Alliances are taking a new approach to managed care.
Instead of owning HMOs, PPOs and other products to increase admissions at member hospitals, they're helping hospitals build voluntary provider networks, negotiate contracts and manage patient care.
Their strategies are a far cry from the direction most large alliances took in the 1980s, when the majority formed ill-fated joint ventures with insurers and lost millions of dollars.
Executives devising alliances' current managed-care strategy believe that voluntary networks-in which hospitals voluntarily form a separate, independent managed-care company that negotiates rates and monitors patient care-will help member hospitals become more competitive. But critics contend that such networks are only a short-term solution to gain contracts.
In the long term, experts say, voluntary networks won't remain competitive with more tightly controlled systems unless the partners merge assets and directly control service delivery.
Alliance executives agree with that opinion. But they don't share the belief that member hospitals need to immediately merge assets to be successful.
"Our approach isn't to invest in local markets (or to advise a merger)," said Robert Dawson, senior vice president for healthcare delivery strategies at SunHealth Alliance, Charlotte, N.C. "We want to help our partners compete regardless of where they are in the managed-care learning curve or where their market is located."
As do most alliances, SunHealth's partners and affiliate members compete in traditional indemnity markets as well as areas where up to 10% of the population is under capitated contracts, said Dawson, a former HMO executive.
Alliance executives say more than half their members belong to a network capable of managed-care contracting.
But winning contracts is just the first step for a network. Experts say managing patient care to produce good outcomes and profit is a far more difficult task.
Most voluntary networks are unable to coordinate patient care between partner hospitals, physician groups and outpatient services, experts say.
One reason is that the networks can make suggestions to members but don't have the authority to make decisions. For example, most voluntary networks cannot transfer patients from one hospital to another to seek lower-cost, higher-quality care.
The next step.For the past several
years, alliances such as SunHealth, VHA, American Healthcare Systems and Premier Health Alliance have been developing managed-care services to address member needs. For example:
In 1990 Premier placed its managed-care consulting services, health plan development and insurance management services under the umbrella of Premier Health Benefits (See chart, p. 48).
In 1994 SunHealth consolidated its managed-care consulting services and market strategies into the Center for Community Health Improvement. The center, which has a staff of 30, provides consulting and operational support services that range from advice on managed-care network designs to financial and clinical performance reviews.
Earlier this year, VHA kicked off its Healthcare Network Development Initiative to help its 28 regional healthcare systems further develop managed-care networks. Last year, VHA also signed an agreement with United HealthCare Corp., a Minnetonka, Minn.-based HMO, to provide an array of managed-care consulting services to its 1,200 hospitals.
AmHS has been formulating a corporate strategy for the past year through its managed-care advisory committee. Later this year AmHS is expected to announce a sweeping managed-care initiative to assist its 40 healthcare systems, many of which already operate sophisticated integrated delivery networks, with managed-care components.
Most alliances developed their current managed-care strategies through careful consideration in light of the fiascoes of the late 1980s.
At that time many alliances believed owning HMOs or PPOs would ensure a steady stream of patients to fill member hospitals' empty beds. But the strategy backfired, primarily because hospitals lacked information systems and other expertise needed to manage patient care and contain costs.
As a result, VHA's Partners National Health Plan, a joint venture with Aetna Life Insurance Co., Hartford, Conn., that operated HMOs, lost more than $100 million from 1986 to 1990.
AmHS' American Health Plans, a joint venture with Provident Life and Accident Insurance Co., Chattanooga, Tenn., that developed PPOs, fell well short of its goals and was terminated in 1988 after two years.
SunHealth, which also had a partnership with Provident through AmHS, wrote off about $1.7 million in development costs after abandoning its plans to develop statewide HMOs and PPOs through SunHealth Care Plans and its partner hospitals.
Alliances weren't the only hospital-based organizations taken to the woodshed in the 1980s by managed care. Humana's Care Plus lost more than $123 million, and American Medical International's AMI-CARE lost $36 million (AMI is now part of Tenet Healthcare Corp.).
While most for-profit chains haven't re-entered the managed-care arena as owners, many are developing close relationships with insurers to bid for managed-care contracts.
In the not-for-profit sector, a number of healthcare systems within alliances still operate HMOs. More recently, these systems have been adding physicians to more effectively control utilization, referrals and costs.
For independent not-for-profit hospitals, alliance-supported managed-care networks offer the collective clout to compete with more tightly controlled systems, such as Columbia/HCA Healthcare Corp., and other companies that own hospitals, alliance executives said.
For example, CareFirst Health Network, Tampa, Fla., offers various managed-care products to more than 60,000 employees through 12 hospitals affiliated with SunHealth and VHA, and 1,000 participating physicians. Six of the participating hospitals are part of systems, and six are freestanding.
Miami-based Dimension Health is South Florida's largest PPO with 350,000 covered lives, 20 hospitals and 3,500 physicians. It includes SunHealth, VHA and Premier hospitals.
