Beginnings of an integrated delivery system.

Many factors are influencing changes in our health care delivery system these days, and one major trend is "vertical integration". This creates a concontinuum of care that guides and tracks patients over time through a comprehensive array of health, mental health and social services spanning all levels of intensity of care.[1] accomplishing this will require the development of provider anlliances involving acute care and other levels of care, and these alliances are called "integrated delivery systems," or IDSs.

Changes in payment systems for health care and new controls over health care access are the two driving factors leading providers to focus on the development of IDSS. It is estimated that Medicare and Medicaid comprise one-sixth of Federal spending. As expenditures in these programs continue to spiral out of control, managed care has provided a cost-control ray of hope. Health care inflation fell below double digits in 1994 and managed care has been given much of the credit. As a result, the Health Care Financing Administration has experimented in granting states waivers to their Medicaid programs, allowing greater freedom to test managed care versus fee-for-service. Nine states already have statewide demonstration waivers -- Florida, Hawaii, Kentucky, Ohio, Oregon, Massachusetts, Minnesota, Rhode Island and Tennessee. Another 10 states have statewide demonstration waiver requests pending.[2]

These can be quite innovative. In Minnesota, for example, the demonstration program blends Medicare and Medicaid funds into a capitated rate. Capitation is a form of reimbursement in which an insurance company contracts with a provider network to care for a certain number of people for a set amount of money. This capitated rate is paid to managed care networks and is designed to eliminate cost-shifting among payers because patients are placed in the most cost-effective setting.

The financial success or failure of an IDS under such an approach lies in its ability to offer a continuum of care and move patients cost-effectively throughout it. As acute care seeks to form IDSs for contractual relationships with managed care organizations, two missing components have become evident: long-term care and subacute care. This can be remedied, as illustrated by a recent relationship developed between two providers in Knoxville, Tennessee.

One is NHC HealthCare, a 172-bed SNF that is part of a national chain of 99 SNF centers, 28 home care providers, eight assisted living units, and four retirement developments. The other is Fort Sanders Health Systems, a regional health system with two regional medical centers and three smaller community hospitals. Fort Sanders has developed two managed care organizations (MCOs) and focused substantial resources on integrating for future managed care growth.

After numerous discussions, Fort Sanders purchased a 25% general partner interest in NHC Healthcare. The joint ownership offered advantages to both organizations. For the hospital:

* Preferred placements of its patients, leading to DRG savings.

* Management by a large, experienced long-term care company.

* Availability of subacute beds.

* A transitional care agreement for the hospital's inpatient rehabilitation unit.

* Staff relief services provided by NHC's rehabilitative personnel.

* Integration of services, such as respiratory therapy. By contracting some R.T. services to the nursing center, the hospital has expanded a profit center. Benefits for the SNF include:

* A regular referral source

* Census mix development.

* Assistance with JCAHO accreditation.

* Expanded marketing.

* Educational support and clinical training for staff.

* Physician involvement and recruitment.

Both organizations financially share in the joint delivery of services to clients in their market area. Along with respiratory therapy services, the two can share lab services, hospice care, and possible benefits from joint purchases of equipment.

The relationship between NHC Healthcare and Fort Sanders didn't materialize overnight. It began with a process: Before any discussions begin with the hospital, it is important to have first established contact with hospital management and develop a relationship with them. Marketing your facility to them is the first step. Begin by:

* Developing an organizational chart of key hospital personnel.

* Starting a notebook to keep a chronology of marketing efforts.

* Contacting discharge planners to inform them of your services. This may include sponsoring a luncheon and providing a tour of the SNF.

* Determining the goals or strategies of the hospital. What are they looking for?

* Professionally packaging your services. Use a corporate annual report, if at all possible, as well as other marketing materials.

* Discussing options but focusing on integration of services.

* Determining what type of alliance would be most mutually beneficial.

* Obtaining authorization to begin negotiations.

* Negotiating and closing the deal.

In our case, before the negotiations began, the two organizations signed a Letter of Intent. This letter gave both organizations the freedom to disclose confidential operational information. As Fort Sanders and NHC Healthcare began to discuss the type of relationship that would best meet each others, strategic plans, it was important to develop a Due Diligence Outline. NHC HealthCare's outline included National Healthcare's Annual Report, Center Introduction, Departmental and Personnel Overview, Clinical Services, Survey Compliance, Cost Reporting, and Financial Reports. A second volume was requested by the hospital that included Management Contracts, Real Estate and Environmental Matters, Operating License and Permits, and other specific agreements that the SNF had with consultants and physicians.

As the negotiations moved toward the final stages, arrangements were made to complete a Transfer Agreement. This gave the hospital, under its 25% ownership, the first right to fill a bed. If the SNF had a census of 95% or above, it would contact the hospital and give 24-hour notice before offering a bed to another hospital. This 24-hour notice applied only to the number of beds that the hospital anticipated it needed. Thus, if the hospital had two patients with discharge plans for longterm care, it would designate two beds as Exclusive Beds; the remaining beds, if any, would go to other referring hospitals.

Other aspects of the overall agreement addressed personnel issues and joint management meetings. The SNF assigned one social worker to be responsible for the coordination of the Exclusive Beds with the hospital, and the hospital had assigned a social worker to communicate with the SNF. The two social workers were also responsible for gathering statistical information on referrals, including payment source and turnaround time from inquiry to admission. Two administrative personnel from each organization were designated to meet quarterly to discuss operational matters. All of this was done to enhance communication.

This, in outline, is the basis of our IDS. We can face the future -- a future of managed care, negotiated contracts and capitation -- with a continuum of care that draws from all our resources and meets the needs of our patients and institutions. For us, it is a beginning. For others who have yet to begin, the time to start "thinking IDS" is now.

Douglas S. Ford, MS, NHA, is administrator of a Knoxville, TN-based 172-bed SNF operated by National Healthcare.

References

[1.] Evashwick C. Strategic management of a continuum of care. The Journal of Long-Term Care Administration 1993 (Fall); 13.

[2.] Is this the hour of managed care? Provider 1995 (June); 46.

Bibliography

Integrated delivery systems. Transitions 1994 (July/Aug); 9-11. Medicare headed for PPS, but with fewer dollars. Contemporary Long-term Care 1995 (December); 24. What's ahead: The long-term care network. Nursing Homes 1995 (Nov/Dec); 19-21.