Finding the Right Business Partners for Rural Integrated Healthcare Systems

by Luisa Buada
CIRHM Executive Director

This is the first of three articles on issues concerning partnering relationships that an emerging rural Administrative Services Organization (ASO) or Community Healthcare Organization (CHO) should consider. This article focuses on the concerns of "fit" between rural community values and the values of potential business partners who are often urban based. The second article, which will follow in the next newsletter, will explore the questions that a rural ASO/CHO should ask when deciding what kind of partnership(s) the ASO/CHO needs. The third of these articles, also scheduled for the next newsletter, will look more indepth at the structure of the partner relationship, including contracts, incorporation and governance issues.

Nancy Wilson, Board President for Southern Humboldt Community Hospital. A speaker at the 3rd Annual DRIS conference February 2000

Historical Rural/Urban Partnerships

Rural providers have had partners in health care for a long time. Rural providers have always had to link with referral partners for tertiary and specialty care services. However, before managed care, these relationships were made informally, provider to provider. Each physician or hospital had their favorite urban tertiary hospital and/or specialists to whom they sent their patients for care that was unavailable in the rural community. With the advent of managed care, reimbursement to providers through health plan coverage has become tied to formal contracts and formalized provider networks. Rural providers have had to make choices as to which health plans, hospitals or health systems they should or could contract with in order to be a participating plan or system provider.

In the 1980s, the movement towards formalizing relationships with rural providers was largely urban-driven and hospital-focused. Urban hospitals began buying or affiliating with rural hospitals in order to ensure upstream referrals for ambulatory surgeries, cardiac care units, and other inpatient and specialty care. Groups of horizontally linked hospitals formed hospital systems which then competed with each other for the rural referral base. In exchange for their referrals, rural providers were offered a variety of incentives, such as assistance with practice management, access to specialists, and benefits related to shared services such as purchasing arrangements, the marketing prestige of the tertiary partner relationship, and the real or perceived expansion of choice for their rural patients. Very few of these relationships involved the rural providers taking on substantial risk; more often, the effect was to buffer rural providers from financial risk.

As managed care health plans came into dominance in the urban markets in the 1990s, health plans began looking to rural residents as potential health plan enrollees to expand their geographic coverage. Health systems looked to rural residents to increase the number of enrolled premium lives to help cover the costs of their Management Services Organization (MSO) functions. Because enrolled lives are linked to a primary care provider, health plans and health systems began to focus more on attracting the rural physician into signing contracts, sometimes bypassing the local hospital altogether. These arrangements are still characteristically urban: incidence based care; selective contracting; movement of patients and premium dollars out of the rural setting into the urban environment; and gleaning of commercial and Medicare + Choice covered beneficiaries.

Intermediary organizations such as Independent Practice Associations (IPAs) (and more recently Physician Hospital Organizations (PHOs)) began to form in some rural markets to manage out-of-area health plan contracting and partnering relationships on behalf of individual physicians beset by a host of options with little administrative infrastructure capacity to deal with them. Rural intermediary groups, such as IPAs and PHOs, having formed in reaction to urban insertions into their markets, are often focused on reducing their financial risk, retaining physician clinical autonomy, and preventing selective contracting and the segmentation of their patient base by health plans and consequential out-migration. This defensive response has had the effect of diminishing movement towards meaningful clinical integration, which is essential to achieving effective care management and improved patient outcomes over time.

The potential outcome of the community collaborative approach to building a locally owned ASO/CHO as an intermediary organization for coordinating systems integration and for managing risk, is the elevation of community benefit and community accountability to the top of the priority list. While most of us philosophically hold and support these same ideals, in the rural community and in the practice of rural medicine, these values have had and continue to have a much more tangible meaning and historical precedence.

Population versus Incidence Based Medical Practice

Traditionally, the rural health care physician is an integral member of their local communities; participating as family member, church member, local school board member and civic leader. Their patients are their neighbors, their friends,and the co-parents to their children. By virtue of these relationships, the rural physician has a social contract with the community in which he or she practices, which means that his or her market is the community or population as a whole. From a political and economic perspective, even as a solo practitioner, working independently and autonomously, the rural physician's practice is based in the concerns and issues of the service area population.

This relationship with the local community contrasts sharply with the typical urban physician practice today. Urban physicians often do not have a relationship with their patients outside of the office, do not live in the same neighborhoods or have any connection beyond the incidence of the patient encounter. In this sense, urban medical care is incidence based versus population based.

Managed care as it has developed in urban markets mirrors this incidence based approach. A physician manages the incidence of illness to keep costs down and is in turn rewarded by the system. Approaches to care of the population are constrained to the current enrolled beneficiary population of a given health plan.

Horizontal, vertical and systems integration approaches through urban networks and affilition are driven by this incidence based approach which is tied to the quantification of enrolled lives and per member per month revenue and expenses. (MSOs) serve these networks by processing claims and helping with the administration of managed care contracts. Their patient is a featureless, faceless encounter that either qualifies or does not qualify for plan benefits.

