Confronting managed care.

A "Care Bear" it ain't - but you can negotiate your way to a successful relationship

The number of people purchasing their health care through managed care is continually growing: from 33 million Americans in HMOs in 1983, to 45 million in 1993, to 51 million in 1995. At the same time, Medicare and Medicaid, potentially through categorical block grants or state waivers, are also purchasing through managed care, and HMOs, known for going after healthy, young subscribers, are now actually signing up nursing home residents under Medicare risk contracts.

Increasingly, this is placing long-term care (LTC) providers in the position of having to negotiate with a different kind of purchaser, within different kinds of systems - for the same patients they used to admit on a private pay or voucher basis: all in all, a rather frightening prospect to most.

How should you, as an LTC provider, be responding? First and foremost, by cutting costs, either at the facility level or by forming provider alliances or networks. The entire purchase side of the LTC industry is changing, and while payers say they're looking for quality care from providers - though nobody really knows what that means or how to judge it - what they're really after are low costs. Their purchase decisions are based on price.

That is the stark reality, even if you're not yet dealing with HMOs and PPOs. In the Medicaid program of the not-too-distant future, selection of an LTC facility will be taken out of the hands of the patient and put into those of a managed care bureaucrat, either from the state or contracted through the state. Their decision to use one facility over another is going to be negotiated on the basis of facilities undercutting one another from a cost perspective on a per diem rate. That's the reality of the future.

Providers will need to contract with these new purchasers of care. In order to do so, you'll need to be providing the full continuum of elder care, as well as care to the non-elderly, and your services will need to have geographic dispersement throughout the regional marketplace.

A few survival tips

* As stated above, forming provider alliances or networks allows you to cut costs with certain economies of scale. In addition, coming together with other LTC providers to form a geographic and/or continuum of care network strengthens your bargaining position. Without that strategic position, you're essentially bargaining one-on-one with a purchaser that holds most of the cards.

* Make sure you have a clear understanding of your costs of providing care. Those costs need to be on a per patient, rather than on a per facility or cost center, basis. These are the costs that are then negotiated when you negotiate a per diem or a capitated rate.

* Learn to better manage the care of the individual, again, by providing a fuller continuum of care and trying to find a step-down, such as assisted living with home care. For example, as an LTC provider under capitation, I would want to offer the assisted living, non-licensed home care alternative to help push the risk down. This is no different from what hospitals are doing by "stepping down" patients to subacute or skilled Medicare. If, on the other hand, I were in a per diem situation, I would need to develop the concepts of clinical pathways and utilization review - as the hospitals have done already - to come up with ways to provide care in a more managed setting.

* The last piece of advice would be to hire a good lawyer who knows how to put all of this into the contracts. An experienced attorney can help you to identify the risk and determine what portion of that risk will be shared with the provider and how.

For example, when regulations such as the 30-day notice of discharge prevent you from discharging a resident, and you - the nursing home - are going to be at risk for those dollars, you'd better make sure you are covered for that type of situation when you figure your rate. If, on the other hand, the purchaser will be at risk when their subscriber is "stuck" in your nursing home, you need to make sure that the purchaser knows they'll be assuming those costs.

So what does all this talk of provider alliances and continuum of care mean for the conventional, stand-alone LTC facility? If the same question were asked about a hospital, the answer might be - and often has been - that they'd be forced to close down. But the news may not be all bad for some nursing homes, i.e., the nursing home that has carved out a true, and recognized, niche in its market; the facility with a reputation as a cost-effective provider; or the nursing home that is either in a certificate of need state or has a special market position (such as a significant private pay base).

So the news isn't all bad - just be careful. Oregon, which as a neighboring state to California has experienced an influx of managed care, offers a case study of what can, and might, happen elsewhere. First, the number of managed care enrollees went up significantly. Then a Medicare-Medicaid waiver was obtained, and the Medicaid dollars that used to go toward nursing home care were funnelled into home care and assisted living. Finally, a law was passed requiring private pay residents to discuss their long-term care options with a government agency - where they should go and why - prior to admission. The intent was obvious - to emphasize the assisted living alternative, where the government isn't paying for the institutional portion of the long-term care (ie, room and board and mortgage). The result, I'm told, is that Oregon's statewide nursing home census dropped from 95% to 85% in two years.

All in all, then, nursing homes are not uniformly threatened by managed care, but they do have serious cause for concern. Now is the time to start negotiating your way out of a potentially difficult situation.

John J. Durso, Esq. is a partner in the law firm of Katten Muchin & Zavis, headquartered in Chicago, and is co-chairperson of the firm's Health Care Department.