove, Illinois will implement an urban disease management program targeting beneficiaries in Texas and Indiana with high-risk CHF. The program will offer an extensive array of interventions including an in-home assessment, patient education, and physician reports.
• Carle Foundation Hospital of Urbana, Illinois will implement a rural case management program targeting beneficiaries in eastern Illinois with various chronic conditions. Interventions include health assessments, patient and physician education, medication review, and supportive services.
• Health Quality Partners of Allentown, Pennsylvania will implement an urban and rural disease management program targeting beneficiaries in eastern Pennsylvania with various chronic conditions. This integrated delivery system will provide disease-specific education, and coordination and arrangement of medical care and social services.
• Quality Oncology, Inc. of McLean, Virginia will implement an urban disease management program targeting beneficiaries in Broward County, Florida with cancer. This commercial vendor will match the plan of care written by the patient's own oncologist with its guidelines based on the type, location and stage of the patient's cancer. The program's medical director will contact the patient's oncologist to discuss any differences between the care plan and the guidelines. A care manager will provide patient education and counseling, care coordination, and service arrangement.
• Washington University of St. Louis, Missouri and StatusOne Health of Hopkinton, Massachusetts will implement an urban case management program targeting beneficiaries in St. Louis with various chronic conditions. In this joint venture, patients will receive health and self-care education, personal goal setting and health and social services.
• QMED, Inc. of Laurence Harbor, New Jersey will implement an urban disease management program targeting beneficiaries in Northern California with coronary artery disease. This commercial vendor will combine data from a cardiac monitoring device with its system knowledge database to assist physicians in assessing the patient's condition and formulating treatment recommendations. In addition, cardiac medications will be provided to participants in financial need.

BUILDING FOR THE FUTURE

We are also developing future demonstration projects that will expand options for Medicare beneficiaries in the Medicare+Choice program and the traditional Medicare program. Recently, we announced a new and innovative demonstration, as required by the Benefits Improvement and Protection Act of 2000 (BIPA), that will test the combination of providing disease management services and offering outpatient prescription drugs to Medicare beneficiaries with advanced-stage congestive heart failure, diabetes, or coronary heart disease. The goal is to coordinate care and assist beneficiaries in managing their doctors' orders and monitoring their medication, which in turn will lead to better, healthier and fuller lives. Under this demonstration, disease management organizations may be paid a monthly premium for coordinating the care of patients in the studies and for the cost of prescription drugs. We will require each organization participating in the program to measure improvements in health outcomes and reduce Medicare program expenditures. In fact, participating organizations must post a bond guaranteeing savings for the program. Also, as mandated by BIPA, we are developing a physician group practice demonstration encouraging coordination of Part A and Part B services, rewarding physicians for improving beneficiary health outcomes, and promoting efficiency.

In addition to stabilizing the existing Medicare+Choice program, and providing more health plan options, like our PPO initiative, we want to develop specific health plan options for those beneficiaries with chronic illness. We are investigating disease management projects that would work with a diverse group of organizations, including Provider Sponsored Organizations (PSOs), integrated healthcare systems, disease management organizations, and Medicare+Choice plans. We want to enhance the clinical management of care to better serve the patients, provide for more effective coordination of services, and improve beneficiaries' health clinical outcomes and reduce costs to the Medicare program.

For example, we are considering demonstrations to test capitated payment arrangements with qualified organizations that will use the case management techniques to treat chronic diseases such as congestive heart failure, diabetes, and chronic obstructive pulmonary disease. This would allow a plan to specifically target treatment and coordination for chronic diseases. The payment models are intended to improve the coordination and quality of care for Medicare beneficiaries and to reduce costs to the Medicare program. The targeted populations could include beneficiaries eligible for both Medicare and Medicaid, as well as the frail elderly.

Similar to the current BIPA demonstration project, we also are interested in applying the private sector contracting techniques that health plans use in the Medicare+Choice program with disease management for fee-for-service populations. In addition, as I mentioned, we are considering building on the positive aspects of our current ESRD demonstration to further explore using integrated care management systems for beneficiaries with ESRD. We want to test the effectiveness of disease management models in increasing quality of care for ESRD patients while ensuring that this care is provided both more effectively and efficiently.

Our evaluations of all of these projects will inform our future efforts. We are evaluating health outcomes and beneficiary satisfaction, the cost-effectiveness of the projects for the Medicare program, provider satisfaction, and other quality and outcomes measures. We anticipate that better outpatient care and monitoring through the case management model will reduce avoidable hospitalizations, avoid unnecessary services, and improve outcomes. The Agency also is exploring various payment options, including case-rated methodologies for treating particular conditions, such as stroke, that may lend themselves to this type of payment system. We recognize, however, that costs for some individual cases, particularly those in which appropriate medical services were previously underutilized, could increase with coordination of services. Nevertheless, we expect that in the aggregate, the costs to Medicare will be the same or lower through the efficiencies that will result in providing appropriate care and this will more than offset the added expenses.

While these new demonstration programs hold promise, they are not yet fully tested and they are no substitute for the comprehensive coverage that many beneficiaries prefer through private plans. The most important step for helping Medicare build for the future, in terms of providing integrated benefits that keep patients healthy, is to create a stable and fair payment system for Medicare+Choice plans.

CONCLUSION

Disease management is a critical element for improving the nation's health care delivery system. Yet seniors are far less likely than other Americans with reliable access to modern, integrated health care plans to have access to disease management services. Through changes in Medicare's unfair payment system for private plans, we are working to give seniors the same access to modern disease management services that other Americans enjoy. We also are working to address the difficulties of providing effective disease management services in the fee-for-service plan. Our goal is to make disease management services widely available, enabling beneficiaries to enhance their quality of care and get better value for the dollars they spend on health care. We look forward to continuing to work cooperatively with you Chairman Johnson, this Subcommittee, and the Congress to find innovative and flexible ways to improve and strengthen the Medicare program while making sure that beneficiaries, particularly those with chronic conditions, have access to the care they deserve. I thank you for the opportunity to discuss this important topic today, and I am happy to answer your questions.