$389 M of Healthways’ Market Value Vaporizes After CMS Announcement. What Happened?

Healthways stock price declined today by $10.52 (15.9%) after CMS “announcement” about ending Medicare Health Support (MHS) Phase 1.  This equates to a loss of $389 million in market capitalization…poof!  Gone. Healthways is one of the remaining five participants in the MHS program.

Without pointing fingers, it’s obvious that investors were surprised by the news.  What happened?

Yesterday, Tom Wilson and I commented on this blog about Medicare’s announcement, interpreting it as “a death knell for the Medicare Health Support chronic disease management (DM) project and that there will be no MHS Phase II.”  We stand by our words.

Today, the story is still unfolding.  I’m more confused than ever as to what the facts really are. In today’s posting, I will:

• Share varying interpretations of CMS’ announcement
• Pose yet unanswered questions
• Ask — what happened? What’s the root cause explanation?

Varying Interpretations of CMS’ Announcement

I received over a dozen phone calls and emails today about about our posting. The contacts were from financial analysts, journalists, DM execs, colleagues.  All were friendly, but VASTLY different and POLARIZED. Here’s a sampling of the extremes:

• “The CMS announcement suggests that at least some of the programs are hitting their targets, indicating that Phase II is still likely.  The Medicare Fact Sheet points out that ‘The statute limits Phase I to three years and makes expansion to Phase II contingent on a program (or components of such program) [emphasis added] improving the clinical quality of care, improving beneficiary satisfaction, and achieving targets for savings.’  Since some components of some programs seem to be working, we should still expect Phase II.”
• “There’s nothing new here.  The handwriting has been on the wall since the first official program report from last summer. CMS isn’t saying anything that we haven’t heard before.”

Unanswered Questions

Here are some of the more vexing questions that surfaced during my discussions today.

1) Are MHS programs missing one target or all three? CMS wrote in the Fact Sheet:

The experience of the MHS program indicates that Phase I of the program is not meeting the statutory requirements of improved clinical quality outcomes, improved beneficiary satisfaction, and the achievement of financial savings targets.

How should this be interpreted? Does it mean:

• That Phase I programs are not meeting quality AND satisfaction AND financial goals?  That NONE of the programs are meeting ANY of the targets?
• That Phase I is not meeting statutory requirements because as few as one of the goals are not being met — presumably the financial targets?  …and perhaps the other two goals ARE being met?
• something else?

2) Will CMS request refunds of fees paid to the Medicare Health Support Organizations (MHSOs)? CMS wrote in the Fact Sheet:

Program-wide fees paid to the MHSOs to date total approximately $360 million—an increase of 5 to 11 percent in Medicare costs for participating beneficiaries.

Does this mean that the MHS programs overall are missing budget neutrality by $360 million?  Will the remaining MHSOs be getting requests from Medicare to refund this $360 million?  What would that do to confidence in the DM market and to these companies?

3) How does this fit with Medicare’s announcement a few weeks ago to reduce program requirements from 5% guaranteed savings to budget neutrality? 

Vanessa asked in a comment to yesterday’s blog posting: “what are your thoughts on why they would grant budget neutrality and then decide to quietly kill the program?”  Great question.

4) What happens to the current program enrollees?  are they being treated fairly?

DMAA — The Care Continuum Alliance wrote in its response to the CMS announcement:

Tens of thousands of chronically ill Medicare beneficiaries today face a distressing gap in access to valuable support services for managing their conditions. These beneficiaries, as well as their providers and family caregivers, enthusiastically welcomed these services, as evidenced by participation rates, satisfaction measures and a demonstrated willingness to take important steps toward better health.

If at least some of the programs are hitting quality and satisfaction goals, why pull the rug out completely from the beneficiaries and their families?

On the other hand, one colleague speculated that the programs truly were not hitting any of their quality, satisfaction AND financial targets, and that the loss to beneficiaries would be negligible because the level of interventions was low and infrequent.

5) Is ending the MHS program after 3 years really news? CMS wrote in the Fact Sheet:

The Centers for Medicare and Medicaid Services (CMS) announced today that Phase I of the Medicare Health Support (MHS) program will end after three years of operations by five Medicare Health Support Organizations (MHSOs).

What, if anything, is different here from the original plan?  My initial interpretation of the statement was that it was merely a reiteration of the expected and legislated length of the program.  A colleague suggested that the MHSO contracts contain clauses allowing for anticipated program extensions.  The contract details aren’t public, but this also strikes me as plausible.

I don’t have answers to these and many other questions.

How Can You Explain What Happened?

I remember pausing as I was doing a final proofreading of yesterday’s posting.  I asked myself  “is the word ‘bizarre’ too extreme to use as a characterization of CMS announcement?” After thinking a moment, I kept the word…and after a day of reflection, CMS’ announcement seems more bizarre than ever.

So back to the original question — why were investors surprised by CMS announcement?  What’s the root cause of all this? 

Tom and I will be writing more on this shortly, but I’ll share a preview of our thinking. The MHS program has lacked transparency, clarity, and good communication from the start.  (This is a reflection on Medicare’s antiquated system and mindset, not on the people implementing Medicare Health Support.)

More coming…meanwhile, we welcome your input and comments.