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PinnacleCare Health Advisory Services Managing Common Costly Clinical Conditions Can Save Money March 2, 2012

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Managing Common Costly Clinical Conditions Can Save Money

Milliman Client Report

Prepared for: PinnacleCare Health Advisory Services

Prepared by: Milliman, Inc.

Michael G. Sturm, FSA, MAAA Principal and Consulting Actuary

Jason Siegel, ASA, MAAA Associate Actuary Patricia Zenner, RN Healthcare Management Consultant


PinnacleCare Health Advisory Services Managing Common Costly Clinical Conditions Can Save Money March 2, 2012

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY .......................................................................................................................... 1

II. FACTORS ASSOCIATED WITH THE NEED FOR CARE MANAGEMENT ............................................ 3

III. DIABETES ................................................................................................................................................ 5

IV. CARDIOVASCULAR DISEASE ............................................................................................................. 10

V. CANCER ................................................................................................................................................. 13

VI. ORGAN TRANSPLANTS ....................................................................................................................... 15

VII. BACK PAIN, HERNIATED DISC, AND SPINAL STENOSIS ................................................................ 17

VIII. MUSCULOSKELETAL INJURIES: KNEE AND SHOULDER ............................................................... 19

IX. EXPLANATION OF MILLIMAN'S 2011 EPISODE OF CARE INCIDENCE AND COST ESTIMATES . 21

End notes ............................................................................................................................................... 22


PinnacleCare Health Advisory Services Page 1 Managing Common Costly Clinical Conditions Can Save Money March 2, 2012

I. EXECUTIVE SUMMARY BACKGROUND PinnacleCare asked Milliman to help them document how much savings employers could achieve by minimizing the variation in care delivery through active care management of eight frequent and high cost medical conditions. Milliman performed a literature search to produce this report. The statistics in this report are from published studies, white papers, and other sources that are mostly independent of Milliman reports and research with the exception of the 2011 episode of care incidence and cost estimates and a few other studies. These estimates were obtained from a combination of the MarketScan database and Milliman’s proprietary dataset which represents various payers’ data from across the country. We searched for studies that document savings from actively managing eight specific medical conditions. We researched the following three items for these conditions:

> Prevalence statistics,

> Cost from a payer perspective, and

> Savings (including medical cost, productivity, and other) that may result from getting to the right provider at the right time for the right treatment.

The eight conditions include:

1. Diabetes 2. Cardiovascular disease 3. Hypertension 4. Stroke 5. Spinal disorders: low back pain, herniated disc, spinal stenosis 6. Orthopedic injuries: knee and shoulder injuries 7. Organ transplantation 8. Newly diagnosed cancer

These conditions were chosen based on their high frequency, costly nature, and ability to generate savings if actively managed. CONCLUSION In summary, our literature search clearly found empirical evidence suggesting significant savings can be achieved by minimizing the variation in care delivery through effective care consultation for complex and costly conditions that is not being done today. The experts cite poorly organized and inefficient care, clinical decisions that fail to account for patient preferences, and poor clinical science as some of the reasons for variations in health care spending. It logically follows that better organized care and more efficient care that takes into account patient preferences along with the use of sound clinical science could significantly reduce the variation in health care management and health care costs. Although not as straight forward, the evidence also indicates that getting to the right provider at the right time for the right treatment may result in improved productivity and medical cost, and other savings.



Our findings do not presume any particular management program. Similarly, we do not address the efficacy of different programs. The information provided in this paper should be used as a guide for employers or insurers who are evaluating the potential opportunity for appropriate health care management. Neither the authors of this report nor Milliman are making an endorsement of any product or policy.



II. FACTORS ASSOCIATED WITH THE NEED FOR CARE MANAGEMENT There are a variety of factors associated with the need for care management. This section describes a few of them. VARIATION IN CARE AND ITS CAUSES Local Medical Opinion: The Dartmouth Atlas Project found a 2.5-fold regional variation in Medicare spending after adjusting for differences in price, age, race, and population health. As causes, among other reasons, they cite poorly organized and inefficient care, clinical decisions that fail to account for patient preferences, and poor clinical science.1 There are pockets of best practice in the United States and the opportunity for improved quality and reduced costs are significant. It is estimated that the United States could reduce acute and chronic healthcare spending by 30% if practices were consistent with the Mayo Clinic model and 40% based on an Intermountain Healthcare benchmark. Medicare spending on surgery could be reduced by as much as 30% with informed patient choice for elective surgery.2 The Dartmouth Institute’s Agenda for Change states that “many, if not most, of the clinical decisions doctors make are driven by local medical opinion and the local supply of medical resources, rather than sound science or the preferences of well-informed patients.”3 What the Patient Wants: Most people defer to their physicians to decide what care they need; in some cases, patients do not even know the decision is theirs to make. Physician opinions can vary widely as to which patients and treatments are appropriate. This leads to a wide variation in utilization of "preference sensitive care", a term used by the Dartmouth Atlas Project where legitimate treatment options involve significant tradeoffs among different possible outcomes of each treatment.4 In the Palo Alto area of California, back surgery is performed 2.2 times more than in San Francisco. There is similar variation in surgical treatment across the country for heart disease (coronary bypass or angioplasty); low back pain (disc surgery or spinal fusion); arthritis of the knee or hip (joint replacement); and early stage cancer of the prostate (prostatectomy).5 The variation is not because patients are not being treated, but rather because they are being treated differently. There are several reasons for the variation. One is a lack of clinical science in what are the best treatments, which causes physicians to base their practices on opinion formulated by personal factors. Another is the importance of the patient’s treatment preference. This is demonstrated in studies where only 20% of men with an enlarged prostate eligible for surgery actually elected surgery when informed of their options.6 The Supplies Available: The Dartmouth Atlas Project uses the term "supply sensitive care" for services where decisions are strongly influenced by capacity, rather than medical evidence or severity of illness.7 Supply sensitive care also has considerable regional variability. The provision of medical services depends more on the number of available service providers than the appropriateness of the services. This leads to both underuse of needed services and overuse of unnecessary services. There is marked variation in treatment of patients with progressive chronic illnesses such as diabetes, cancer, or heart failure. Despite a growing body of evidence-based guidelines governing routine care such as visits, diagnostic studies, and hospitalizations, a prevailing culture of "more is better" takes over in areas where services are available.8



