Collaborating to Build Rural Health Networks: Technical Lessons from the Developing Rural Integrated System Initiative

Funding for this Report was provided by the James Irvine Foundation of San Francisco, California.

The California Institute for Rural Health Management would like to acknowledge the contributions of Mark Greiner in the editing and publishing of this monograph.

© 2000 by the California Institute for Rural Health Management. All rights reserved. This document and the information contained herein may not be redistributed without the express written consent of the California Institute for Rural Health Management.

Published in October, 2000

Executive Summary

This monograph reviews some of the technical lessons learned from the Developing Rural Integrated Systems (DRIS) Initiative. The California Institute for Rural Health Management (CIRHM) oversaw the DRIS Initiative with funding from the James Irvine Foundation. The Initiative was implemented in four rural California communities. The goal of the Initiative was to create, develop, and maintain viable, community-owned and-operated health care businesses able to interface with managed care organizations. Some fundamental principles that guided the Initiative and its technical consultants as they collaborated with members of each community are that:

• the inclusion of a cross-section of community members would be essential and imperative to planning and decision making; and
• credible, objective data would inform all decisions and produce rational, viable business decisions appropriate to a rural market.

Valuable lessons learned in testing out these principles and developing these rural health care organizations—lessons wholly applicable and particularly cogent to those policymakers and advocates concerned with the impact of public payers on rural areas—include the following:

• the aggregate number of lives currently available in each rural California community studied, given the lack of publicly funded managed care penetration, was insufficient for the type of community-owned health care business that had been desired;

• it was possible, however, to use grant funds as seed-capital to build community-owned business entities that interface with managed care; the scope and sustainability of such ventures has yet to be determined, and will depend in part on future public policy decisions;

• a process based on the inclusion of diverse community members and interests constitutes an effective strategy for attracting outside funding to support community-based health promotion and disease prevention activities;

• the process of inclusion, however, did not mitigate the overwhelming market power of providers and the limited number of health plans willing to do business in rural California.

We offer the following examination of the DRIS Initiative in order to demonstrate the effects, in technical terms, of both local and global socio-economic forces shaping the dynamic reality of rural health care in California, as well as to address options for policymakers seeking to use managed care as a way to increase access, enhance quality, and reduce costs throughout rural America.

I. Background

During the 1990s, health care reform emerged as a central public policy issue. Spurred by rapidly escalating costs, both public and private sectors sought ways to control expenditures while simultaneously extending coverage to the large number of uninsured Americans, particularly children. Despite the efforts of the Clinton Administration, the structural reforms proposed by the federal government never materialized, but many concepts championed by the reformers were to become the dominant strategies for change in the health care system. Specifically, managed care increasingly was seen as a mechanism to contain costs, and in the case of Medi-Cal and other government programs, a way to use the savings to expand health insurance coverage and benefits.

Both the number of managed care plans and the number of Americans enrolled in these plans have grown sharply over the past decade. This rapid growth, however, has taken place primarily in urban areas. Many rural providers are influenced only in oblique ways by managed care practices and continue to operate under fee-for-service and cost-based reimbursement systems. Yet throughout the 1990s there was a widespread belief that, as managed care plans came to saturate urban and suburban markets, they would seek to include more rural communities in their service areas. Government policy—as articulated especially in the Balanced Budget Act of 1997 (BBA) and the Balanced Budget Refinement Act of 1999 (BBRA)—also favored the development of managed care plans in rural areas and the enrollment of Medicare and Medi-Cal beneficiaries in these plans. As a result, rural providers and communities sought to engage these impending market changes in ways that would preserve local access to services, allow local control of health care decisions, and retain local health care dollars.

With these goals in mind, in 1997, the James Irvine Foundation launched the Developing Rural Integrated Systems (DRIS) Initiative, a four-year $6 million project designed to help rural California communities better understand managed care and spur the development of integrated community-based health systems. The DRIS Initiative has been implemented in four rural areas of California: Humboldt and Del Norte Counties, Imperial County, the Ridgecrest/Indian Wells Valley in Kern County, and the Lompoc Valley in Santa Barbara County.

