Contracting alliances for managed care
But assess interest, antitrust issues beforehand
Private duty providers may find themselves out in the cold when it comes to obtaining managed care contracts. Nationwide companies may already have national contracts, or only want local contracts with the two or three largest providers in the market. Then they may further fragment the market by including hospital-based agencies in hospital contracts. Independent companies may be left with slim pickings and little ability to attract managed care interest. It may be difficult just getting an appointment, to say nothing of a contract.
Private duty providers may consider joining forces with other independent companies to pique interest, create critical service mass, and obtain contracts. With appropriate preparation, such affiliations may fit the bill, sources say.
Antitrust considerations reign supreme
"Well, the first thing is, don't have discussions with other providers and violate antitrust laws before you even start," advises Larri Short, attorney in the health care practice of Washington, DC-based Arent, Fox, Kintner, Plotkin and Kahn. "Involve counsel early on," she adds.
· Conduct a market assessment.
"I advise clients to first do a serious market assessment. Go talk to managed care organizations or the ones you anticipate will move into your area. Find out what it is that they need. They may not know, so you can educate them," says Short.
The provider organization should be structured to meet the perceived need of the managed care organization. For example, they may be more interested in geographic coverage. Or, they may want a broad array of services. Some managed care organizations are not interested in provider consortiums at all, Short notes.
· Establish a lead organization and subcontract.
"Some large East Coast companies found takers to sign contracts knowing they cannot provide all the services, who in turn subcontract with other providers," says Short. While this removes antitrust risk, it poses significant business risk for the lead organization, because the "chance of making it work out and the contract timing seldom [match]," says Short. Most providers are therefore reticent to assume the lead role. Some state home care licensure laws also prohibit such arrangements, she adds.
When providers do not jump at the lead contract role, managed care organizations may be especially interested in contract alliances, sources say.
· Select a competitive cooperation model.
Cooperating competitors may address antitrust issues in several ways. Many choose a messenger contracting model, in which a messenger talks to and receives offers from managed care companies. The messenger presents managed care proposals to contracting members and may qualify each proposal's acceptability without discussing price. For example, he may state that chances are good that members will find the offer reasonable. But members make individual decisions about the managed care proposal and the messenger cannot negotiate price.
The Department of Justice (DOJ) and Federal Trade Commission (FTC) have jointly issued guidelines1 available in print and on the agencies' Web sites: http://www.ftc.gov and http://www.usdoj.gov. State antitrust laws must also be addressed. However, most mirror federal regulations, Short notes.
Formed in 1994 by the 10 Visiting Nurse Associations of Iowa, Home Care Iowa uses a messenger model. A contracted third party administrator markets the consortium to managed care organizations. Home Care Iowa's contract committee - three board members without overlapping territories - negotiate contracts, says Rosalie Rose, RN, BSN, executive director of the Visiting Nurse Association of Johnson County, Iowa City, IA, and president of Home Care Iowa.
Competitors linking for contract purposes may also form an integrated, risk-accepting entity. This entity may be clinically or financially joined, says Short. Clinical integration may include joint quality assurance procedures, clinical pathways that all members adhere to, and common utilization review. Clinical integration is a newer integration strategy and there is less DOJ and FTC guidance on acceptable activities, Short notes. Financial integration usually comes through capitated contracts, where the entity receives a flat reimbursement per covered life each month.
Rarely, providers entering contracting consortiums address antitrust issues by not competing at all. They may have no overlapping territories, or noncompeting businesses, for example, a DME company and private duty provider. However, provider relationships are "seldom that clean," says Short.
· Determine legal and organizational structure.
Provider consortiums may choose any of the normal business forms, including partnerships, limited liability corporations, and c-corporations. The best structure depends on the members' collective circumstances, says Short. Considerations include the amount of income the network will produce, the contracting companies' individual tax considerations, and their own legal structure (nonprofit vs. for-profit). Developing a real entity, as opposed to a network, "provides a little help with antitrust issues," says Short. In keeping with its members' status, Home Care Iowa is a nonprofit c-corporation, says Rose.
· Explore licensure issues.
Providers should also concern themselves with potential licensure requirements. Depending on the entity created, the level of risk accepted and the state(s) in which the consortium will operate, insurance licensure may be required. However, "in most states, if you take risk from a licensed managed care organization, you won't be considered in the business of insurance," Short notes.
Providers should also investigate whether their proposed entity is subject to state home care licensure laws, Short advises.
Lessons learned along the way
Market assessment and consortium formation are only the beginning legs of what could prove to be an arduous journey, sources say. In addition to all the legal and regulatory start-up issues, Home Care Iowa members also concern themselves with signing and credentialing subcontractors (primarily county health departments), preparing managed care requests for proposals and establishing consortium operating procedures, such as intake and billing.
With limited collective investment funds, Home Care Iowa members minimally capitalized the organization and have instead contributed much "sweat equity." This translates into considerable after-hours work for member executives and a longer-than-expected start-up. "You can do [this] on a shoestring, [but I would advise people] to put money into it and hire help to get it done," says Rose.
Home Care Iowa member efforts have so far lead to just a few contracts, but it has brought other opportunities never envisioned, says Denise Schrader, RN, MSN, CNAA, executive director of the Visiting Nursing Association of Clinton, IA. The Iowa public health department recently awarded Home Care Iowa a large grant to administer a health and wellness program for state employees, she adds.
Still, "it's not a complete success," says Rose. Landing contracts has proved challenging, as has maintaining subcontractors' interest and support when consortium-related business is slow.
Reference
1. U.S. Department of Justice and U.S. Federal Trade Commission. Statement of Antitrust Enforcement Policy in Health Care. Washington, DC; August, 1996.
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