QUALITY IS DIFFICULT TO DEFINE AND NOT ALWAYS CORRELATED WITH COST Quality is difficult to define. Although provider ranking has become more prevalent in recent years, it is not without skepticism. Many insurers offer physician and hospital rating systems to provide consumers with more information when choosing providers. A recent study indicates that the ratings are inconsistent among insurers and do not fully define quality. The study collected data on 615 Massachusetts orthopedic surgeons accepting at least one of three health plans. Consistency across health plans in physician tiering ranged from 8% to 28%. The portion of physicians ranked as top-tier varied from 21% to 62%, and only 5.2% of physicians were rated as top-tier by all three health plans. Board certification, Medicaid acceptance, and practice in a suburban location were independent factors associated with a physician ranking in the top tier; the number of years in practice and malpractice claims was not.9 In addition, more healthcare spending does not necessarily mean better quality care. A 2009 Dartmouth Atlas Health Care Brief assembled a number of studies indicating that, compared to lower-spending regions, higher-spending regions have worse adherence to evidence-based guidelines and higher mortality for myocardial infarction, hip fracture, and colorectal cancer diagnosis and that patients report worse access to care and worse inpatient experiences.10 THERE IS SIGNIFICANT WASTE IN THE HEALTH CARE SYSTEM We define inefficiency or waste within the healthcare delivery system as unnecessary, redundant, or ineffective treatment (and the costs associated with such treatment). This includes treatment that is contrary to, or not demonstrably associated with, healthcare quality and outcomes. Looking beyond the care delivery system, inefficiency also includes costs that are not demonstrably associated with a sound approach to enabling full access for everyone to appropriate healthcare coverage. Milliman's actuaries estimate the amount of waste in the U.S. healthcare system is in excess of 25% of total healthcare spending, or more than $600 billion in 2008 dollars. These estimates are similar to numbers put forth by other prominent sources. For example, Thomson Reuters in their 2009 white paper, “Where can $700 billion in waste be cut annually from the U.S. Healthcare System?” states, “The resulting reasonable range for total healthcare system waste is $600-$850 billion annually. Therefore, we conclude that designating an estimated $700 billion or one-third of annual healthcare expenditures as waste is reasonable and maybe even conservative.” However, it is important to recognize that it is almost humanly impossible for physicians to stay abreast of all the most current information. The amount of scientific information and published articles created each year has grown enormously in the last couple of decades. In 1989, the MEDLINE database reported 372,806 new published citations per year and 2,888 journals annually;11 in 2006, MEDLINE reported 623,000 citations and 5,020 journals. 12 In addition, there are cultural or style influences that can go unquestioned and simply become habit. Numerous studies, including the Milliman Medical Index, have shown significant geographic variations in healthcare costs and utilization in the United States. Furthermore, higher costs do not necessarily equate to improved outcomes. Further, the way in which we reward physicians and other providers of care is reflected in large part by the form of our compensation for their services. Recognition in physician compensation of adherence to best practices and of the outcomes produced is often missing but clearly needed in order to simultaneously pursue quality and efficiency. Finally, the medical malpractice environment in the United States incentivizes physicians to practice defensive medicine, which inevitably results in a layer of overuse of certain types of services. In particular, physicians sometimes feel compelled to conduct otherwise unnecessary diagnostic testing, often times with hefty price tags, so that they are not second-guessed in the event of a lawsuit. While the cost of medical malpractice premiums is around 1% of all healthcare dollars, the resultant waste is far more expensive.13



III. DIABETES ABOUT 1-IN-12 AMERICANS CURRENTLY HAVE DIABETES Diabetes is one of the most common and costly of all chronic diseases. Table 1 contains statistics from the 2011 National Diabetes Fact Sheet which shows 1-in-12 Americans currently have diabetes. They project the prevalence of diabetes will increase to between 1-in-5 and 1-in-3 adults by 2050.14

Table 1 2011 Diabetes Statistics15

Population Diabetes Presence Children and adults with diabetes 25.8 million / 8.3% of the population Children and adults with diagnosed diabetes 18.8 million Children and adults with undiagnosed diabetes 7.0 million Adults 20+ years with diabetes 11.3% Men 20+ years with diabetes 11.8% Women 20+ years with diabetes 10.8% New cases diagnosed in 2010, age 20+ years Approximately 1.9 million Under 20 years with diabetes 0.26% (approximately 1 in 400 children and

adolescents have Type 1 diabetes16) Table 2 shows UnitedHealthcare’s estimates of the prevalence of diabetes through 2020 (which effectively confirm the National Diabetes Fact Sheet statistics shown in Table 1).

Table 2 Estimated Prevalence of Adults with Diabetes17

Population Category Prevalence in Adult Population

2007 2020 (estimate) People with pre-diabetes 26.3% 36.8% People with undiagnosed diabetes 2.9% 4.1 % People with Type 1 diabetes 0.2% 0.2 % People with Type 2 diabetes 7.6% 10.8 % Total 37.0% 51.9%



MANY DIABETICS HAVE COMPLICATIONS A study done by the American Association of Clinical Endocrinologists shows that many diabetics have complications.18 Table 3 shows that diagnosed diabetics have a significantly increased chance of having a condition that complicates their disease vs. those with normal blood sugar levels. For example, the chance of a diagnosed diabetic having congestive heart failure is about seven times that of a person with normal blood sugar levels.