The purpose of this document is to provide feedback to rural health policy makers on the experiences and lessons learned from the perspective of the technical consultants working in the DRIS communities. A separate, independent evaluation of the DRIS Initiative's success as a grant project of the Irvine Foundation is being conducted by Dr. Ira Moscovice of the University of Minnesota School of Public Health, Rural Health Research Center. In addition to evaluating the implementation of the grant Initiative, key measures being tracked by that evaluation include the level of integration and coordination of health care services, and the degree to which health care dollars are staying in rural communities.

II. The DRIS Initiative

DRIS is administered by the California Institute for Rural Health Management (CIRHM). The Initiative was designed to support a community-based dialogue and planning process that would result in the creation of an integrated health system at each participating site. DRIS engages employers, providers, and community leaders in the planning process and ensures that decisions are informed by credible data. DRIS is not a traditional grant program: instead of direct funding, it provides technical resources to each participating community for data collection, data analysis, and expert neutral facilitation to guide the decision making process. In addition, DRIS makes available specialty consultants in such areas as legal, actuarial, and network development. Grant money is provided directly to communities only after achieving certain milestones, and these funds are intended to support ongoing efforts, rather than completely sustain them. The central question that DRIS set out to answer is:

Can a combination of guided technical assistance, facilitation, and incentive-based resources be used to create effective, appropriate-to-scale, self-sustaining administrative service organizations and provider networks in rural areas that are able to contract with health plans to manage quality and financial risk at the local level?

The DRIS Initiative is organized into three distinct phases of activity, and three core operating principles guide activity at each site, at each stage of the process: (1) a cross-section of the community must be involved in the planning and decision making process; (2) decisions are to be informed by credible data; and (3) each site must choose and implement one or more strategies or functions that would better enable local health care providers to operate in a managed care environ-ment. Phase I activities included data collection and assessment, community education, the formation of local community health councils, and selection of functions, including managed care functions. Phase II involved feasibility analysis of the selected functions, defining governance of the cooperative entity or network, developing a business plan, and planning for operations. The business of operating an integrated system was then to be implemented in Phase III.

At each site, local leaders formed a community health council comprised, in part, of local business representatives, health care providers, public health officials, and health care consumers. The councils continue to act as the local governing bodies for the project, providing community representation, project direction, and local decision making.

Each site selected as part of their managed care strategy the development of a community-owned, non-profit Administrative Services Organization (ASO)—a single, accountable entity which would provide plan administration and medical management services to provider-owned risk-bearing groups and self-insured employers in their communities, as well as for health plans as appropriate. The principal goal in developing a community-owned ASO is to retain or regain local control of care, dollars, and jobs.

Additional information and a detailed description of the DRIS Initiative.

III. Technical Lessons Learned in Developing Rural Intergrated Systems

DRIS began with the assumption that it was possible to build a community development model based on the following concepts:

• If operated in unison, the interrelationship of diverse interests within a community could serve as a catalyst for change.
• A process built upon the use of objective data on local health care and health systems issues would result in rational and viable business decisions.
• It would be possible to build an entity to interface with managed care that is sus-tainable in a rural market and appropriate to its size.

DRIS is unique in that it provides a combination of facilitation and technical assistance that keeps the focus on each of these concepts concurrently. DRIS brings multiple voices to the table and creates a forum for employers, private providers, public health officials, social services providers, and civic leaders to join and build partnerships to strengthen local health care services and retain health care dollars in their communities. DRIS also helps to shape and fold managed care functions into viable business entities that focus on appropriate care management, such as health pro-motion and disease prevention activities, aiming to ensure that the term "managed care" means more than managing costs.

The principles upon which the DRIS Initiative is based, including local control of health care decisions and dollars and broad-based community involvement, have long been fundamental to rural health advocates. However the penetration of managed care, in which outside entities such as large urban-based managed care plans exert controlling influence upon provider and consumer behavior, represents a serious threat to these values. Within this context, the first three years of the DRIS Initiative have yielded a number of important lessons.

