July 19, 2000

A FIRST LOOK AT DISEASE MANAGEMENT UNDER DEFINED CONTRIBUTION

Just when you think all the acronyms in health care have been used up, along comes a new one. This one, however, is worth paying attention to. Defined Contribution (DC) promises to be as strong a force in the 00s as was managed care in the 80s and 90s.

WHAT ARE DEFINED CONTRIBUTION (DC) HEALTH BENEFITS?

DefinedCare.com provides the following basic explanation of DC: Medical benefit defined contributions involve employers and other traditional purchasers of care providing an allowance, that empowers consumers to purchase and select from a wide menu of benefit options that are arranged by the employer or a purchasing administrator.

Here's another way of thinking about DC. Today, employers usually provide a specific health plan (or selection) to employees. Under a DC approach, an employer will say "Here's $X,000. Use it to buy your own health plan. Don't blame us or sue us for choosing a health plan that's not to your liking. You want a basic, no-frills, catastrophic coverage plan....OK, that's your choice. You want a Cadillac health plan....OK, but you pay the cost above the basic DC amount." 

There are a number of major variations on the DC theme:

(Refer to the articles below for more in-depth information about DC.)

HAVE ANY MAJOR EMPLOYERS ADOPTED DC?

Not yet.

The closest thing to a verifiable DC sighting occurred last fall in Rochester, New York. Xerox Corporation reportedly planned a shift to DC, but backed off.

SO, WHAT'S THE BIG DEAL?

What's more notable than the amount of interest in DC is the number of companies and amount of investment ANTICIPATING the imminent arrival of this trend. An analysis by Wit SoundView lists 32 recently funded companies involved in ehealthinsurance infrastructure and related areas. Investors and venture capitalists have thrown hundreds of millions of dollars to these companies, many of which are only a few months old.
Many established companies, including employee benefit consultants, management consultants, and health plans are also preparing for an anticipated DC feeding frenzy.

WHAT DOES THE DC TREND MEAN FOR CARE/DISEASE MANAGEMENT?

The first wave of activity in developing infrastructure for DC is focusing around ehealthinsurance options. Care and disease management options for DC plans are a predictable second wave of infrastructure that will need to be developed.

We've known for a while that about 50% of health care costs are related to individual lifestyles. Diet, exercise, relaxation and the like are far more important to the health of most people than a health care delivery system.
Our current health care system does little to reward or incentivize a healthy lifestyle. We do a lot for you once you're sick, but very little to keep you from getting sick.

What's different with DC? DC will incentivize and promote a longer term perspective toward health. It's not THE ANSWER, but it's a step in the right direction. Consumers will become more aware of long term health cost implications of their behavior because they will more directly bear the costs.
DC promises to result in an expanded menu of disease management (DM) options available directly to consumers. Let's compare what the current DM model looks like with what an expanded DM model might look like under DC.

1) Current DM Model:

2) Expanded DM Model Under Defined Contribution:

Again, it's important to emphasize that the expanded approach will not replace, but rather SUPPLEMENT current DM approaches.

One last point. DC has been touted primarily for the benefits it will provide for the healthiest people. To date, little attention has been paid to implications for people with chronic diseases.

In the short term, DC has the potential to create bewildering choices, confusion, and gaps in care for people who have chronic conditions. Patients will need to be equipped with information, tools, and access to become their own care managers....and this will not happen overnight.
In the long run, however, we anticipate that many resources will be developed to assist people with health care information, treatment options, tools, and access.

Patients will be incentivized and rewarded for actions such as:

Let's continue watching as DC begins to unfold.

ADDITIONAL RESOURCES

Best Analysis of DC's impact on health care
USBancorp Piper Jaffray
Defined Contribution Defined: Health Insurance for the Next Century

Best explanation of the DC concept
The Real Consumer Revolution in Healthcare: Defined-Contribution Health Plans 

Best compilation of resource articles relating to DC
DefinedCare.com, Managed Care On Line

The Top Eight Reasons Why Employment-Based Health Insurance Is In Trouble

Health Care's New Electronic Marketplace

YOUR OPINIONS ARE WANTED. HEALTHCARE ASP SURVEY!