Table 3 Prevalence of Complications Age 45-6419

Complication Normal Blood Sugar Levels

Diagnosed Diabetes

Congestive Heart Failure 0.9% 7.0% Chest Pain 2.3% 10.8% Heart Attack 2.4% 7.6% Coronary Heart Disease 3.2% 10.1% Stroke 2.1% 7.1% Chronic Kidney Disease 6.0% 27.7% Foot Problems 7.3% 18.3 % Eye Damage N/A 18.1%

DIABETES IS A COSTLY DISEASE, ESPECIALLY FOR PATIENTS WITH COMPLICATIONS The Centers for Disease Control and Prevention (CDC) stated that diabetics cost the healthcare system almost $12,000 per person in 2007.15 Table 4 contains UnitedHealthCare’s 2009 cost estimates for adult diabetes (which are similar to the CDC estimates, but provide more detail). United HealthCare’s estimates show:

> Diabetic insureds without complications cost about 1.8 times the non-diabetic population > Diabetic insureds with complications cost about 7 times the non-diabetic population > Diabetics with complications cost about 2.7 times diabetics with no complications 20

The majority of the costs associated with diabetes are attributed to the complications of the disease.21

Table 4 Utilization Costs of United Healthcare Adult Members

with Diabetes in 200922 Category Percent Cost Yearly Member Costs

Overall Population 100% $4,600 People with Known Diabetes* 3% $11,700 Remainder of Population 97% $4,400

Diabetes Category Diabetes Only 22% $7,800 Diabetes with Hypertension 58% $10,000 Diabetes with Complications** 20% $20,700

* Diabetes defined as presence of one inpatient or two outpatient visits for diabetes in 2009.

** Complications include micro vascular and macro vascular complications attributable to diabetes.



Table 5 shows our 2011 estimates of various statistics surrounding diabetes. Our estimated cost per episode ranges from $0 to almost $1.4 million, with the average and 90th percentile being about $1,200 and $7,000, respectively. Our estimated PMPM cost of diabetes is about $11.

Table 5 Milliman’s Estimated 2011 Episode of Care Incidence and Costs

Cost Per Episode Condition Average 90th %tile Maximum

Observed Episodes per

1,000 PMPM

Diabetes $1,155 $7,000 $1,390,000 113.5 $10.92 DIABETES COSTS ARE PROJECTED TO GROW SIGNFICANTLY IN THE FUTURE Table 6 illustrates UnitedHealthcare's estimate of the tremendous potential for the growth of diabetes-related costs over the next 10 years.

Table 6 Estimated Healthcare Costs Attributable to Pre-diabetes or Diabetes

in Privately Insured Adults23

Year $ in Billions 2010 (estimated) $57 2011 to 2020 (total projection) $1,033 (i.e., an average of $103 per year)

MANY DIABETICS DO NOT RECEIVE APPROPRIATE CARE Despite the medical profession’s broad-based agreement about how to manage diabetes, it is often poorly managed. For example, it is estimated that less than 40% of diabetics receive guideline levels of medical care.24 RAND found that people with diabetes received only 45% of the care they needed:25

> 40% of patients with diabetes did not have blood sugar measured in the two years of the study > 25% of those with their blood sugar measured demonstrated poor control

It can take many years before the complications of diabetes appear which provides the advantage of offering many opportunities to slow or avoid diabetes onset, its progression, and development of complications.26 VARIOUS STUDIES SHOW SIGNIFICANT MEDICAL COST SAVINGS ARE ACHIEVABLE THROUGH DIABETES MANAGEMENT UnitedHealthcare found that between 2008 and 2009 members with diabetes complications and non-compliant with medication experienced higher cost growth (13.8% vs. 10.6%) and higher annual spending compared to compliant members ($24,300 vs. $19,400 respectively).27



This report also estimates that delivering an intensive group lifestyle intervention in community settings will significantly improve health outcomes and that a typical population of 100 high-risk adults aged 50+ could expect the following results over three years:28

> Prevent 15 new cases of Type 2 diabetes > Prevent 162 missed work days > Avoid the need for blood pressure or cholesterol drugs in 11 people > Add the equivalent of 20 years of good health > Avoid $91,400 in healthcare costs

Using interventions aimed at weight loss, the Diabetes Prevention Program, improved compliance (pharmacist’s management), and intensive lifestyle intervention, UnitedHealthCare estimates that over a 10-year period they could achieve cost savings of $74 billion dollars as indicated in the chart in Table 7.29

Table 7 United Healthcare Simulated Model Expected Cumulative Healthcare Cost Savings,

Commercial Individuals, 2011-202030 (in $ Billions)

No Diabetes / Lifestyle Intervention (Recommended Weight Loss) $ 16 Pre-diabetes / Intensive Lifestyle Intervention, e.g., Diabetes Prevention Plan $ 29 Diabetes / Improved Medication Adherence (using the Asheville and Ten Cities model) $ 9 Diabetes / Intensive Lifestyle Intervention (using the Look AHEAD trial model) $ 25 All Initiatives (net of interactions) $ 74 Reduction in Number of Individuals with Pre-diabetes and Diabetes, 2020 (in millions) 5.1

OTHER STUDIES SHOW SIGNIFICANT ABSENTEEISM SAVINGS IF DIABETES IS MANAGED AND THE LINK BETWEEN TREATMENT COSTS AND A1C LEVELS A few studies have looked specifically at the effect of glycemic control and diabetes interventions for employees. Testa and Simonson’s 1998 randomized controlled double blind trial study of short term outcomes as shown in Table 8, continues to be quoted in diabetes research.

Table 8 Comparison of Persons With Type 2 Diabetes and Improved Blood Sugar Control (1998)31

Outcomes Improved Blood Sugar Control Poor Blood Sugar Control More productive on the job 99% 87%

Able to remain employed longer 97% 85%

Absenteeism rate Lowered by 1% 8% increase

Lost earnings from absenteeism (males) $24 / worker / month $115 / worker / month

Lost earnings from restricted activity (males only) $2,660 / 1,000 person-days $4,275 / 1,000 person-days



Health Partners found that diabetics with higher hemoglobin A1c values had higher inpatient and outpatient costs over a three-year period, which increased with each percentage point above a hemoglobin A1c of 7%, as shown in Table 9.32 Although the data does not mean that managing hemoglobin A1c will lower healthcare costs, it does indicate that there is a plausible relationship.

Table 9 Diabetes Treatment Cost Control Flow Chart (1997)33

Levels of Hemoglobin A1c (%) Being Compared*

Greater Per-Person Treatment Cost Associated with Percentage Point Higher Hemoglobin A1c Values

10% with 9% $1,200 - $4,100 9% with 8% $900 - $3,100 8% with 7% $600 - $2,200 7% with 6% $400 - $1,500

* Less than 7% is the recommended hemoglobin A1c value.



