Meeting managed care head-on can pay off

An Arkansas practice turns to direct contracting

Are you thinking about increasing your practice’s managed care exposure — but you’re not sure if it’s worth the risk? You may want to consider direct contracting, says Steve Swift, FACHE, MHA, executive director of an Arkansas multispecialty group that took this tactic and has grown its commercial patient base by 40,000 members during the last two years.

"This is not a quick payoff, but we’ve captured lives in a transitioning market," says Swift, executive director of the 160-physician Holt-Kroft Clinic in Fort Smith, AR. "We feel that it [direct contracting] gives us some sort of control over our own destiny by having credentialing and management of care delegated to us."

The bulk of the practice’s business traditionally has been in discounted fee-for-service arrangements and some PPO arrangements, indicative of the marketplace in this community of approximately 135,000 with a surrounding rural area of about 250,000. However, Holt-Kroft is gradually increasing its capitated business and its involvement in more tightly managed care networks with the help of a hospital partner and a receptive employer force.

Holt-Kroft and Sparks Regional Medical Center, a local hospital system, are 50-50 partners in a limited liability corporation known as PremierCare, contracting directly with area employers and managed care organizations. In general, in a limited liability corporation, each member’s liability is limited to their investment in the company, although members are responsible for any errors of omission that give rise to malpractice claims.

Employers were ready

What made Holt-Kroft’s approach work: a good hospital partner, a strong market presence for its clinic, and a primarily self-insured employer community, Swift says.

The practice began positioning itself for risk-sharing about two years ago, when it sensed that area employers were ready to dip their toes in the waters of managed care.

"We saw an [employer] industry concerned about health care costs, but not ready to jump full-force into a heavily directed HMO model," Swift explains. At the same time, employers were concerned about rising insurance premiums and were looking for a single-signature entity that would give them a commitment on price, some predictable budgets for health care dollars, and integrated physician and hospital services.

Holt-Kroft decided to take the initiative to become the single-signature entity employers were looking for. It approached Sparks Regional Medical Center, one of two dominant hospitals in the marketplace that the practice traditionally had a strong relationship with, and formed PremierCare.

PremierCare’s limited liability corporation is organized as follows:

• Holt-Kroft Clinic and Sparks Regional Medical Center are 50-50 owners in the venture. The organizations have equal votes in board decisions and an equal financial stake. Revenue for the venture came from the hospital and Phycor, a practice management company that owns the practice.

• The entity, PremierCare, contracts directly with approximately 15 mid-sized and larger companies and a large number of small companies. Products sold to these companies range from an HMO product to discounted fee for service, depending on what level of managed care an employer is willing to enter.

• In some cases, PremierCare contracts with their clients’ third party administration companies to perform claims processing and paperwork functions. Although they do business with smaller employers too, this is rarely done through direct contracting.

• PremierCare officials meet annually with each employer to examine their available health care dollars. Both practice and hospital officials are present. They agree on annual targets for total health care costs and build a performance target budget. Withhold dollars are held back and later distributed to PremierCare if those targets are met.

• PremierCare employs a 13-person staff to administer the program, including sales representatives, medical directors, and utilization management. "We wanted to manage our own care and destiny, and not do it through 1-800 numbers," Swift says.

• In most cases, PremierCare handles credentialing of its approximately 160 clinic physicians and an additional 150 community-based physicians in its network, and also handles its own medical management. Delegating these duties took some convincing in the cases where PremierCare contracts directly with insurers, Swift says.

"With credentialing, they [insurers] were happy to turn that over to us, as long as we can meet the NCQA [National Committee for Quality Assurance] standards. The medical management piece took some more convincing. We just fought tooth and nail until we got an agreement to do it. But in some cases we had to phase it in, getting more responsibility as we proved our ability to perform," he says.

So what is Swift’s assessment two years later? Key elements, he insists, are strong relationships, good infrastructure, and getting players with strong reputations in the marketplace involved.

Both Holt-Kroft and Sparks Regional Medical Center are dominant players in what is basically a two-hospital, two-large-clinic town, he explains. And the two organizations’ history of working together had already built the element of trust necessary to sit on the same side of the bargaining table. "We no longer think of it in terms of the hospital or our practice. We think of ourselves in terms of PremierCare, in terms of us," Swift says.

Relationships with employers also are important. "When you sit face to face with industry leaders and talk about price and wellness benefits, you start building a relationship," he explains. "You really are moving into a relationship together with aligned incentives. They know and we know that we don’t just want their contract for this year, but for the next 10 years."

Looking at the venture with a long-term financial perspective also is critical to successful direct contracting, Swift adds. Swift estimates that the costs of running PremierCare’s operations range from $700,000 to $1 million a year. How long it takes a practice to get a return on its investment will vary in terms of how many members it can sign up and how successful it is at meeting targeted medical costs. Suffice it to say that it’s not something you can expect a return on within one year, he says.

Of course, the downside of potential reward is potential risk. But it’s a risk the practice is willing to take, Swift says. "We’d still rather be in risk than in straight discount [fee-for-service]," he says. "In the end, we hope to get more of the premium dollars coming to us instead of 25 cents of every dollar being held at the insurance company level. The limited liability corporation is a cost center. The goal of that cost center is to keep our business and gain more."