Due to the nature of the rural provider-patient relationship, the rural integrated health care system which develops a locally owned ASO/CHO must have business policies that look at the concerns of the community as a whole. Benefits and services which are offered cannot be easily restricted to subsets of a physician's practice population. If, for example the ASO/CHO offers prevention services, for example, for one enrolled health plan group or patient population, these services will most likely be made available to a physician's entire patient population, whether or not the physician or the ASO/CHO is paid to do so. The social contract that characterizes the rural health care patient-provider relationship, which is so different from the urban managed care model, underlies the difficulty of finding the right business partner(s) for the emerging rural ASO/CHO.

Alan Glaseroff, M.D. Humboldt - Del Norte Regional Health Council Presenting at the 3rd Annual DRIS Conference - February 2000

Types of Partnerships

As rural providers come together to form their own integrated networks, or as in the Developing Rural Integrated Systems (DRIS) Initiative to form locally owned ASO/CHO businesses to assist with system integration efforts, these ASO/CHOs must also choose business partners to contract with for a variety of functions. In selecting the right business partners, the ASO/CHO governing boards and management staff will need to find companies that can respect local values and work with the ASO to further its mission and goals.

Rural ASO/CHOs can expect to require a number of out-of-area partner relationships with third party administrators, health plans and tertiary provider networks. These so- called "partnerships" are not really new to rural providers. What is new is the opportunity for the rural community to be the initiator of these contracts and to use the contracting mechanism to forge real partnership relationships that are designed for - and benefit local providers, employer purchasers and consumers of health care services.

The ASO/CHO together with its provider network will have to formalize contracts with health plans and out-of-area tertiary and specialty providers. The ASO/CHO will want to ensure through contract negotiations that as much primary and sub-specialty care as possible be kept in the local community and ensure that patients are referred back to their primary practitioner.

The rural ASO/CHO, unlike its urban MSO counterpart, will probably not perform all of the backroom functions of managed care. For example, the smaller population base of most rural markets will require the ASO/CHO to contract out for claims processing to a Third Party Administrator (TPA) organization, at least initially. The ASO/CHO could arrange a straightforward service contract with the TPA, however, with the right TPA partner, the ASO/CHO could also negotiate to build a partnership where the TPA assists the ASO/CHO to incrementally develop its own in-house capacity. This eventually would enable the ASO/CHO to process claims for beneficiaries served by its own contracts. In some instances, the rural ASO/CHO may want to find health plan partners that are willing to share utilization management and quality review activities as well as the premium dollars that go with them, in exchange for the ASO/CHO delivering to them the local provider network. For some communities, it may be essential that they find a financial partner to affiliate with in order to sustain their local hospital. The ASO/CHO may be the appropriate intermediary to negotiate that partner relationship on behalf of the community, seeking the right financial partner who will commit to keeping the local health system intact.

Qualities to Look for in a Potential Business Partner

The following are examples of qualities (beyond the usual financial due diligence) which a rural ASO/CHO may want to consider in choosing a business partner. To the extent possible, the ASO/CHO should structure these qualities into its business agreements to ensure accountability to these values.

Willingness to respect and accept the values and mission of the local ASO/CHO organization;
Ability to be supportive of the rural value of population based care delivery;
History of successful and respectful collaborations with other rural communities;
Likelihood that the organization will be around for awhile;
Willingness to be a long term investor versus a short term profit maximizer;
Demonstrated understanding of the differing nature of rural communities and rural health care delivery, (that rural is not small urban);
Openness to try reasonable innovative shared arrangements not previously tried;
Ability to validate and have respect for the existing local health care system;
Willingness to accept the involvement of the community collaborative in the ASO/CHO;
Ability to understand the relationshipbetween sustaining the local health care system and the viability of the local economy;
Willingness to support the incremental capacity development of the ASO/CHO; and
Willingness to structure termination agreements that ensure the least disruption to patient care and provider stability.

References:

Brasure, M., Moscovice, I., and Yawn, B., "Rural Primary Care Practices and Managed Care Organizations: Relationship and Risk Sharing," Rural Health Research Center, Working Paper Series #28, Division of Health Services Research and Policy, School of Public Health, University of Minnesota, February 1999.

Christianson, J. B., Wellever, A., and Radcliff, T., "Implications for Rural Health Care of Linkages with Urban Health Service Delivery Systems," Rural Health Research Center, Working Paper Series #24, Division of Health Services Research and Policy, School of Public Health, University of Minnesota, June 1998.

Wellever, A., Radcliff, T., and Moscovice, I., "Local Control of Rural Health Services: Evaluating Community Options," Rural Health Research Center, Working Paper Series #21, Division of Health Services Research and Policy, School of Public Health, University of Minnesota, February 1998.

go back to the top