IV. CARDIOVASCULAR DISEASE CARDIOVASCULAR DISEASE AFFECTS ABOUT 1-IN-3 AMERICANS Cardiovascular disease (CVD) is a general class of diseases which includes coronary heart disease, heart failure, stroke, and hypertension. CVD is among the most common of all diseases. Table 10 contains statistics from the American Heart Association which show that at least 1-in-3 Americans have been diagnosed with some form of CVD. In addition, the number of inpatient cardiovascular procedures increased 27% from 1997 to 2007.34

Table 10 Cardiovascular Statistics35,36

Ideal cardiovascular health profile* age 12-60+ 0.0% One or more types of CVD > 1 in 3 adults CVD prevalence in men of ages 20-39 14% CVD prevalence in women of ages 20-39 ≈ 10% CVD prevalence in men of ages 40-59 39% CVD prevalence in women of ages 40-59 37% *The American Heart Association identifies “Ideal cardiovascular health” by the absence of cardiovascular disease and the presence of optimal levels of seven health behaviors.37

HYPERTENSION, A MAJOR RISK FACTOR FOR OTHER DISEASES, AFFECTS 1-IN-3 AMERICANS Table 11 contains statistics from the American Heart Association which show that about 1-in-3 Americans have been diagnosed with hypertension, and that prevalence rises quickly with age. Hypertension is a risk factor for heart disease, stroke, congestive heart failure, and kidney disease.

Table 11 Hypertension Statistics38

U.S. adults with hypertension 1 in 3 adults Men of ages 35-44 with hypertension > 25% Women of ages 35-44 with hypertension 19% Men of ages 45-54 with hypertension 37% Women of ages 45-54 with hypertension 35% Those with a first heart attack that have elevated blood pressure > 140/90 mm Hg ≈ 70% Those with a first stroke that have elevated blood pressure > 140/90 mm Hg 77%

CORONARY HEART DISEASE IS OFTEN FATAL Table 12 contains statistics from the American Heart Association which show that 15% of men and 22% of women who had a heart attack between ages 45 and 64 have a recurrent heart attack or fatal coronary heart disease (CHD) within 5 years.



Table 12

Coronary Heart Disease Statistics39 40-59 age group with CHD 6% Men with CHD by age 79 ≈ 23% Of those with a first heart attack between ages 45 and 64, men with a recurrent heart attack or fatal CHD within five years 15%

Of those with a first heart attack between ages 45 and 64, women with a recurrent heart attack or fatal CHD within five years 22%

STROKE IS A LEADING CAUSE OF DEATH AND RESULTS IN VARIOUS INDIRECT COSTS ON SOCIETY Table 13 contains statistics from the American Heart Association which show median remaining life expectancy after having a stroke between ages 55 and 64 is 13 years for men and 8 years for women. The most significant costs are indirect in the form of premature mortality or reduced productivity (the single largest contributor is lost earnings). Early and long-term direct costs of stroke care are significant as well and could be over three times that of pre-stroke costs. 40

Table 13 Stroke Statistics41

Population at or over 20 years of age who have had a stroke 3%

Strokes that occur in people under age 65 ≈ 25% 42 Median survival time after a first stroke in men at ages 55 to 64 ≈13 years Median survival time after a first stroke in women at ages 55 to 64 ≈ 8 years

HEART DISEASE IS THE COSTLIEST ADULT DISEASE In 2008, heart disease was the costliest medical condition for men and women age 18 years and older.43 Milliman calculated the episode of care incidence and costs for coronary artery disease, hypertension, and stroke shown in Table 14.

Table 14 2011 Episode of Care Incidence and Costs

Cost Per Episode Condition Average 90th %tile Maximum

Observed Episodes Per

1000 PMPM

Coronary Artery Disease $14,307 $57,600 $2,430,000 12.2 $14.49 Hypertension $492 $4,300 $1,210,000 212.9 $8.73 Stroke $5,778 $18,100 $1,260,000 7.4 $3.54

MANY RISK FACTORS FOR CVD ARE PREVENTABLE OR CONTROLLABLE Health promotion programs can lead to reductions in absenteeism, healthcare costs, and disability / workers’ compensation costs. A 12- to 13-point reduction in blood pressure can reduce heart attacks by 21%, strokes by 37% and all deaths from CVD by 25%. A 10% decrease in total blood cholesterol levels may reduce the incidence of coronary heart disease by as much as 30%.44 Management of CVD includes managing CVD risk factors as well as CVD treatment.



THERE IS SIGNIFICANT VARIATION IN DIAGNOSIS / TREATMENT OF CARDIOVASCULAR DISEASE There is considerable variation in the diagnosis and treatment of cardiovascular disease. Patients with stable angina can choose whether to have percutaneous coronary interventions (PCI) (e.g., balloon angioplasty with stents or coronary artery bypass graft surgery (CABG)). Although for most patients with stable angina, these procedures will not prolong their life span, the decision may be about how well medications address their angina symptoms. People with severe disease do have survival benefit to consider. A Dartmouth Atlas project showed there was substantial regional variation in CABG rates, varying from 1.9 per 1,000 enrollees to 8.9. It also concluded that the more physicians looked for surgically treatable coronary artery disease, the more invasive treatment was provided. Rates of PCI varied more than tenfold.45 BOTH UNDER AND OVER USE OF SERVICES RESULT IN AVOIDABLE HEALTHCARE COSTS RAND found both over- and under-use of services that contribute to avoidable healthcare costs46:

> 44% of CABG surgeries were performed for inappropriate or equivocal reasons > Hypertensive patients received less than 65% of recommended care > People with coronary artery disease received 68% of recommended care > Only 45% of heart attack patients received beta blockers > Only 61% of heart attack patients got aspirin

INTERVENTION PROGRAMS CAN SIGNIFICANTLY REDUCE CVD RELATED COSTS Fieldale Farms instituted a wellness program focusing on CVD. Of participating employees, 40% with high blood pressure (BP) normalized their BP levels and 26% of participating employees normalized their high cholesterol. In 2003, healthcare costs per employee per year were $2,793 as compared to $6,007, the national average healthcare cost for manufacturing employees.47 Reynolds Electrical & Engineering Company significantly lowered cholesterol levels, blood pressure, and weight, and experienced 21% lower lifestyle-related claim costs than non-participants.48 Additionally, a 2008 study investigating both direct and indirect costs in terms of days missed from work found that the net benefits to employers from having workers take prescription medicines for their chronic illnesses are substantial. Assuming average compliance rates are achieved, net benefits to employers in 1987 amounted to $286 per hypertensive employee, $633 per employee with heart disease; $822 per depressed employee, and $1475 per type II diabetic employee under medication from a physician. These estimated benefits accrue because prescription medications substantially lower absenteeism among chronically ill workers.49