And Premier in 1991 helped five of its partners create Premier Preferred Care of New York, a 90-hospital PPO with 9,000 physicians and 100,000 covered lives.
Not far enough.But some experts
say alliances haven't gone far enough in helping independent hospitals within managed-care networks take the next step: full merger of assets.
"The alliance networks will win contracts, but will they retain them?" asked Michael Carroll, vice president and manager of the Tampa office of Tribrook Associates, a national consulting firm. "They don't have the power to reduce capacity" as do owned networks such as for-profit Columbia or not-for-profit Allina Health System, Minneapolis, he said.
Closing hospitals in overbedded markets and consolidating services such as open-heart surgery will be necessary to reduce costs, improve quality and optimize geographic coverage, Carroll said.
Some alliance executives agree. "Loose affiliations of hospitals in managed-care networks are transitional models," said Jack Bernard, AmHS' vice president of strategic planning and marketing. "The future is systems with directly controlled groups of hospitals and physicians with shared control."
Bernard said to reduce capacity, consolidate services and control quality, "there can only be one decisionmaking point."
Shareholders in San Diego-based AmHS operate multihospital healthcare systems. As with most systems, some AmHS partners-such as Henry Ford Health System, Detroit; UniHealth America, Los Angeles; and Group Health Cooperative of Puget Sound, Seattle-are well along in managed care.
Other alliances also feature members that operate integrated delivery systems. VHA includes Sutter Health, Sacramento, Calif.; Alton Oschner Medical Foundation, New Orleans; and Allina.
SunHealth executives have estimated that more than half their 150 partners will become part of multihospital systems within five years, up from 22% in 1994. SunHealth's partners include integrated systems such as Carilion Health System, Roanoke, Va.; Adventist Health System/Sunbelt, Orlando; and General Health, Baton Rouge, La.
But many VHA and SunHealth hospitals are located in small or rural markets with virtually no managed care. In those early-stage markets, hospitals are just beginning to develop managed-care networks.
"We don't advise them to merge integrated delivery systems with another" unless market forces demand it, said Ellen Tennison, VHA's project manager for network development. "We offer different solutions to manage those networks."
For example, VHA suggested three management options to Mississippi Health Connection, a managed-care network formed earlier this year, Tennison said. Mississippi Health is a partnership of 34 VHA, SunHealth and Premier hospitals that operate nine physician-hospital organizations.
The options were operating a loose confederation of local managed-care organizations, centralizing selective services or consolidating the partner managed-care organizations into one statewide network.
Mississippi Health chose to centralize selective services as well as marketing and physician credentialing. "We gave them advice on how to merge or centralize their network to produce cost savings and reduce duplication," Tennison said.
Finding the best fit.According to Jeff
Nelson, Premier's senior vice president for managed care, each hospital or network should select the managed-care design that best suits its market or comfort level.
"The landscape is littered with PHOs formed without sound business strategies," Dawson said. "If you are too far ahead of the market, physicians don't understand why (the PHO or network) is being created."
That's why alliances' first step is to conduct market assessments to help them formulate a managed-care strategy. Advice could include forming a PHO or a medical service organization or linking with similar organizations to form a managed-care network.
One of Premier's products is an "options assessment tool," which contains more than 400 variables to help hospital clients select the best network type and partner, Nelson said.
"Every one of our (56) owners is somewhere in the continuum from selecting partners or products to negotiating contracts and managing premium dollars," Nelson said.
Premier's strategy is to help hospitals and physicians gain or retain managed-care market share, improve clinical outcomes and reduce costs, Nelson said.
Over the last five years, Premier has completed more than 250 projects that have helped partners merge hospitals, form PHOs, integrate multiple PHOs into PPO networks, negotiate capitated contracts and assess the risk level of contracts, Nelson said.
VHA has earmarked $1.5 million this year for a four-part managed-care effort to assist its partner hospitals. The effort includes providing up to 50% of costs to help partners develop regional managed-care projects, evaluating partners' best or worst practices, and offering educational opportunities for hospitals and physicians, Tennison said.
While VHA's current strategy is to provide consulting services to member hospitals and regional healthcare systems, the Irving, Texas-based alliance hasn't ruled out investing in partners' health plans, said James Lordeman, VHA's vice president for improvement services.
"We only talk about it four to five times a year," he said.
Premier Health Alliance's managed-care consulting services
Strategic and business Medical staff development
planning and alignment
Strategy development and assessment Physician/hospital integration
Visioning process Medical staff development planning
Environmental audit Joint-venture development
Financial feasibility studies Managed-care contracting
Board/leadership retreats Group practice valuation,
New-venture developments acquisition and development
Medical service organization
Direct and managed-care Collaboration and system
Managed-care audits Assessment of potential partners
Negotiation assistance Super physician-hospital organization
Capitation contracting Joint planning and business plan
Direct contracting development
Physician-hospital organization and HMOdevelopment Integrated healthcare systemdevelopment
Provider network development Merger implementation assistance
Market/sales development Governance development
HMO, PPO evaluation assistance
Source: Premier Health Alliance