Administrative Services Organizations as a Rural Managed Care Strategy

As noted above, as part of their managed care strategies, each DRIS site chose to develop a community-owned non-profit ASO. In the context of managed care, an ASO can be a freestanding entity serving "customers," or part of a health plan or provider-owned risk-bearing entity. Free-standing ASOs do not assume financial risk for providing covered services to a defined population and can be owned either privately or by a community. Regardless of ownership, freestanding ASOs typically charge customers for their services based on a percentage of the risk-bearing entity's premium revenue, a fee per member per month, or in the case of self-insured employers, a fee per employee per month.

Broad categories of functions that can be performed by an ASO include: General Administration, Provider Network Administration, Medical Management, and Health Plan, Benefits and Claims Administration. These broad functional areas, and the specific functions within each area, are listed in Appendix I of this report. For a community-based ASO, other functions which may or may not relate to managed care can be deemed appropriate depending on local needs. Such functions could include single-signature contracting, centralized provider credentialing, physician practice management services, and community health assessment and improvement programs.

The scope of functions to be undertaken by the ASOs at each of the DRIS sites varies from site to site. For example, one site is developing plan administration and medical management functions while another is providing claims review and single-signature contracting. In addition, some sites have chosen to develop complementary clinical and administrative services related to medical management and/or managed care financing, such as physician practice management, blood bank services, and health promotion and disease prevention activities. To a large extent, the functions of ASOs in the DRIS communities have been dependant upon what customers would purchase or foundations support.

An ASO is not a health plan. A health plan is licensed under the Knox-Keene provisions to assume risk in exchange for contracts with payers to administer and provide covered health care services to the payer's covered population for a fixed payment per month. Payers include employers, government or quasi-governmental agencies, associations, and individual subscribers. It may also "off-load" some or most of this risk to provider-owned entities.

An ASO can require a significant investment in development costs, depending on the functions and services it plans to provide. While it will not experience the licensing costs and reserve requirements faced by Knox-Keene licensed health plans, it is possible for an ASO to invest well over $1 million in the development of its administrative and medical management systems. For this reason, the DRIS Initiative's Phase II feasibility analyses, which assessed the break-even point for each ASO's potential market size and selected functions, were crucial.

As sites have moved forward into the implemen-tation stages of their new community-owned ASOs, a question that remains to be answered is whether the DRIS communities will be able to internalize these concepts-to embrace, employ, and integrate these concepts into their business development—and make sure that local operations remain scale-appropriate, the evolution of the business remains informed by data, and none lose sight of the interrelationship of the various interests that have assembled in the joint-force community health councils.

Competition and Change: The Impact of Medicare, Medi-Cal, and Commercial Insurers

DRIS was conceived during a time when public policy was shifting rapidly toward favoring managed care as the chief method of financing and providing health care services to publicly insured citizens. Because of their purchasing power, the Medicare and Medi-Cal programs were seen as powerful forces that would drive the development of managed care plans, the enrollment of beneficiaries in these plans, and the use of system savings to expand coverage to the uninsured population. For various reasons, the expected growth in publicly financed managed care has not occurred in most areas of rural California. Because Medi-care and Medi-Cal managed care expansion in rural California began to slow in the late 1990s, the DRIS communities experience little more Medi-care or Medi-Cal managed care penetration today than three years ago when the Initiative started.

The failure of these publicly financed managed care programs to penetrate rural California has hindered the establishment of sustainable ASOs to handle managed care system integration at the DRIS sites. Employees of self-insured companies and commercially-insured residents became the target enrollee populations for the proposed ASOs, but the number of these residents was too small to provide a sufficient aggregation of covered lives to make the ASOs viable. Furthermore, when the market pressure created by outside managed care organizations did not materialize as anticipated, the impetus for ASO development waned, as there was insufficient pressure on community councils to quickly move to Phases II and III of the project.

