Whatever It Takes

Managed care, the human version, at Senior Whole Health.

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No.1: Senior Whole Health

Three-year growth 31,525.4%

Senior Whole Health was conceived not in some humble garage but in the Massachusetts statehouse. Its birth legend is no more dramatic than six managed care veterans responding to a government request for proposal. And the founders led the business for just a year before relinquishing control to outsiders.

Yet in the best entrepreneurial tradition, Senior Whole Health is a grand and risky experiment. And although it was built to spec, the company innovates every day as it seeks new ways to serve the vulnerable among us.

In 1995, Massachusetts began picking at a stubborn knot in the vast tangle of health care reform: coverage of the elderly poor. About 7.5 million people in the United States qualify for both Medicare, the federal program for seniors; and Medicaid, the state and federal program for those with limited means. Medicare doesn't pay for long-term care, so when this population -- "dual eligibles" in bureaucratic-speak -- lands in nursing homes, states foot much of the bill.

States hate paying for nursing homes. Seniors hate living in them. "I've never met anyone who wants to be in a nursing home," says State Senator Richard Moore. "They see it as the end of the road." In 2002, 10 years after Massachusetts started researching the problem, Moore championed legislation to create Senior Care Organizations, or SCOs, with the goal of keeping people in their homes or in the least restrictive setting possible. SCOs are "a wraparound service providing all the support needed to do that," Moore says.

Like traditional managed care, SCOs work with networks of primary care physicians. But they differ from other providers in three ways, according to Diane Flanders, director of coordinated care systems for the MassHealth Office of Long Term Care. First, SCOs are funded jointly by Medicaid and Medicare and include every benefit offered by both agencies, including treatment for substance abuse, exercise programs, and transportation. Second, they make nurses available by phone around the clock and arm them with a constantly updated database of enrollees' medical records. Third, they contract with community organizations to provide clients with services, including housekeeping and family support.

In 2003, Flanders's office issued an RFP for health care networks willing to road test the SCO model. Up stepped Camille Bressler, Michael Levoshko, Mel Benson, Denise Gallagher, Matt Vinikas, and Marcia Stein, who had met in the 1980s at a Medicaid HMO in Boston. (Managed Medicaid is not new, but it has historically targeted mothers and children, not the elderly.) The six envisioned a nonprofit, their area of expertise. But when they sought seed capital, "the money just wasn't there on the nonprofit side," says Bressler. "So we went where we could find it."

The founders secured $7.5 million from four venture groups. What they failed to secure was the top spots for themselves. "That was taken off the table pretty early on," says Bressler. "One of the requirements of our financing was that the CEO and CFO positions would be the selection of our investors." Bressler and Levoshko accepted less exalted roles, currently vice president of human resources and chief technology officer, respectively. The other founders have left the company. All six founders have ownership stakes.

For a year, Senior Whole Health chugged along under James Outland, a managing partner at New Capital Partners, one of the groups funding the business. In 2005, a headhunter recruited John Baackes as CEO. A veteran of Kaiser Permanente and Group Health Incorporated of New York, Baackes has increased enrollment to 5,900-plus members. Revenue was $147 million in 2007, based on payments from Medicare and Medicaid of $1,500 to $10,000 per month per enrollee. (Higher fees are for members already in nursing homes. The average monthly payment is $3,000.) From 84 percent to 86 percent of each dollar collected is passed on in medical and social benefits. Administrative costs consume another 10 percent.

So margins are thin. Senior Whole Health's delicate job is to cut costs without cutting care -- by substituting generics for brand-name drugs where practical, winnowing out drugs that are incompatible with other drugs, using intensive posthospital care to reduce return trips, and, most important, assigning both a nurse and a caseworker to every client. "We don't have a cost avoidance strategy," says Outland, who is now chairman of the board. "It's about care management improvement, which translates into quality-of-life improvement, which trickles down into cost savings.

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