V. CANCER CANCER COSTS ARE HIGH DESPITE LOW INCIDENCE RATES In 2008, cancer was second only to heart disease in terms of costliness among adults50 despite having vastly lower incidence rates. Based on Milliman analysis, although cancer patients make up only 0.68% of a commercially insured population, they account for 10% of overall healthcare costs.51 In addition, the National Cancer Institute reported that the overall cost of treating cancer increased by 75% between 1995 and 2004. As more cases are diagnosed and treatment becomes more expensive this percentage is expected to increase.52 Cancer incidence rates vary by type of cancer and increase sharply with age as illustrated in Table 15.

Table 15 Surveillance Epidemiology and End Results (SEER) Cancer Incidence Rates (1975-2008) per 100,00053

Age at Diagnosis

All Cancers

Breast Cancer

Lung and Bronchus

Colon and Rectal

<1 23.5 - - - 1-4 20.7 - - - 5-9 11.5 - - -

10-14 13.6 - - - 15-19 21.6 0.1 0.1 0.3 20-24 35.7 0.8 0.3 0.9 25-29 54.1 4 0.6 2 30-34 84.3 13 1.2 4.3 35-39 129.6 29.7 3 8.3 40-44 214.1 61.2 9.5 15.8 45-49 350.6 95.4 24.6 28.5 50-54 559.5 115.9 49.7 55.4 55-59 854.1 144.3 90.3 75.6 60-64 1,263.50 186 167.8 108

VARIATION IN TREATMENT PATTERNS LEAD TO HIGHER COSTS Women living in some parts of the United States were more than seven times more likely to undergo mastectomy for early-stage breast cancer. In early-stage breast cancer there is a choice between mastectomy and lumpectomy, two equally effective surgeries. A woman’s treatment choice depends upon her feelings about her post-surgical appearance, the time and energy required, and the risk of a local recurrence. Yet there is high variation in mastectomy rates across the United States.54 Men living in some parts of the United States were more than 12 times more likely to undergo radical prostatectomy for prostate cancer. Most early-stage prostate cancers are slow-growing and will never become life-threatening. The problem is our current inability to identify those few that will develop into aggressive disease. Men with early-stage prostate cancer have a choice of three categories of treatment: active surveillance, surgery, and radiation. Each treatment choice has benefits but can also cause lasting problems or even death.55



Access to appropriate referral services and availability of appropriate providers and services at an affordable cost are important to receiving high-quality healthcare.56 When patients receive medical support and advice when needed, problems are caught earlier and fewer emergencies arise. This type of disease management has been effective in improving health status, patient quality of life, and financial outcomes.57 Additionally, using treatment pathways can decrease variability in treatment and costs. One study showed that, for patients with an evidence-based pathway for non-small cell lung cancer over 12 months, outpatient costs were 35% lower than for off-pathway patients, with no difference in survival.58 SAVINGS ESTIMATES FROM MANAGING CANCER ARE SUBSTANTIAL One oncology management program estimates savings of 20% by using case managers and decision support initiatives, including facility assessments and evidence-based clinical protocols to ensure that services are delivered at quality facilities by qualified technicians.59 A study conducted by The US Oncology Network and Milliman finds that colon cancer treatment that is consistent with evidence-based guidelines (specifically Level I Pathways) has significantly lower cost while demonstrating outcomes similar to those in published literature. The study shows mean per patient cost differences of more than 30 percent, $53,000 for the treatment of adjuvant colon cancer and $60,000 for the treatment of metastatic colon cancer. The study, which compared patients whose care followed physician-developed Level I Pathways evidence-based guidelines (also known as 'on pathway') to other patients ( 'off pathway'), was published in a special joint peer-reviewed issue of the Journal of Oncology Practice (JOP) and the American Journal of Managed Care (AJMC). Lastly, another Milliman study documents the wide variation in the costs of treating cancer among geographic regions and the number of chemotherapy treatments that are administered near the time of death. The authors point out that evidence-based pathways that detail the types of surgeries and therapies that are appropriate for each cancer type and stage have been shown to reduce costs and improve outcomes. Lastly, the study estimates that if the pathways succeed, a 10% reduction in inpatient admissions, emergency room (ER) usage, and chemotherapy costs is reasonable. This is equivalent to $2,900 per patient or 2.6% of the annual patient cost for a typical chemotherapy patient.60 Over a 10-year period, UnitedHealthcare’s Cancer Support Program believes it could provide the Medicare program with savings of around $5 billion. The Cancer Support Program educates and supports cancer patients making treatment decisions and undergoing therapies. UnitedHealthcare calculated savings based on actual results and the performance difference between managed and unmanaged populations.61

http://jop.ascopubs.org/content/7/3S/52s.abstract

http://www.usoncology.com/

http://www.milliman.com/home/index.php

http://jop.ascopubs.org/

http://www.ajmc.com/



VI. ORGAN TRANSPLANTS TRANSPLANT INCIDENCE RATES MOSTLY DECREASED FROM 2006 TO 2007 Unlike the other treatments discussed in this report, the incidence of transplant is actually decreasing. Table 16 shows the total number of organs transplanted in 2006 and 2007. The only increase was in the category of lung transplants.