Inclusiveness as a Catalyst for Change

DRIS was designed around the notion that bringing multiple voices to the table-especially those traditionally excluded from the public process—would be a catalyst for change. One of the project's fundamental working hypotheses is that community goals, such as enhanced quality of care and improved health outcomes, can be achieved by bringing the decision making process out of the "back room" and putting it into the hands of an inclusive, community-based group. The DRIS process was very directive, therefore, in mandating that community councils be broadly representative of community members and include civic leaders, small employers, and sectors of the health care system, such as public health and social services providers, that are often excluded from hospital—and—physician-centered decision processes. In fact, this did occur and the inclusiveness was institutionalized through the incorporation of community health organizations or councils in each of the DRIS communities. In this respect, the DRIS Initiative has been extremely successful in produc-ing change at the community collaborative process level, particularly in the arena of health promotion and disease prevention.

The inclusion of women, people of color, and diverse sectors of the health care and social services community on community councils has been a key factor in keeping these councils together and driving the project forward. In one DRIS community, the health department, medical providers, and social services providers are sitting down to discuss community health issues for the first time in memory. At another site, providers are attempting to join together to create new services for the uninsured of their region. In fact, some of the functions selected—such as the development of substance abuse pathways at one DRIS site, for example—would probably not have been addressed if not for the presence of mental health advocates and providers at the table.

The process of inclusion has also been instrumental in attracting funding dollars to address health status issues and other related problems. For example, through the extensive data collection and analysis carried out in Phase I of the project, one site found that unintentional injuries, such as poisoning, falls, and motor vehicle accidents, were far more prevalent than in other areas of the State. Utilizing this data, the site applied for and received funding from the California County Medical Services Program for community outreach and education in order to better understand this issue. Another DRIS site obtained grant funds to promote and manage substance abuse prevention services within the region by developing treatment and intervention services in alliance with two local substance abuse treatment and prevention programs. In both cases the inclusive DRIS process-responsible not only for creating community focus on particular health care issues, but for the esprit de corps generated in the process that served to fuel its own progress—effectively constitutes a viable strategy for attracting extramural funding dollars.

Process as Product: Combining Technical Assistance and Resources to Affect Change

The DRIS experience also tested out the Initiative's approach of providing technical expertise and support to communities rather than direct funding. This strategy is founded on the core notion that the traditional grant giving approach is not sufficient to effectively address the complex issues involved in the development of integrated delivery and/or financing systems in rural communities. Providing expertise in the form of consultants familiar with rural health systems to serve as neutral advisors and facilitators over a defined developmental period was thought to be a better approach for providing guidance and support that could lead to tangible results. As noted above, however, one of the project's fundamental unknowns was the combination of technical assistance and resources necessary to develop an effective community-appropriate integrated system response to managed care. Through long experience in health systems development and other community projects, the DRIS consultants and the Irvine Foundation understood the need for an extensive community process, but underestimated the extent to which this process would dominate the early years of the Initiative.

The initial workplan for DRIS anticipated that participating communities would be operating viable business entities by the third year of the project. To this end, two sites have successfully negotiated and signed contracts with managed care organizations to be customers of their ASOs, but these agreements are limited in size, together covering less than 10,000 lives. These fragile start-ups are being sustained in the interim primarily with grant funds rather than fees generated from their managed care administrative services, as DRIS initially envisioned. Two sites still remain in Phase II, not having agreed among themselves on a feasible business that has a potentially viable product to sell and/or willing customers. As a result, these sites have been unable to arrive at a community consensus and move on to the implementation phase of the project.

There is undoubtedly much value in "process." As discussed, the DRIS mandate that health councils be broadly representative of the community has brought voices to the table that have traditionally been excluded from the local public process. An interim report of the DRIS evaluation noted:

The DRIS process provides a structured frame-work for broad segments of rural communities to address health care delivery and financing issues in an evolving managed care marketplace. The primary achievement of the DRIS process is that it provides rural communities an opportunity to examine how rural areas and rural health fit into the overall health care system in a structured framework that is data-driven, community-based, and focused on survival in a managed care marketplace. More often than necessary, rural communities have not addressed these issues because of limited financial and technical resources; lack of strong, stable leadership; opposition of local providers; minimal availability of relevant data; and misperceptions of environmental forces.*

* Moscovice, Ira. "DRIS Initiative Evaluation Report: Cross-Cutting Themes from Phase I and II of the DRIS Initiative." DRIS Newsletter 2:2 (1999): 6-9.