HealthCIO and Survey.com are conducting a first-of-its-kind survey regarding health care application service providers (ASPs). 

What do you think about using an ASP in health care? Please take a brief survey about ASPs.

ASPs will allow you to outsource and host particular healthcare applications at the vendor's site, such as discharge planning, electronic patient records, claims processing, care management, purchasing and supply-chain, etc. Most of these applications will be available on a subscription basis and accessible via a Web browser.

Respondents will receive a complimentary executive summary of the final report.

WHAT DO PEOPLE THINK ABOUT DEFINED CONTRIBUTION HEALTH BENEFITS?

Depends on who's asking and what they ask.

The consulting and accounting firm KPMG surveyed 14,626 employees and 103 senior executives from Fortune 500 companies. Most favored a health insurance system in which employees would make a defined contribution and purchase their own coverage along with funds provided by their employers.

Another survey sponsored by the Commonwealth Fund found general satisfaction with employer sponsored health insurance. "Listening to Workers: Findings from the Commonwealth Fund 1999 National Survey of Workers' Health Insurance" (January 2000)

Yet another study was conducted by the Democratic Leadership Council. It found that Americans would prefer a health care system that gave them, rather than their employer or the government, the primary role in selecting a health care plan. Nearly two-thirds (64%), including a majority of Republicans, Democrats, and Independents, said they are better able to select their health plans than their employer, and only about a quarter (27%) said employers are better able to find the best plans. 

1999 DRUG TREND REPORT

Express-Scripts, a pharmacy benefit management company, has recently published its 1999 Drug Trend report. The bottom line:

Per member per year(PMPY) Average Wholesale Price (AWP)prescription expenditures grew at a significant rate in 1999 -- 17.4%. This annual growth rate surpassed the 1997-1998 rate of 16.8%, continuing a trend of increasing rates of drug outlays seen since 1993....PMPY drug costs are projected to grow at an even higher rate to 17.6% in 2000, before gradually slowing to an annual 12.1% growth rate in 2004.

134 pages of additional details are available in the study.

TAPPING THE NET TO PICK YOUR NEXT DOC: THE SEQUEL

Doctor referral and rating services are springing up all over the
Internet. This article by Gomez Advisors rates the quality of four new services: DoctorQuality, Healthgrades, MedAvenue, and BestDoctors.

TOP 10 E-HEALTH TRENDS

First Consulting Group has written an insightful report listing their Top 10 E-Health Trends

1. Online health content, as a standalone business model, is starving to death.

2. The connectivity and transaction vendor market space is consolidating rapidly -- yet the promise of delivering bundled solutions and a sustainable business model remains elusive.

3. eTransformation of healthcare has not yet taken hold among providers or payers.

4. The eTransformation of supply chain management for providers and RACER (referral, authorization, claims, eligibility and reporting) management for payers will set the stage for the eTransformation of the care chain tomorrow.

5. Provider-based medical records will become the remnants of the episodic and fragmented healthcare and legal systems.

6. The battle over the physician desktop will expand to the battle over the physician handheld.

7. "Hypermediation" (as opposed to disintermediation) will create the need for value-driven "navigators."

8. Demanding connectivity and communication with their providers of care and payers, consumers will begin to vote with their feet.

9. Consumers will finally trust online healthcare companies when the Dalai Lama becomes the Master of the Internet in 2077.

10. The devolution of employer-purchased health insurance will be a major stimulus for the eruption of consumerism and emergence of 1-to-1 marketing in healthcare.



E-CareManagement News is an e-newsletter that tracks a major change in health care and managed care—the paradigm shift from “managing cost” to “managing care”.  This e-newsletter is brought to you by Better Health Technologies, LLC (http://www.bhtinfo.com).  BHT provides consulting and business development services relating to disease management, demand management, and patient health information technologies.

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