Table 16 Growth in Number of Transplanted Organs, 2006-200762

Transplanted Organs 2006 2007 Percent Change Total 28,291 27,578 -2.5% Kidney 16,644 16,119 -3.2% Pancreas 1,368 1,304 -4.7% Liver 6,136 5,890 -4.0% Intestine 60 57 -5.0% Heart 2,148 2,141 -0.3% Lung 1,401 1,461 4.3%

Heart and lung 31 29 -6.5% PER EPISODE COSTS FOR TRANSPLANTS ARE AMONG THE HIGHEST OF ANY PROCEDURE In Milliman’s 2011 transplant research report, we estimated billed charges for transplants ranging from approximately $24,000 for a cornea transplant to $1.35 million for a transplanted intestine with other organs, with an average per member per month (PMPM) cost of $6.24 for all transplants for the population under age 65.63 VARIATION IN TRANSPLANT OUTCOMES INDICATES CURRENT PRACTICES ARE SUBOPTIMAL Significant variation in transplant services among hospitals creates opportunities to avoid unnecessary costs. Medicare kidney transplant patients experienced a 28.5% rate of readmission within 30 days, at an average cost of $9,962. Medicare paid low-quality transplant centers an additional $1,185, on average, per high-cost kidney transplant patient compared to high-quality centers.64 Donor characteristics, recipients, and surgical techniques vary substantially among centers. Even after accounting for these factors, variability remained among lung transplant centers, with hazard ratios for death ranging from 0.70 to 1.71, for five-year survival rates ranging from 30.0% to 61.1%. Higher lung transplantation volumes accounted for only 15% of among-center variability.65 Part of the variation is due to the wide spectrum of quality in liver transplant donor organs. Poor-quality donor organs were associated with a higher post-transplant mortality (hazard ratio at 1.10 per 0.1 increase in mean donor risk index). The donor risk index ranged from 1.27 to 1.74 after adjusting for geographic region and organ procurement organization.66 BETTER MANAGEMENT OF TRANSPLANTS CAN IMPROVE OUTCOMES AND REDUCE COSTS Consumers make better transplant center choices when data and outcomes are provided. One study indicated that a one-standard deviation increase in the graft-failure rate is associated with a 6% decline in patient registrations. Transplant management program members have been shown to have a 7% higher chance of survival the first year.67,68



Over a 10-year period it is estimated that a transplant management program could save Medicare approximately $700 million. The program design includes educating and supporting patients who may need transplants and sharing information on the highest-quality transplant centers.69 For one transplant risk management company, the transplant management program case studies savings range from $143,464 to $488,545 per transplant patient.70



VII. BACK PAIN, HERNIATED DISC, AND SPINAL STENOSIS BACK PAIN IS THE MOST COMMON CAUSE OF DISABILITY UNDER AGE 45 AND ITS CAUSE IS RARELY DIAGNOSED Back pain is the most common physical condition for which patients visit their doctor and the most common cause of work-related disability in persons younger than 45 years old in the United States.71,72 However, clinicians diagnose the cause in less than 10% of these patients.73 Table 17 illustrates the prevalence of this condition.

Table 17 Back Pain Statistics74

U.S. population that will visit their physician with a complaint of back pain each year 12% - 15% All annual healthcare visits to physicians, emergency departments, outpatient clinics, and hospitalizations for treatment of back pain

Nearly 5%

Low back pain visits for back disorders (inflammatory spine conditions, spondylosis, spinal stenosis, lumbago, sciatica, backache, and disorders of the sacrum)

65%

Low back pain visits for disc disorders (disc herniation and degeneration) 17%

Low back pain visits for back injury (fractures, sprains, and strains) 18%

Percent of all healthcare visits for low back pain made by persons of ages 18-64 74%

Persons with either low back or neck pain reporting they cannot work 20%

Persons with multiple back pain sites unable to work 33% Sometimes the cause of back pain is a herniated (ruptured or bulging) disc, which is when the “cushion” between the vertebrae bulges or expands out beyond the vertebrae. Pain may be caused from irritation or compression of spinal nerves and may radiate down the leg (sciatica). Herniated discs are most commonly diagnosed in people of ages 30-50 years.75 Another cause of back pain is spinal stenosis, which is a narrowing of the spinal canal that is due to thickening of the ligaments and spine joints. Spinal stenosis may cause both back pain and leg pain. Spinal stenosis most often occurs among people in their 50s and older.76 COSTS FOR THOSE WITH BACK PAIN ARE SUBSTANTIALLY GREATER THAN THOSE WITHOUT It is estimated that healthcare costs for individuals with back pain are about 60% higher than for individuals without back pain.77 Milliman calculated the episode of care incidence rates and average cost for back pain shown in Table 18.


Cost Per Episode Conditions Average 90th %tile Maximum Observed

Joint Degeneration Neck and Back With Surgery $18,480 $61,600 $890,000

Joint Degeneration Neck and Back Without Surgery $1,558 $7,100 $600,000

Musculoskeletal Signs and Symptoms Neck and Back $481 $1,800 $220,000



In 2004, the mean hospital cost for a primary spinal fusion was $56,000 and a revision spinal fusion was $63,000.78 THERE IS SIGNIFICANT VARIATION IN TREATMENT AND UNNECESSARY TREATMENT OF BACK PAIN Imaging tests are commonly used, yet they may not help determine the cause of pain or help determine how effective a particular treatment may be in relieving pain. Imaging scans on people without back pain show more than 50% have a bulging or herniated disc.79 Rates of surgery for back pain reflect the practice patterns of individual physicians and the local medical culture, rather than differences in need or physician supply.80 There is little evidence that surgery is better than nonsurgical treatment for chronic or persistent nonspecific low back pain in patients without leg pain. Lumbar discectomy is the most common surgery for back and leg symptoms, yet compared to non-operative care its efficacy continues to be controversial.81 The use of fusion surgery also varies considerably among patients being treated for the same spine condition. However, there are some patients where surgery is an option they should consider.82 Table 19 shows the variation in back surgery for Medicare patients.