Because the Initiative focused on establishing tangible, self-sustaining non-profit business ventures from the bottom up—that are locally owned and/or operated by rural communities, with multiple voices and interests at the table—it was necessary for business deals to be opened up to a public forum. In order to build trust within the community partnership, and ensure the needs of diverse groups were being addressed, consultants had to keep the community continually informed with feedback as well as solicit their input at every key juncture in the business negotiation process. Consequently, there has been an over-reliance on "process as the product," represented by the need for ongoing education and continuous debate. This reliance on "process as product" is in part a result of the difficulty people have in reframing their expectations or their relationships based solely on empirical data. Feasibility data alone was unable to move some community stakeholders past historical distrust and into the new partnerships necessary to construct viable businesses. At the two sites that moved on to the implementation stage, only a few identifiable community leaders were able to keep multiple constituents focused on higher ideals, as well as bring them to successful compromise. These leaders were aided by the fact that competition to retain patients locally in the face of managed care penetration from nearby urban markets was an ever-present reality.

The Creation of Financially Viable Managed Care Functions

One of the fundamental unknowns that the DRIS Initiative was designed to shed light on is the number of lives necessary to create viable managed care business ventures in rural communities. Urban-based managed care organizations often cite an inadequate number of lives upon which to spread risk as a major reason they do not include rural communities in their service areas. Some rural advocates, on the other hand, believe that a relatively limited number of lives, only 1,500 to 3,000, are needed to create viable managed care ventures. These figures are much smaller than the volumes typically sought by urban managed care organizations, but this model has never been analyzed adequately. DRIS undertook the task of assessing the level of community aggregation necessary to attain financial viability, in part to determine whether it can be achieved in a way that maintains a rural community's autonomy.

To assess the feasibility of developing a community-based ASO, a set of rural managed care financial models was created based on a DRIS-sponsored survey of California health plans and ASOs. Depending upon the functions selected by each DRIS community, the appropriate financial model to assess feasibility was selected, and then modified by local data. Each model assumed a set of managed care functions that would be either conducted in-house or contracted out. Three financial scenarios were created within each model, according to differential enrollment levels. Staffing patterns, staff compensation costs, development costs, and other operating costs were obtained from the CIRHM survey and matched to the various levels of subscriber enrollment assumptions used to build the models.

The feasibility studies revealed that a fully developed ASO which outsourced claims adminis-tration would need at least 15,000 covered commercial lives to reach the break-even point. An ASO with a more balanced mix of lives, including Medicare and Medi-Cal beneficiaries, could break even at approximately 11,000 lives, due to the increased Medicare revenue. Both results suggest a greater number of requisite lives than expected, however, and exceed the likely enrollment capabilities—at least in the short term—at any of the DRIS sites. As a result, the ASOs have had to seek subsidies from grant funds to cover their operating costs. Grant funds, however, tend to last for only a limited period of time: these new ASOs, therefore, will have to find new customers for their services, reduce costs by further limiting the ASO functions they provide and outsourcing more activities, and/or find financial partners outside their communities. In the case of the latter two options, the financial viability of the local ASO is bolstered at the expense of retaining monies locally, and ceding direct control over some functions to out-of-community vendors.

Another factor that has influenced the progression of managed care into rural areas is the ability, and sometimes willingness, of some rural providers to accept risk. As urban competition heated up in the late 1980s and early 1990s, many urban hospitals turned toward formalizing relationships with rural providers; for example, groups of hospitals formed hospital systems which essentially competed with each other for the rural referral base. These systems affiliated with or bought rural hospitals in order to ensure upstream referrals for inpatient and specialty care. In exchange for their referrals, rural providers were offered a variety of incentives-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 financial risk; more often, the effect was to buffer rural providers from such financial risk. Currently, cost-based reimbursement through publicly financed programs, such as the Rural Health Clinics Act of 1977, stabilizes the provider pool and, at the same time, inhibits risk-taking.

