Yet Another Dark Cloud in the Stormy Skies of Medicare DM

Medicare’s major thrust at chronic disease management innovation — the Medicare Health Support (MHS) pilot project — continues to gather storm clouds.

Today’s POO (persistent obfuscatory orations) Award goes to Healthways for their explanation of  MHS progress (or lack thereof) in an April 4 press release.  If you can understand what they’re saying about MHS (see p. 3) without having your CPA explain it, you’re a lot smarter than I am:

The recently received sixth quarterly CMS report for the MHS pilots continued to cumulatively reflect minimal separation between the intervention and control groups as measured under the terms of our current Cooperative Agreement with CMS, which resulted in a net reversal of revenues of approximately $1.9 million.

Over the past 90 days, the Company has been actively engaged with CMS in mutual and intensive analysis of intervention and control group data in order to better understand the factors associated with CMS reported performance and to identify mutually acceptable modifications to the pilots that would enhance the likelihood of overall success and progression to Phase II….

Huh?

Today’s POE  (plain old English) Award goes to Lehman Brothers analyst Joshua Raskin. Here is his April 5 summary of Healthways’ news:

The operating results for the MHS pilots again came in below expectations, continuing a recent trend of Medicare related disappointments. As a reminder, the revenues derived from the MHS pilots are tied to achieving 5% cost savings across the target population over 3 years as compared to a control group. Since the start of the pilots in August, 2005, Healthways had targeted the fourth quarter of 2006 as the time when they would be able to recognize revenues from the MHS pilots. However, when the company received the first cost-report data two quarters ago they realized that the results were short of the necessary hurdle to recognize the full $18 – $21 million in revenues that they had hoped. Instead the company only booked $4 million during the fourth quarter and a total of $11.2 million for the full year in fiscal 2006.

The news then got a little worse with last quarter’s update. Healthways noted that they had been able to reduce the medical trend for their population to zero (i.e. no inflation in costs from the previous period). Normally, this would be cause for celebration as the population they were managing is hardly a low inflation cohort. Unfortunately, the control population also showed a trend of zero. This result was very perplexing to the company, and to some extent to us as well.

There was no improvement in the most recent data received from CMS. Healthways is still not generating a savings compared to the control group and therefore the company has not been able to recognize any revenues. In fact, the results were so far behind that the company actually reversed our about $3 million in revenues in the quarter. Going forward, the company is looking to CMS for assistance. There appears to be some sort of collaboration under way to determine the root cause of the improvement in the control group. Barring any improvement, or change in methodology, Healthways has suggested that they would now be ready to walk away from the program.

<

p style=”MARGIN-RIGHT: 0px”>Congratulaltions to Joshua Raskin for writing in POE!