Protect your client base by forming a consortium
Strategy enhances market share
The managed care pressures of the 1990s have prompted many rehabilitation facilities to integrate or form alliances with acute care hospitals and other providers. While those relationships provide a financial safety net, there may be some obstacles preventing providers from getting the most benefit out of the alliance.
For instance, too many patients may be referred by physicians at the larger health care organization to competing rehab facilities that are not owned by the organization, or vice versa. If the rehab facility and the parent or allied hospital system have insurance contracts with managed care companies that shift some financial risk to the providers, this could be a costly problem because the health care organization could be penalized for referring patients to out-of-network providers.
A Sacramento, CA, rehabilitation facility and its parent health care system ran into that problem in the mid-1990s, when 80% of the referrals from the health system’s physicians were going to non-network providers. The organization decided to solve the problem by forming a rehab consortium.
"We realized there was a large population, our at-risk population, that was being referred to our outpatient rehab facilities, and a tremendous number were going to non-network providers," says Shahab Dadjou, chief executive officer for Sutter Ambulatory Care Corp, part of Sutter Health in Sacramento. Sutter Regional Rehab Consortium falls under the umbrella of Sutter Ambulatory Care Corp., which provides occupational medicine, rehab, and ambulatory services.
"Our market is highly penetrated with managed care, and it’s very aggressive relative to health systems fighting for market share," Dadjou adds. "And at the same time, a number of national rehab providers were establishing their niche and foothold in this area."
The referrals to non-Sutter facilities caused two big problems:
• First, they cost Sutter money because the organization held financial risk on tens of thousands of patients who were covered by managed care insurance. Sutter had a capitation agreement, which meant the health care provider was paid a certain amount of money per covered life, and Sutter had to provide all of the health care services needed to these people from within that set price.
Whenever patients whose insurance was part of the capitation agreement were sent to non-Sutter providers, Sutter ended up spending more money on the patients than Sutter would have spent if the patients had seen one of Sutter’s own providers. Also, the insurer didn’t reimburse Sutter for the extra costs. Capitation agreements, like Medicare’s prospective payment system, shift health care financial risk to providers by eliminating the traditional fee-for-service incentive.
• Second, patients who were referred to non-Sutter providers experienced a lack of continuity in their care. "If you went outside of our system, they had different communication patterns, different working relationships and protocols," Dadjou says. "And in addition to that, getting the patient back to our system at times could have been a little difficult, so we had a great deal of interest in making sure patients enjoyed a full spectrum of care within Sutter Health as opposed to going outside the network."
Clearly, the health care system needed to make some changes that would help manage risk and care more efficiently and address the company’s market share. The answer was to create the consortium, which is represented by 12 Sutter Health-affiliated outpatient rehabilitation programs throughout the region.
Start-up costs are economical
The start-up costs were minimal. All the consortium needed was a leader with vision, an office, a telephone, a powerful computer, a fax machine, and a good clinician who would serve as the person to give authorization over the telephone, Dadjou says.
"We identified six or seven locations where Sutter Health did not have a presence and geographic convenience was not available," Dadjou says. "Then by mapping this out, we went out and solicited six other non-Sutter providers to participate in our consortium."
The non-Sutter providers agreed to be part of the consortium and signed contracts to accept the capitated patients at a discounted rate. Also, the contracted consortium members will adhere to a list of quality indicators related to clinical outcomes, patient satisfaction, and utilization.
"We stated to our partners that we basically will manage the consortium based on those three qualities," Dadjou says. "Performance will keep them there, and lack of performance will get them out."
The new consortium formed an executive committee consisting of six members who represent the interests of all the providers and an oversight committee with 12 members. The oversight committee is the clinical arm that addresses quality issues.
Health care providers are accustomed to managed care in that part of the country because managed care contracts cover 80% of the market. Sutter officials, therefore, didn’t have a great deal of resistance to its risk-sharing reimbursement model, which creates a risk pool for both hospital-based and outpatient consortium providers. The outpatient providers, who are part of the consortium but not a part of Sutter Health, are not part of the risk pool distribution.
The risk pool works this way: The consortium withholds 10% of the funds collected from its capitation contracts with insurance companies, and it forms a risk pool fund. Any money that is not used by higher-than-anticipated health care costs goes into the risk pool fund. (See risk pool distribution chart, inserted in this issue.)
Both the withhold fund and the risk pool fund are available to be distributed to participating health care providers, based on three criteria:
• Patient satisfaction is 93% based on surveys with six questions and a 15% return rate.
• The provider’s average visits per case are within one standard deviation of the network’s average visits per case.
• The provider’s referrals meet the network’s average, with adjustments made for high-referral programs.
Since forming the consortium, Sutter no longer has a problem of excessive out-of-network referrals. Now about 84% of the system’s referrals are to Sutter Health affiliates, and the rest go to non-Sutter providers who are part of the consortium.
"From the perspective of the consortium, 100% of the referrals are being captured," Dadjou says. "The [number of] covered lives we serve is close to 160,000, and we have been able to deliver annual savings to medical groups at the tune of 15% to 20%."
Also, the consortium has achieved an average of 96% patient satisfaction, and its average utilization per case for Medicare and commercial patients is 5.7 visits, which is a drop from the initial utilization rate of eight visits per case.
Need More Information?
Shahab Dadjou, Chief Executive Officer, Sutter Ambulatory Care Corp., One Capitol Mall, Suite 390, Sacramento, CA 95814. Telephone: (916) 554-6615. Fax: (916) 492-5832.
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