Table 19 Utilization Rates in Medicare Enrollees, 2002 – 200383

Surgical Procedure Low High National Average Total spine surgeries 1.6 per 1,000 9.4 per 1,000 4.0 per 1,000 Lumbar discectomy and laminectomy 0.6 per 1,000 4.8 per 1,000 2.1 per 1,000 Lumbar fusion 0.2 per 1,000 4.6 per 1,000 1.0 per 1,000 Non-lumbar discectomy and laminectomy 0.10 per 1,000 0.51 per 1,000 0.25 per 1,000 Non-lumbar fusion 0.11 per 1,000 1.70 per 1,000 0.49 per 1,000

PHYSICIANS DO NOT ADHERE TO BEST PRACTICE PROTOCOLS In 2007, the American College of Physicians and the American Pain Society issued a joint clinical practice guideline for diagnosis and treatment of low back pain including indications for imaging and testing, use of medications, and non-pharmacologic therapy.84 Unfortunately, clinicians are not adhering to the guidelines, which make a patient’s choice of physician critical in managing their back pain. In responding to two case studies, one without sciatica and one with sciatica, only 26.9% and 4.3% of the physicians, respectively, fully followed the guideline.85 MANAGING BACK PAIN CAN PRODUCE SIGNFICANT SAVINGS The cost of inappropriate surgery plus the cost of excessive and ineffective non-operative treatments provides a tremendous opportunity for cost savings. One study estimates that reducing inappropriate use of advanced diagnostic imaging, particularly CT, MRI, and PET scans, could save Medicare around $13 billion over a 10-year period.86 Not only are inappropriate tests contributing to unnecessary costs, these inappropriate tests (i.e., spinal CT / MRI rates) are correlated with rates of spine surgery, where variability in the use of imaging tests explained about 22% of the variability in regional rates of spine surgery.87 Informed choice is a major factor in a patient’s decision to have surgery. In one study of patients with herniated disks, those in the informed group underwent significantly less surgery (32% versus 47%) without affecting patient outcomes.88



VIII. MUSCULOSKELETAL INJURIES: KNEE AND SHOULDER MUSCULOSKELETAL INJURIES ARE COSTLY At least 75% of the under 65 population is diagnosed with musculoskeletal injury at some point. We estimate the episode of care incidence rates and average costs for musculoskeletal injuries as shown in Tables 20 and 21.


Cost Per Episode

Musculoskeletal Injury Average 90th %tile Maximum Observed

Knee and lower leg w/o surgery $979 $3,200 $390,000 Knee and lower leg with surgery $6,289 $15,100 $310,000 Shoulder w/o surgery $1,269 $5,400 $120,000 Shoulder with surgery $8,063 $18,800 $310,000


Cost Per Episode Presenting Signs and Symptoms Average 90th %tile Maximum

Observed Episodes per

1,000

PMPM Knee and lower leg $397 $1,800 $150,000 9.7 $0.32 Shoulder w/o surgery $388 $1,800 $46,000 7.2 $0.23

SAVINGS ARE ACHIEVABLE BY ELIMINATING UNNECESSARY AND/OR INAPROPRIATE TREATMENTS FOR VARIOUS MUSCULOSKELETAL CONDITIONS In musculoskeletal injuries there is a growing body of options for treatment: less invasive surgical techniques, new biologics that aid in repair processes, and new medications and devices promoting bone and soft tissue growth. Reducing Variation in Arthroscopies May Lead to Savings A common procedure, arthroscopy, is used for both diagnosis and treatment; although advanced imaging procedures such as computed tomography (CT) or magnetic resonance imaging (MRI) scans have largely replaced using arthroscopy as a diagnostic tool. Table 22 shows that that there is enormous variation in the frequency of knee and shoulder arthroscopy across the United States. The national average cost of knee arthroscopy is $11,900.89

Table 22 Arthroscopy Statistics90

Low High National Average Knee arthroscopy 0.09 per 1,000 7.1 per 1,000 3.0 per 1,000 Shoulder arthroscopy 0.01 per 1,000 1.8 per 1,000 0.5 per 1,000



Eliminating Unnecessary Knee MRIs May Produce Savings An MRI is not necessary if the patient’s clinical presentation confirms the diagnosis, or if test results would not alter patient management, as is often the case with knee ligament injuries.91 The majority of patients referred for MRI of the knee do not need one. One study presented at the American Academy of Orthopedic Surgeons 2011 Annual Meeting found that MRI was unnecessary in more than half of the acute knee pain patients referred for one. Of the 31% receiving MRIs, 55% were unnecessary.92 Adhering to Practice Guidelines for Shoulder Injuries May Produce Savings In 2010, the American Academy of Orthopedic Surgeons adopted guidelines for optimizing the management of rotator cuff problems. Recommendations include:93

> Surgery should not be performed for asymptomatic, full thickness rotator cuff tears > Rotator cuff repair is an option for patients with chronic, symptomatic full thickness tears

For non-operative management of rotator cuff tears there are a number of treatments where evidence was weak or inconclusive including sub acromial injections, transcutaneous electrical nerve stimulation (TENS), pulsed electromagnetic field (PEMF), or phonophoresis (ultrasound).94 They suggest that patients who have rotator cuff-related symptoms in the absence of a full thickness tear be initially treated non-operatively using exercise and / or non-steroidal anti-inflammatory drugs. The national average cost of rotator cuff surgery is $19,800.95 Non-adherence to practice guidelines is not only harmful to the patient, it can be costly. Managing Knee Pain May Lead to Savings Knee pain may come from damage to tendons, muscles, and other structures that stabilize and cushion the knee joint, bone fracture, infection, or a chronic overuse or degenerative syndrome. Accurate and timely diagnoses are critical in influencing the likelihood of returning to normal function.96 Chronic knee instability may develop into degenerative joint disease, which may cause permanent loss of knee function.97 In another example of ligament injury, nonsurgical management of certain isolated tears may be appropriate, but close clinical follow-up and physical therapy is needed to identify patients that may continue to have unstable knees.98 There is some debate regarding the surgical approach as to whether an arthroscopic, mini-open, or open repair technique should be undertaken when surgery is indicated for full thickness rotator cuff tears.99 Arthroscopic surgery is generally preferred over traditional open surgery. However, in addition to patient requirements such as occupation and activities, options are limited by surgical expertise. Cutting edge technology requires the right patient and the right surgeon.100 Additionally, there are also a number of surgical options that vary in outcomes, pain, recovery, and risks. For example, there is benefit to the timing and staging of treatment in multiple-ligament knee injuries. Compared to delaying surgery for three or more weeks after the injury, patients with surgery less than three weeks after the injury have residual knee instability, less knee mobility, and need additional treatment for joint stiffness.101 Although there are some risk factors for subsequent surgery on either knee that are uncontrollable, one of the predictors of subsequent knee surgery includes surgery in a lower-volume surgeon.102



