LifeMasters' Bankruptcy: Isolated Case or Part of Trend?

I talked to LifeMasters Supported SelfCare, Inc.'s then-President and CEO Christobel Selecky less than a year ago about her company and how it forged ahead after a failed $307.5 million merger with disease management giant Healthways in 2006.

As one of the leading disease management/population health management companies, LifeMasters needed to do some soul-searching after its failed merger. It cut staff, and invested in technology and data integration. Selecky also told me her company was thriving in a dual-eligible CMS demonstration project in Florida by working with doctors and Medicare beneficiaries' families, and conducting face-to-face meetings with beneficiaries. In other words, using tactics not seen in traditional DM.

Now, just a year later, LifeMasters announced on Monday it has filed for Chapter 11 bankruptcy protection and Selecky has been replaced as president and CEO of the South San Francisco, CA-based company (Selecky, a population health management industry leader, is staying on the company's board of directors).

How did a company that a year ago seemed stable wind up filing for bankruptcy? LifeMasters is pointing at CMS. George Pillari, the new LifeMasters president, told me this week that LifeMasters owes CMS $125 million for participating in three demonstration projects over the past four years as well as "another few million" to other creditors.

The company, along with others involved in the Medicare Health Support project, which tested DM in the senior population, need to repay fees to CMS "earned in excess of savings generated during the multi-year projects" because CMS found the DM companies did not "demonstrate success based on CMS' study design and measurement methodologies," according to LifeMasters.

Pillari says the Chapter 11 process will give LifeMasters "resolution with CMS" and allow the company to move forward "just fine."

LifeMasters has to transition from a company that a year ago had one-third of its business coming from Medicare to moving forward without any Medicare business because their demonstration projects have ended.

Pillari adds the commercial business is progressing and LifeMasters cut staff associated with Medicare. "I think the rest of our business runs pretty well," he says.

While CMS says DM companies have not been successful in the Medicare population, the industry, in turn, questioned MHS' contract model and design and CMS' selection of Medicare beneficiaries who took part in the project (who critics charge were both too healthy and too sick to bring about cost savings).

But rather than question CMS and the MHS project, Ariel Linden, DrPH, president of Linden Consulting Group in Hillsboro, OR, says the industry should instead learn from the failed MHS project and LifeMasters' experiences. His conclusion: The classic nurse call center-based DM model is a failure and companies must change the design or face a disastrous future.

"Not only am I not surprised, I wonder how other firms haven't folded yet," says Linden of LifeMasters' bankruptcy filing.

Linden, one of the most outspoken critics of the traditional nurse call center-based DM model, co-authored an article with Julia Adler-Milstein of Harvard University that appeared in the Spring 2008 Health Care Financing Review in which he questioned whether commercial DM could achieve net cost savings in the chronically ill population.