A Risk-Based Evaluation Methodology for Cost Effectiveness of Chronic Condition Health Management Programs

Ian Duncan, Bryan Beatty and Brian Day

North American Actuarial Journal, 2011, vol. 15, issue 1, 1-12

Abstract: A financial evaluation of the effectiveness of chronic disease health management programs would ideally take into account the health care costs of managed chronic member populations compared against the health care costs of comparable nonmanaged chronic member populations. This paper considers one approach when a comparison chronic member population is not readily available. The approach uses a nonmanaged nonchronic member population as the comparison group, applying a claims normalization methodology to the medical claims costs of the chronic and nonchronic populations. The normalization process includes stratification by demographic and risk factors. The resulting savings factors are then modified to identify expected savings for single-employer groups. The analysis develops savings factors at the book-of-business level, which are then applied to groups to estimate the savings at the group level. Separate savings factors are developed by age and sex, condition, and duration from initial chronic diagnosis. Results are generally intuitively reasonable: Savings are higher for members with longer duration since identification, as well as for members with more costly conditions (e.g., heart disease, comorbid conditions). The effect-on-savings estimates of underlying factors such as age, duration, and condition have not been extensively examined in the health services literature. Our paper adds to the literature by examining the effect of duration, risk, and condition on savings from a management program while providing a methodology that may be followed by other practitioners to examine these effects in other populations.

Date: 2011
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DOI: 10.1080/10920277.2011.10597606

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