IX. EXPLANATION OF MILLIMAN’S 2011 EPISODE OF CARE INCIDENCE AND

COST ESTIMATES Milliman’s estimates of 2011 episode of care incidence and cost presented in this report are based on a nationwide dataset of commercial payer claims including both the MarketScan database, as well as the other contributors to Milliman’s Health Cost Guidelines. The data represents claims incurred in 2008 and 2009. We applied Ingenix’s Episode Treatment Group (ETG) grouper to the data. We removed a portion of the claims for which insufficient data was present to perform the calculation (i.e., missing episode number or ETG). We summarized allowed charges and episode counts for each of the ETGs and treatment types specified for this study. We calculated the average allowed charge per episode, the annual number of episodes per 1,000 members, and the total per member per month (PMPM) claim cost per episode, for each ETG and treatment type. We adjusted allowed charges to account for claims incurred but not reported (IBNR). We adjusted the average cost per episode from incurred years 2008 and 2009 data to a 2011 basis using trend estimates from Milliman’s Health Cost Index (HCI). We averaged the results using the 2008 and 2009 data weighting by the number of member months in each of these two years. We summarized both the 2008 and 2009 allowed charges by episode and adjusted each dataset to a 2011 basis using medical trend estimates from the HCI to calculate the standard deviation of the cost per episode. Using the adjusted combined 2008 and adjusted 2009 data, we calculated the standard deviation of the cost per episode for each ETG and treatment type.



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Spending: Opportunities for the Congress and the Obama Administration. The Dartmouth Institute for Health Policy

and Clinical Practice. December. 2 Wennberg, J., Brownlee, S., et al., ibid. 3 Wennberg, J., Brownlee, S., et al., ibid. 4 Wennberg, J., Brownlee, S., et al., ibid. 5 Wennberg, J., Brownlee, S., et al., ibid. 6 Wennberg, J., Brownlee, S., et al., ibid. 7 Wennberg, J., Brownlee, S., et al., ibid. 8 Wennberg, J., Brownlee, S., et al., ibid. 9 Wadgaonkar, A.D., Schneider, E.D. & Bhattacharyya, T. (2010). Physician tiering by health plans in Massachusetts.

J Bone Joint Surg Am. 92:2204-2209. 10 Fisher, E. & Goodman, D. (2009). Health Care Spending, Quality & Outcomes - More Isn't Always Better, A Topic

Brief. The Dartmouth Institute for Health Policy and Clinical Practice. Feb. 11 Helen Blumen & Lynn Nemiccolo (2009). The Convergence of Healthcare Quality and Efficiency. Insight: Expert Thinking from Milliman. 12 Helen Blumen & Lynn Nemiccolo (2009). The Convergence of Healthcare Quality and Efficiency. Insight: Expert Thinking from Milliman. 13 Helen Blumen & Lynn Nemiccolo (2009). The Convergence of Healthcare Quality and Efficiency. Insight: Expert Thinking from Milliman. 14 Boyle et al. (2010). Projection of the year 2050 burden of diabetes in the US adult population: Dynamic modeling of

incidence, mortality, and pre-diabetes prevalence. Population Health Metrics. 15 Centers for Disease Control and Prevention. National diabetes fact sheet: national estimates and general

information on diabetes and pre-diabetes in the United States, 2011. Atlanta, GA: U.S. Department of Health and

Human Services, Centers for Disease Control and Prevention, 2011. 16 ADA (2011). Diabetes Statistics - Data from the 2011 national diabetes fact sheet. Retrieved 6/19/2011 from

http://www.diabetes.org/diabetes-basics/diabetes-statistics/?print=t. 17 UnitedHealthcare (2010). The United States of Diabetes: Challenges and Opportunities in the Decade Ahead.

United Health Center for Health Reform & Modernization. Working Paper 5. 18 American Association of Clinical Endocrinologists, ibid. 19 American Association of Clinical Endocrinologists, ibid. 20 UnitedHealthcare (2010). The United States of Diabetes, Ibid. 21 The CORE Diabetes Model: Projecting Long-Term Clinical Outcomes, Costs and Cost-Effectiveness of

Interventions in Diabetes Mellitus (Types 1 and 2) to Support Clinical and Reimbursement Decision-Making. RedOrbit

NEES (2004). 22 UnitedHealthcare (2010). The United States of Diabetes, Ibid 23 UnitedHealthcare (2010). The United States of Diabetes, ibid. 24 Beaulieu, N.D., Cutler, D.M. & Ho, K.E. (2006). The Business Case for Diabetes Management at Two Managed

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25 Goldman, D.P. & McGlynn, E.A. (2005). US Health Care – Facts About Cost, Access and Quality. The RAND

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49 Rizzo, J.A., Abbott, T.A. 3rd, & Pashko, S. (1996). Labour productivity effects of prescribed medicines for

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69 UnitedHealthCare (2009). Federal health care cost containment, ibid. 70 Tethys Health Ventures (2010). Retrieved June 19, 2011, from http://tethyshealth.com/case-study.html. 71 The Burden of Musculoskeletal Diseases in the United States (2008). Chapter 2 Spine: Low Back and Neck Pain.

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the American College of Physicians and the American Pain Society. Ann Intern Med. 147:478-491. 85 Webster, B.S. & Courtney, T.K. (2005). Brief report: Physicians’ initial management of acute low back pain versus

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93 AAOS (2010). Optimizing The Management of Rotator Cuff Problems Guideline and Evidence Report American

Academy of Orthopedic Surgeons. Adopted by the American Academy of Orthopedic Surgeons Board of Directors

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2011, from http://orthoinfo.aaos.org/topic.cfm?topic=a00297. 99 Rolloa, J., Raghunathb, J., & Portera, K. (2005). Injuries of the acromioclavicular joint and current treatment

options. Trauma. 7:217-223. 100 Yiu-chung, W.U.N. (2010). Shoulder Instability and Related Problems -Diagnostic Pearls and Management

Updated. The Hong Kong Medical Diary. 15(1)Jan. 101 Mook, W.R. & Miller, M.D. (2009). Multiple-ligament knee injuries: A systematic review of the timing of operative

intervention and postoperative rehabilitation. J Bone Joint Surg Am. Dec;91(12):2946-57. 102 Lyman, S. & Koulouvaris, P. (2009). Epidemiology of anterior cruciate ligament reconstruction. Trends,

readmissions, and subsequent knee surgery. J Bone Joint Surg Am. 2009;91:2321-232.

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