If you want to understand a major reason medical costs are out of control, breaking the federal budget and dividing the country, look at the types of people enrolled in XLHealth's Medicare insurance plans.
Most suffer from diabetes, congestive heart failure or other long-term illness. They're like the millions of chronically ill Americans who visit doctors half a dozen times a year or more and, by some measures, account for 80 percent or more of all spending by the Medicare program for senior citizens.
But if you want to view what many call a promising approach to treating chronic illness less expensively and slowing the medical-inflation spiral, look again at XLHealth's 113,000 members in six states.
Three years ago, the Baltimore company started sending nurse practitioners and physicians to the homes of its patients, checking for signs of worsening illness, making sure they were taking pills and encouraging them to keep in touch with their primary-care doctors.
XLHealth started paying especially close attention to people just out of the hospital. Readmission of newly discharged patients also accounts for a huge portion of medical spending. By detecting potential relapses before they became severe, XLHealth cut readmission rates by 7 percent over the past year, Paul Serini, the company's executive vice president, says via email.
XLHealth, founded in the 1990s and based in the Camden Yards warehouse, operates Medicare Advantage plans, privately managed alternatives to the traditional government Medicare program for people 65 and older. They're basically health maintenance organizations or preferred-provider organizations for Medicare, often operated by investors such as XLHealth seeking a profit.
They may be the future of Medicare. Minnesota-based UnitedHealth Group seems to think so. Last month, the company agreed to buy XLHealth for what Bloomberg News reported was as much as $2 billion.
UnitedHealth was already the biggest operator of Medicare Advantage plans in the country, with 2 million members. Two of its rivals in the for-profit insurance business, Cigna and Humana, recently announced their own Medicare Advantage acquisitions.
The Medicare Advantage idea is that better-coordinated networks of doctors and hospitals can slow down the cost elevator. In traditional Medicare, medical providers are paid by the procedure, and there are few limits on care. That produces an environment that critics say encourages unneeded tests and surgeries.
In "managed-care" plans such as HMOs and PPOs, the insurer and often doctors and patients receive incentives to reduce unnecessary treatment and tests. (HMOs pay for member care only when delivered by doctors and hospitals in the network. PPOs pay for out-of-network care at a reduced rate, and patients have to make up the difference.)
At a time of bitter debate over the future of Medicare, managed care is popular because it promises the holy grail: cost control without harming the quality of care.
"There's a lot of discussion about how Medicare has to change," says Thomas A. Carroll, a Baltimore-based health-insurance analyst with Stifel Nicolaus. "One of the conversations is, 'Don't touch my Medicare. Keep it status quo.' The other discussion is, 'We have to do something about it.' And the second set of discussions tend to focus on managed care."
Of course, managed care has been promising to control costs for decades. It hasn't. But better information technology, more doctors working directly for insurers and more tightly controlled caregiver networks have a chance to produce a different outcome this time, Carroll says.
XLHealth has invested heavily in computer systems, creating for each patient a "virtual team" of electronically connected caregivers. Nurse practitioners and doctors have a patient's information on a computer tablet when they visit. Electronic monitors — on weight scales, for example — can deliver patient readouts daily from the home.
XLHealth even has a social-services team that helps members apply for public assistance if, for example, their electricity or heat is turned off.
All that is quite expensive. But it's less expensive than a hospital stay. Over three years, the increase in XLHealth's costs for chronically ill patients was 11 percentage points less than cost increases for those patients generally, says Serini.
The company, owned by founders as well as investment partnerships managed by MatlinPatterson Global Advisors, doesn't publish financial results. So there's no way to know its profits. The deal, however, is likely to produce a big payday for Serini, CEO Frederick C. Dunlap and other insiders.
Many are skeptical about the ability of Medicare Advantage plans and profit-driven investors to deliver the twin goals of cost control and quality care.
More than a fifth of Medicare beneficiaries are in Medicare Advantage plans. Some Medicare Advantage companies — not XLHealth — have been accused of signing seniors without their consent. A recent article in Health Affairs suggested that seniors are often confused when confronted with dozens of Medicare Advantage choices and that people with low cognitive abilities are more likely to choose lower-benefit plans.
"Most people don't understand the difference between Medicare Advantage and the traditional Medicare program," says Diane Archer, a health policy consultant who founded the Medicare Rights Center. "They think they are getting more for less in the Medicare Advantage plan. What they don't realize is, if they get really sick, their costs can be really high."
Some predicted that the end of federal subsidies for Medicare Advantage and a cap on profits required by last year's Affordable Care Act would cause patients to stop signing up or insurers to stop offering the plans. The Government Accountability Office, however, found that Medicare Advantage enrollment increased 6 percent in the year after the law was passed.
Many seniors don't have a choice, Archer said. They might not be able to afford traditional Medicare along with the supplemental insurance that many buy. Or former employers contributing to retirement coverage may require them to buy Medicare Advantage plans.
Medicare may become like Medicaid, more than two-thirds of whose low-income beneficiaries are in HMOs or similar networks. Instead of fading away, managed-care Medicare looks like the shape of things to come.