Independent nursing homes and small long-term-care companies are banding together to compete for managed-care contracts.
The historic competitors are being spurred to collaborate by changes in the long-term-care landscape.
Medicare HMOs and large for-profit chains threaten to steal the traditional patient base of independent not-for-profit nursing facilities by offering lower costs and a more complete continuum of services, including assisted living and home care.
Even acute-care hospitals are trying to get an edge on eldercare by offering subacute, rehabilitation and home health programs.
"The threat is from the tail wagging the dog," noted Cynthia H. Dunn, president of Judson Retirement Community in Cleveland. "Hospitals are trying to get into managed care by broadening their services. The hospitals' strategy is to get a better grip on chronic care. We are taking the position that we know how to provide long-term care and we can do it."
Dunn has spent the past year and a half working with two other nursing home administrators in Ohio to form the Cleveland Alliance, a not-for-profit corporation that will represent long-term-care providers in negotiations with vendors and payers.
Now looking for a chief executive officer, the group has recruited 16 members, which control about 17% of the skilled-nursing beds in northeastern Ohio. Some of the members also offer assisted-living and home-care services.
Each member has pledged to contribute $30,000 to $40,000 a year for three years. Running on an annual budget of about $400,000, the alliance is trying to position itself as the gatekeeper of Cleveland's long-term-care services and plans to begin securing managed-care contracts within the next six months.
"Managed-care organizations want to be able to deal with a single entity that is standard in its operations and is geographically dispersed," said Deborah Hiller, president and CEO of Eliza Jennings Group, a Cleveland-based holding company for a skilled-nursing facility, a continuing-care retirement community and an assisted-living provider. "If we are more consolidated, we can present to them a group of high-quality not-for-profit organizations," she said.
The alliance strategy has emerged as one of the most popular ways for smaller not-for-profit long-term-care providers to fashion themselves as attractive partners for vendors, large employers, insurance companies and managed-care organizations.
"Almost all long-term-care providers are in the first steps toward forming a network," said Dina Elani, director of managed care and services integration for the American Association of Homes and Services for the Aging in Washington. "If you are providing long-term-care services, you need to be doing this. If you're not, then you're very shortsighted."
But the alliances may be trying to have their cake and eat it too.
While members typically pay tens of thousands of dollars in annual membership fees to the alliances, they don't have to cede financial or managerial control of their individual sites.
Chains of long-term-care providers owned by one company and nursing homes that are owned by more fully integrated delivery systems may have the advantage of accountability.
"The biggest risk the members of the alliances face is that they can't agree on everything," noted Jill Krueger, CEO of Health Resources Alliance, which represents providers in the Chicago area. "They have to make fast decisions and move quickly," she said.
Elani agreed that the alliance structure "has not been proven yet." She cautioned that if providers with different missions link, "there will be disagreements and it won't work."
She said alliances should be formed with a broader vision than just the goal of increasing purchasing power or market share.
"They can't just get together to have a larger capacity," she said. "They should be thinking about their common values, their common mission, the market and what they're willing to give up."
At the same time, small long-term-care providers may not have much choice but to experiment with new ways of marketing and managing themselves.
Elani explained that many of the 5,000 not-for-profit nursing homes, continuing-care retirement communities, assisted-living facilities and other senior housing providers the AAHSA represents have found they are not prepared to compete for Medicare and Medicaid managed-care business.
For example, she said, some continuing-care retirement communities in Southern California did not screen their patients for enrollment in HMOs and later discovered their facilities weren't covered by their patients' plans.
To help members stay on top of such issues, the association in June released a guide titled Case Studies in Managed Care: How AAHSA Members Are Turning Marketplace Challenges Into Opportunities Through the Formation of Provider Networks. The guide provides 11 case studies of alliances around the country. Their activities range from sharing pharmacy services to forming fully integrated delivery systems.
Not surprisingly, most of the collaborative efforts profiled in the guide were found in states such as California, Florida, Illinois and New York, where HMOs had a market share of 15% or more by the end of 1994.
In their pitches to win group purchasing and provider contracts, the alliances emphasize their collective experience, their broad geographic area of coverage and their range of long-term-care services.
"We can trade market share," Krueger explained. "In return for our market share, we want control over the gatekeeping function."
The role of gatekeeper traditionally has been played by hospitals. They've been the source of referrals for independent nursing homes and have contracted directly with payers on one end and nursing facilities on the other.
But now that hospitals are moonlighting in post-acute care, nursing facilities want to negotiate with payers directly. They no longer trust the hospitals to protect their interests.
"We didn't like that we were one removed from the insurer," Dunn explained. "What if the hospital changed its mind and dropped one of the nursing homes? We found ourselves sitting in a situation where the potential for competition among the nursing homes was going to grow."
The first step to wresting control of the market from hospitals, Dunn explained, is for members of the alliance to use group purchasing contracts, to share information such as outcomes measures, and to eliminate waste and duplication in the pharmacy, lab and other departments.
The next step will be to win managed-care contracts with HMOs, PPOs, insurance companies, and Medicare and Medicaid programs, she said.
In a later phase, Dunn envisions the alliance becoming a fully integrated provider of services for the elderly. The services would include home care, assisted living, skilled nursing, hospice care, custodial nursing, Alzheimer's programs and rehabilitation.
At that point, Dunn said, the alliance might be contracting with physician practices and hospitals for acute-care services. "Otherwise, if they contract with us, they'll call the shots," she said.
Ultimately, Dunn said she wants to see the alliance in a position to serve as a managed-care provider assuming the full insurance risks of the patients.
"Small organizations can be enhanced by an alliance if (the alliance) can get up and running quickly," she advised. "But if organizations start forming an alliance now and spend two years strategizing, they're going to miss the boat."
The boats already have sailed in several other cities, leaving positive signs in their wake that alliances can win business.
Incorporated in February 1995, the Chicago-area Health Resources Alliance links 15 not-for-profit long-term-care providers, including skilled-nursing, assisted-living and home-care providers.
Each member organization contributes $13,000 a year to the alliance and operates on an annual budget of about $500,000.
The leaders of the individual organizations serve as the board of directors, while Krueger acts as alliance CEO.
Krueger has so much faith that alliances represent the future of long-term care that she quit her job as a national long-term-care consultant with KPMG Peat Marwick to lead the group.
She said the alliance is currently in negotiations with a long-term-care insurance company. The two parties are considering forming a joint venture in which the alliance is the preferred provider network and case manager for the policyholders' long-term-care needs, Krueger said. The alliance also is exploring a similar arrangement with a Medicare risk HMO and is close to wrapping up those deals, she said.
In Arcadia, Calif., the Harmony Provider Network has been representing 30 providers with a total of 3,400 beds for just over a year. The network has an annual budget of $400,000.
Don Gormly, president of the network, said the group recently negotiated and won contracts on behalf of its members with Blue Cross of California, Woodland Hills. The network's members will provide long-term-care and subacute-care services at its member facilities throughout the state.
The network also has won a contract with SCAN Health Plan, a social HMO based in Long Beach, Calif., to provide enrollees with long-term-care services at member facilities in Southern California. David Kobrinetz, a network management consultant for SCAN, said he chose Harmony for its quality of care, geographic coverage, range of services and centralized administration.
"What SCAN is doing is signing global contracts that cover broader areas to meet the needs of its growing membership," he said. "SCAN's case managers want to deal with networked facilities so they can more effectively manage care."