Some providers in the DRIS communities quite reasonably prefer to be involved with limited or no-risk managed care functions. Providers may be more willing to offer discounts to a community-based organization than to large outside insurers, but without the immediacy of locally-owned health plans moving into rural markets, many providers feel no compelling incentive to accept even minimal levels of risk. Most providers are already as busy as they want to be, eliminating volume guarantees as effective incentives, and with only commercial covered lives and little to no Medicare or Medi-Cal covered lives available for enrollment, the resulting small volume creates the potential for a few high-resource users to effect unacceptable financial losses. By its nature, a volume-based financing system will produce provider "winners" and "losers," but if providers perceive that most or all will lose, there is little incentive to participate.

This hesitation to take on risk has been reinforced by the experience of some DRIS community providers. At a DRIS site close to an urban area—one that has experienced a significant level of managed care penetration—providers have accepted risk-based contracts and, financially, have fared poorly. As a result, the providers at this site have shifted away from a globally capitated risk model toward a risk corridor that minimizes local risk for out-of-area expenditures. At other sites, it is the lack of market pressure that has allowed providers to continue to operate in the fee-for-service and cost-based environment. With no alternatives on the horizon, there is little motive or incentive for providers to accept risk.

Despite the understandable reluctance of providers to take on risk, many employers in the DRIS communities remain interested in capping their own financial risks associated with their employee health costs. Combined with fledgling ASOs at the DRIS sites, these factors again point to the possibility of partnership with another more experienced entity if the ASOs are to successfully implement managed care functions at the local level and accept greater financial risk, despite the likelihood that such partnerships would diminish local control.

Community as the Locus of Control

A central notion of DRIS was that by bringing non-provider community members to the table, the locus of control for access, quality, and cost of health care would cease to be the sole province of providers and/or employers and be opened up to the shared control of consumers. This shift in the locus of control was to be accomplished through education and the requirement that all decisions be formed by credible data. It was assumed that, once providers and consumers were presented with objective data and once consumers understood what was at stake, together they would structure an integrated health system entity, an ASO, that would be designed to reduce costs, improve quality, and increase access to care.

Through the data collection process, valuable information about community needs was uncovered—information that subsequently informed the choosing and prioritizing of ASO functions. For example, priority health issues related to substance abuse at one site, and respiratory illness at another, were highlighted in the data analysis. This led to the selection of clinical/community pathways addressing these issues as functions to be developed at these sites. The availability of a comprehensive set of data was clearly empowering to community members.

There was much difficulty, however, in using the potency of the data to empower community councils to participate in clinical integration and medical management activities at the provider level. While the ASOs that succeeded to implementation thus far have each chosen to provide medical management functions, the process of operationalizing these medical management functions has been slow and probably will not be completed prior to March 2001, the end-date of the four-year Initiative. Moreover, absent real relationships with their customers, there is limited likelihood that the ASOs will be able to successfully manage care so as to lower costs or increase quality.

Like other rural residents, rural physicians often place a high value on autonomy and independence and strive to limit outside influence—hence the impulse to resist the adoption of clinical standards. These standards have often been shaped by and bear the markings of the experience of urban providers, who generally have access to resources and technological tools unavailable to rural communities. It was envisioned that the DRIS Initiative would be able to develop its own local evidence—based clinical guidelines for each site using third party administrator (TPA) utilization data bases. However, the DRIS consultants were unable to obtain utilization data that could be useful in developing local evidence-based quality measures on which to frame care guidelines or risk incentives relative to patient outcomes. Without this local data—data which might have neutralized the discomfort of discussing patient outcomes—it was not possible to engage in a substantive discussion of locally appropriate clinical care guidelines, or a cohesive clinical approach to integration.

