Can disease management reduce health care costs by improving quality?

Disease management (DM) promises to achieve cost savings by improving the quality of care for chronic diseases. During the past decade the Permanente Medical Group in Northern California has implemented extensive DM programs. Examining quality indicators, utilization, and costs for 1996-2002 for adults with four conditions, we find evidence of substantial quality improvement but not cost savings. The causal pathway--from improved care to reduced morbidity to cost savings--has not produced sufficient savings to offset the rising costs of improved care. We conclude that the rationale for DM programs, like the rationale for any medical treatments, should rest on their effectiveness and value.