Disease Mangement

Disease Management Firms Get HMO Licenses, Launch Health Plans for Chronically Ill

Reprinted from the Oct. 17, 2005, issue of HEALTH PLAN WEEK (formerly Managed Care Week), the industry's leading source of business, financial and regulatory news of health plans, PPOs, and POS plans.

Two disease management (DM) companies are entering the HMO business in order to provide Medicare Advantage (MA) plans to the chronically ill. Although these DM firms are experienced in managing care for patients with chronic illnesses, the companies are new to some aspects of managed care. They're developing internal infrastructure and building external partnerships to manage pharmacy benefits, claims processing, provider networks and other insurance functions. Despite those efforts, the companies say they don't expect their health insurance customers to view them as competitors. In fact, one firm hopes to partner with insurers to carve out risk for chronically ill enrollees.

Special Needs Plans (SNPs) were created by the 2003 Medicare reform law. Under the risk-adjusted, capitated programs, the plans accept full risk from CMS for all medical and pharmacy health expenses for enrollees, not just those expenses associated with the enrollees' chronic diseases. CMS has selected several insurers to offer SNPs for patients who are in institutional settings or are dually eligible for Medicare and Medicaid. But only three companies — two DM firms, plus Health Net, Inc. — were chosen so far to offer SNPs for chronic illness, which take effect in January 2006.

Baltimore-based XLHealth Corp. has obtained an insurance license and is launching its own MA SNP, called Care Improvement Plus, to care for patients with complex diabetes, congestive heart failure and end-stage renal disease in the city of Baltimore and seven Maryland counties.

Eatontown, N.J.-based QMed Inc. is partnering with the health plan DAKOTACARE to offer an SNP in that state. The Sioux Falls, S.D.-based insurer is the insurer on the project, but QMed is at risk for any losses and will take most of the profits if any accrue, says Robert Mosby, QMed's vice president of corporate strategy and development. The two firms will serve Medicare beneficiaries with heart failure, coronary artery disease and stroke.

Health Net's program will target chronic obstructive pulmonary disease and congestive heart failure in two California and three New York counties.

XLHealth Builds Managed Care Infrastructure

To launch its SNP, XLHealth built its own provider network, but outsourced other functions, says Nelson Sabatini, a former Maryland Secretary of Health who now is the president of XLHealth's SPN. XLHealth contracted with King of Prussia, Pa.-based TMG Health, Inc. for claims processing and Caremark Rx, Inc. for Part D pharmacy benefit services.

XLHealth "got a very good reception" when it invited providers to join the network, he says. The panel consists of 2,500 health care providers, including primary care physicians, specialists and hospitals. XLHealth promises to operate an open-access model with no requirements for referrals, authorizations or pre-certifications — and no retroactive claim denials. The DM firm also will collect medical histories before office visits and provide physicians with patient updates.

Despite the additional infrastructure, Sabatini says the SNP is not "that dramatic a change" from XLHealth's usual business of providing DM programs for patients with chronic diseases. "When you look at the population that we're going to be focusing on, for the most part their other problems are usually disease-related," he says. "The fundamental approach to care management that we use for these diseases will work just as well for other conditions."

XLHealth estimates a potential market of 98,000 chronically ill Medicare beneficiaries in its service area, and hopes to enroll about 3,500 members in 2006, Sabatini says. Jim Murphy, the firm's director of marketing, says the Baltimore-based company has targeted three to five additional states for 2007, mostly in the Southeast, and intends to be in seven to 10 markets within three years.

Sabatini says he has not heard any health plan clients voice concerns about competition. "Of course, Maryland is somewhat of a unique market, because there's very, very little penetration within the Medicare market," he notes.

QMed Is Applying for Insurance License

QMed and DAKOTACARE hope to enroll 3,000 to 5,000 chronically ill seniors by the end of 2007, out of a potential population of 31,000 chronically ill Medicare beneficiaries, Mosby says. The DM firm intends to apply for an insurance license on its own in another state, which he declines to name, and to apply for a second SNP by March 2006.

Although QMed counts insurers among its customer base, Mosby says he doesn't expect these clients to view QMed's entrance into the SNP arena as a competitive move. QMed is sensitive to such concerns, he says. But "we're obviously too small to think about doing [SNPs] on a large regional or national basis," he notes. In addition, he doesn't expect QMed to expand into operating mainstream MA plans. "Our real core competency is in running what I call the 'Intel Inside' health plans' medical management," not in providing overall health insurance services for healthy patients, he says.

The DM firm hopes instead to partner with existing MA plans, particularly smaller provider-owned plans, to carve out risk for the 20% to 25% of members who have chronic illnesses such as congestive heart failure or coronary artery disease, he says. This would allow a provider-owned plan to gain more capital by freeing up reserves held for future medical costs for that group of patients, Mosby says.

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