An outsourcing relationship that helped Oregon Medicaid Health Plan members better manage their own care helped the state avoid at least $6 million in medical costs in its first year, 2002.
Like all states in the US, Oregon has struggled to reverse growing public healthcare costs. The state’s Medicaid recipient program provides medical services to lower-income Oregonians, most of whom do not have traditional health insurance. Always attempting to display fiscal responsibility, the rising costs of healthcare have forced state Medicaid agencies to provide responsive healthcare in the face of carefully parsed budgets.
Traditionally funded with state and federal money, the onus has fallen on Medicaid programs to emphasize less-expensive prevention plans for its participants with chronic health problems before they’re forced to seek relief at hospitals. Hospitalization is the most expensive and not always best outcome, since usually by that time these patients present with more dire symptoms.
So in 2001, Oregon’s Legislature drastically cut the state’s Department of Human Services (DHS) Medicaid budget for the following year, but offered to return a generous portion should the department find “imaginative ways” to trim costs without compromising the quality of healthcare once it finalized the coming year’s budget.
“We had begun to phase in some outsourcing ventures before that time,” says Tom Turek, M.D, Medical Director, Office of Medical Assistance/Oregon DHS. “So the message the legislature sent us was pretty clear: find ways to improve preventative programs in our Disease Management (DM) area and outsource those services wherever possible. And in order to recover those funds being temporarily withheld, we had to ramp-up pretty quickly.”
“The goal of the Medicaid program is to slow the increase of spending in an environment where the number of people served is growing, says William D. Hayes, Ph.D., President of Health Policy Institute of Ohio. “It’s no secret that a small percentage of Medicaid users are responsible for a disproportionately large percentage of the cost. So responsive preventative care management programs that offer additional savings get a lot of attention.”
Legislative Mandate Produces Imaginative Solutions
As the pressure on Oregon’s legislators mounts to offer comparable services as in the past but at a reasonable cost, outsourcing has established a solid beachhead the past few years. This is typical, according to the research firm Input. It predicted in 2004 that state and local governments would boost outsourcing spending by an average of 17 percent annually through 2010. Outsourcing providers have made initial inroads in IT, human resources (HR), and back-office services in many states, including Oregon.
So in 2000, as states were finding ways to outsource public health programs, McKesson Health Solutions established an initiative designed specifically for Medicaid programs. And Oregon was one of the first to ultimately take advantage of the service.
DHS has had a contract with McKesson since October 2002 to work with more than 11,000 asthma, diabetes, and congestive heart failure patients covered by the Health Plan. Patients have access to a 24-hour toll-free phone line where they may consult with a registered nurse. And nurses who work for a firm contracted by McKesson also visit patients in their homes as needed. McKesson offers similar Medicaid Disease Management outsourced services to Colorado, Florida, Mississippi, Montana, Texas, and Washington.
Part of the appeal in Oregon, according to Turek, was speed to market since the amount of money the legislature would return to them depended upon ramping up their Preventative Disease Management program quickly.
“We had previous experience with bringing similar programs online quickly in the private sector,” says Mike Modiz, Vice President of Operations and Strategic Projects, McKesson Health Solutions. “So our capability to get Oregon’s up and running quickly carried some weight.”
Turek admits committing to a program that was relatively new was a leap of faith, albeit a calculated one. “The nature of McKesson’s proposed relationship and their knowledge base made sense as we were making our decision,” he says. “Our neighbors in the state of Washington were working with them in a similar way. They were about six months into their DM Program at the time and had good things to say about the relationship. That made us more comfortable.”
An Ounce of Prevention: A Pound of Cure
McKesson nurses counseled patients about symptoms and care and helped them find appropriate medical providers when their symptoms called for such measures. The program’s returns were based primarily on patients’ medical and hospital costs compared with baseline data from the two-year period prior to start-up of the contract with McKesson.
“For people with chronic conditions, there are best practice ways of doing that,” says Moditz.” But when you audit just how many people are currently being treated using these best practices, there is a lot of room for improvement. By working with the patient and (state HMO) providers we can get better adherence to the best practice model, producing lower cost and, in most cases, improved service.”
This helped Oregon avoid at least $6 million in medical costs in the first year, according to an internal audit of the program. The avoided costs resulted from factors such as fewer emergency room visits and fewer and shorter hospital stays and readmissions.
“The figures for the year ending October 2004 will be out in a few weeks,” says Turek. “And though I don’t know what that exact total will be, we anticipate similar savings.”
Even Oregon DHS’ conservative $6 million figure, reflecting both state and federal funds, indicates its outsourcing relationship with McKesson has more than doubled the contract’s guaranteed savings for asthma and diabetes patients. Based on the money Oregon has spent on the program, the savings returned is between $4.40 and $4.80 for every dollar the state paid the company.
“That’s a very good return,” says Hayes. “Over time, the managers of this program need to understand their returns relative to the savings in other states that are using this same program, and let their expectations reflect those comparable savings as they administer this program.”
Lower Costs AND Better Service
“The $6 million in avoided costs is not only a highly conservative figure, but it’s only part of the story,” says Barney Speight, state Medicaid director at Oregon DHS. “There’s no question these patients’ quality of life improved because they had more control over their chronic disease.”
Turek sees this success from two perspectives.
“We want to save money as a result of healthier patients,” he says. “Some might see this as a cost-cutting measure with improved patient care as a byproduct. But I personally view it differently. If we had better patient care and broke even money-wise, I’d consider it a success and believe the department and legislators would see it that way too. But the improved quality of overall care, plus savings, make this a win/win situation for us.”
So what does the future hold for Oregon and other states that wish to copy and expand this model? Turek says expansion of the existing program is possible. Areas under consideration include patients with chronic obstructive pulmonary disease and coronary artery disease
But in the overall scheme of things, there’s a reason for Turek’s desire to move slowly.
“It takes a lot of oversight by people within the state who understand how the program should perform in order to accurately judge how the outsourcer is doing. As long as we have enough people internally who understand the dynamics of outsourcing relationships and the perspective of both sides, the lower the odds of reaching a point of diminishing returns when it comes to adequate oversight.”
Hayes agrees with Turek, observing that appropriate state oversight is critical for consistent continued success.
“These programs are necessary because the median population is getting older and there is always going to be a percentage of the public that needs them. By its nature, Medicaid deals with symptoms– not only from a healthcare perspective, but from a societal one. So the choice is clear: outsource whatever is practical from a care and cost perspective or build a large staff. I don’t know many state legislatures that are going to opt for the latter.”
Hayes observes that some health management outsourcers are developing preventative care models that address multiple, interdependent conditions. “Who manages a diabetic with acute heart problems? It’s not going to be long before patients who present with multiple maladies will find programs tailored to their unique needs. As they become sophisticated, there have to be people within the state who can evaluate the worth of these outsourced programs,” he concludes.