Another example of the resistance to outside influence is found in the close peer relationships that often form between rural physicians. Many health care professionals develop such relationships, but in rural areas where there are few providers, they can be particularly powerful and closed to outsiders. Collegial relationships can provide a valuable local support system, assuring cross-coverage, sharing of information and education, etc. Yet close relationships can also be obstacles to change and sources of discomfort when one colleague critiques another's practice. Furthermore, the consultants' dilemma in working with a community development model is that the public nature of the model does not readily lend itself to open discussion of provider practices and their impact on patient outcomes, nor of provider costs and their impact on patient access. Social relationships between providers and patients are more common in rural areas, which makes public review by patients of their providers' practices uncomfortable. The difficulty in obtaining evidence-based data from local utilization records in rural areas is one of the chief obstacles in successfully using quality measures to influence patient outcomes. Many rural providers do not have the time, expertise, or technology to collect the data necessary to even begin a systematic examination of health care quality. TPAs—which should collect utilization data from claims processing—often do not have the data in a format that is usable to outside reviewers, and even when these resources are available, small populations, limited numbers of providers, and other volume-related issues limit the applicability of many of the most commonly utilized quality measurements. A single infant death, for example, can dramatically influence the infant mortality rate of a hospital that performs few deliveries or a rural community with a small population, but will not have the same effect on infant mortality rates in a larger urban area.

People who choose to live in rural areas must, by necessity, make certain tradeoffs and choices. Life in a small community generally means that fewer health services are available locally and access to a full range of services involves traveling out of the area, if possible. At the same time, lower, or at least different quality standards than those used in urban settings, may be appropriate to rural locales. For example, if the choice is between having a "lower" quality service available locally or requiring residents to travel out of the area for that service, which itself may lead to poorer outcomes, the rural community may choose to make that service available locally. These choices are not a requirement in urban areas and reflect the necessity of using a different set of quality measures that take rural realities into account.

Although such rural-appropriate quality measures are not yet widely available, rural areas may be in a better position than urban areas to advance quality improvement activities from a reliance on measures of process to an examination of outcomes. Factors such as the relatively small size of rural communities, and easily defined and often non-overlapping service areas of rural providers, make population-based measurement of the impact of care much easier than in more complex urban settings. Again, though, without rural-specific standards that place data in an appropriate context, it will be impossible to fully understand the results of such efforts.

DRIS sites are still struggling to find effective ways to galvanize residents' desire to improve health status and outcomes in the face of providers who deal with clinical quality issues privately, between themselves. The reality that rural providers continue to be the prime controllers both of the substance and rate of change with regard to quality, access, and cost has also raised questions regarding the definition and role of the "community" and its ability to produce change through provider-consumer collaboration. Despite notable accomplishments in changing the way that some decisions are made in these rural communities, the DRIS Initiative has not been as successful in creating changes in the clinical practice of medicine or in bringing rural providers closer to accepting substantial financial risk. The locus of control for these aspects of the health care system remains with the providers, who continue to have little incentive to change current practices.

We found in the DRIS experience that bringing non-provider community members to the table did not change the overwhelming market power of health plans and providers in these communities. There can be no price competition to reduce costs in rural areas when there are few health plans available to the market and local providers agree not to accept financial risk. The presence of a dominant health plan in a rural community made the DRIS ASOs and provider networks vulnerable to insolvency, especially when that health plan could make a decision overnight to increase premiums or change conditions of their contract.

The primary mechanism that managed care uses to reduce costs is to create price and quality competition by selectively contracting with only those efficient providers who give appropriate, cost-effective care. This mechanism is not popular in rural areas. One reason is that few health care providers operate in rural communities. Recruiting and retaining rural providers is a common challenge for most communities, so discouraging these providers through selective contracting runs counter to this reality. Rural community members value choice and are unhappy about health plans limiting their access to local providers through selective contracting. For recruitment and retention purposes, local employers also do not want to limit their employees' choice of providers through their self-insured health plans. Provider interdependency in a small community weighs against their participation in selective contracting that would exclude a colleague.

