Cochran, Caronia & Co. Report Shows That Fed Test Could Mean Exponential Growth for Disease Management Firms.

CHICAGO -- In the days ahead, Medicare is expected to announce 10 pilot projects aimed at testing strategies for cutting the cost of treating chronically ill patients under its care, a move that soon could mean dramatic growth to firms specializing in the field of disease management.

That is the finding of a report released Friday by the investment banking firm Cochran, Caronia & Co., which has been monitoring the small but fast-growing segment of the health care industry that focuses on improving day-to-day care of people who suffer from chronic diseases such as diabetes and pulmonary disease.

"Exponential growth," predicts Adam Klauber, managing director of investment research for Cochran, Caronia. "Demographic indications and health care trends all point to a massive shift to disease management as a way of cutting costs over the next five to 10 years."

Klauber cited three reasons:

--If Medicare's test of disease management is as successful as expected, 14 million patients will be added to the current market of 20 million people who could access disease management though existing health plans and self-insured company plans.

--Penetration of the existing market is only 10 percent, a number sure to grow as health care costs spiral and solutions are sought.

--People covered by Medicare are older than the current population with access to disease management. Eighty-five percent of people over age 65 suffer from a chronic condition, compared to just 38 percent of people age 20-44.

"Those three factors combine to create a perfect demographic storm of opportunity for disease management companies such as American Healthways and Matria Healthcare," Klauber said. Cochran, Caronia recently initiated coverage of both firms with a "buy" rating for each.

Disease management is regarded as a way to cut health care costs by more aggressively helping chronically ill patients maintain proper diet, exercise, medication and other healthy habits, thus reducing emergency care, hospitalization, surgery and other costly procedures.

Klauber cautioned that growth could fall short of predictions if the relatively untested Medicare population does not volunteer for disease management as expected. Anticipated savings need to be realized, he said, and a large number of submitted bids for the pilot program could dilute the size of the benefit to individual companies.

"Firms that have a track record of saving clients money and a reputation for leadership in the field are going to have a big advantage," Klauber said.

Last year Congress established Medicare's Chronic Care Improvement Program to increase cost efficiency. Under the program, Medicare this month is expected to select proposals from 10 health service providers who must demonstrate that they can run large-scale disease management programs to improve the efficiency and quality of chronic care. Each project must serve 15,000-30,000 participants. The pilot projects are to run for three years and be compared to control groups.

Copies of Cochran's analysis of the impact of Medicare policy on disease management are available at no charge at www.cochran-caronia.com.

About Cochran, Caronia & Co.

Cochran, Caronia & Co. is a leading full-service independent investment banking firm specializing in the insurance industry and businesses that support it. Cochran, Caronia & Co. advises clients on mergers and acquisitions and capital raising, and provides asset management, equity sales and trading and equity research services. Headquartered in Chicago with offices in New York, Cochran, Caronia & Co. combines industry focus and knowledge, rigorous analysis, original thinking and strategic advice to produce creative, effective results for clients. For further information about Cochran, Caronia & Co., visit its website at www.cochran-caronia.com.