At the same time, in a proxy Per Member Per Month (PMPM) analysis performed by the DRIS data consultants, payer expenditures for hospital utilization were high at most DRIS sites in comparison to urban counterparts. High cost of care discourages health plan participation in rural communities. Without price competition between health plans and providers, costs will remain high and continue to be effective barriers to accessing care. In addition, the rate of uninsurance will increase as fewer small employers are able to insure their employees. Such access barriers increase the potential for poor patient outcomes.

IV. Options and Alternatives

These issues raise the following question: Within the managed care model, is there a way to increase access, enhance quality, and reduce costs, while at the same time maintaining the integrity of rural health services? The DRIS experience suggests the following possibilities in pursuing an answer to this question:

Option 1:

Continue to support network development and assume that the formation of networks will somehow mitigate the overwhelming market power of providers and the resultant lack of price competition. The continued support of network development also assumes that networks can impact the increasing growth-rate of uninsured rural residents, as well as facilitate the definition of rural-appropriate quality care. As this monograph shows, the DRIS Initiative experience with network development in a State with mature managed care markets does not bode well for this policy option.

Option 2:

Combine continued support for network development with research and developmental efforts that seek to balance the overwhelming market power of providers by leveraging the power of public payers and providing consumers a choice through a Federal Employee Health Benefits Plan (FEHBP)-type mechanism*. The continued support for network development, tied to efforts of increasing consumer choice, also assumes that such network support is aimed at the more technical aspects of development, such as legal, actuarial, quality, and credentialing services, that promote the infrastructure for FEHBP-type contracting mechanisms.

* Under the FEBHP, the federal government—the employer—pays some or all of the total cost of the premium, depending on the plan that is chosen. Employees have a choice of several plans, usually including fee-for-service and managed care options. Additional information about the Federal Employee Health Benefits Plan can be found at www.opm.gov and www.hrsjobs.com

Safeguarding and maintaining the integrity of local health systems under both of these options would remain a joint responsibility between Federal, State, and local jurisdictions, as well as health system owners.

V. Conclusions

National policy still favors the development of managed care plans and offers incentives for consumers to join these plans. Many provisions of the Balanced Budget Act of 1997 and the Balanced Budget Refinement Act of 1999 are designed to encourage the expansion of Medicare and Medi-Cal managed care to rural areas, and thus bring to rural communities the type of health care coverage choice available to most urban residents. The DRIS experience documents that the shift from a provider/producer-based health system to a more broadly based community stakeholder-influenced system can be an extremely difficult transition in many rural areas.

It is clear that the DRIS sites experiencing some level of managed care penetration have been more successful than sites with little to no managed care presence in leveraging their community collaboratives to develop a business entity able to help manage the financial and clinical risks of local providers. Yet, despite the incentives of the BBA and BBRA, it is unlikely that managed care will emerge as a competitive influence in most rural communities. Without pressure from managed care organizations, or the threat of pressure from impending managed care penetration, rural providers have little reason to assume financial risk, and without local evidence-based data, it is difficult to move these providers towards clinical integration.

Decisions about services, quality, and other health system issues continue to be made by a small group of providers, not by a representative body of the community. Even in those communities that had a managed care presence prior to DRIS, decision making was confined largely to providers or outside managed care organizations. The DRIS mandate for inclusiveness was largely responsible for opening up decision making around health promotion and disease prevention issues to members of the community who had previously been marginalized. This inclusion process, however, has not yet yielded changes in clinical integration that are representative of true care management.

In a larger context, the DRIS experience shows that rural communities face substantial obstacles in creating viable community-based organizations that can effectively deal with outside entities in a way that retains health care decision making and dollars. This situation suggests an opportunity to build even broader community coalitions of adequate size-perhaps across regional rural markets-to influence provider behavior and motivate quality improvement, among other changes. Until the large number of Medicare and Medi-Cal beneficiaries and the uninsured are able to exert consumer power through a choice of providers, however, rural communities may not have enough lives available to significantly influence practitioners. Government policy that targets rural areas and focuses on enhancing consumer power rather than supporting and subsidizing providers may be a necessary catalyst to produce change.

VI. Appendix I: ASO Administrative and Management Functions

VII. References

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