Expand your business by managing others’

These arrangements offset your overhead

With so many challenges both here today and on the horizon, taking on another provider’s problems in the form of a management contract may not seem very appealing, but it can be a winning strategy under the right circumstances, according to Deborah Zients, vice president for community operations at North Arundel Health System in Glen Burnie, MD. "I see other people’s problems as my opportunities. If you’re a good manager, you can take advantage that people haven’t kept up with the times," she explains.

North Arundel Home Care, an affiliate of the North Arundel Health System, recently began managing the home care operations of a community hospital in nearby Baltimore. The arrangement is a good fit between the parties, she says. While North Arundel is large and diversified with strong information systems and quality improvement programs, its new partner provides visits only — about 15,000 annually — lacks state of the art technology, and substantial investment funds, but wants a 1998-style makeover.

The contract allows the community hospital to maintain its home care identity and crucial continuity of care connection while offloading operational "nuisance pieces" such as billing, intake, and quality improvement, Zients explains. The hospital-based program also cut administrative positions, and while the management contract was an added expense, it still realized an overall cost savings.

North Arundel, on the other hand, took on its responsibilities without adding staff, so the contract management fee directly offsets overhead expenses. By increasing geographic service area, the agreement also strengthens its contracting efforts, she notes.

Hospital board retains authority

Under the arrangement, North Arundel provides general management, intake, and quality improvement services, and also oversees billing and reimbursement functions. The arrangement may expand to include information system conversion and more extensive billing responsibilities in the future, according to Zients.

The North Arundel-supplied director of operations, and its quality improvement, reimbursement, and intake managers each devote part of their time to the contract. Their collective on-site time totals about one full-time employee, she says. Field staff, nonsupervisory administrative workers, and frontline clinical managers at the hospital-based agency are hospital employees. Although North Arundel is the administrator for regulatory purposes, the hospital board retains crucial legal authority.

North Arundel receives a per visit management fee. Zients’ pre-contract research indicated that such fees generally range from $5 to $15 per visit depending on the services provided.

The North Arundel intake department maintains a separate referral line for the hospital-based provider, so that the arrangement is transparent to its referral sources.

Given the home care industry’s current turmoil, management contracts are not for the faint-hearted. "This scenario is not for anyone who is not in risk-taking mode," Zients concedes. Provider-managers must carefully identify and closely manage their costs and negotiate financially and legally viable agreements. In addition to fraud and abuse considerations, contracts must also address antitrust concerns.

Although per-visit fee structures are common among home care management agreements, they pose some fraud and abuse violation risk, according to John Gilliland, a Crestview Hills, KY-based health care attorney. They fall outside safe harbors designated by the Department of Health and Human Services Office of the Inspector General (OIG). (See related story on safe harbors, at left.) Per-visit management fees "[don’t] mean you’re violating the law; [they] just mean you’re open to [OIG] scrutiny," he says.

If you are considering a per-visit fee structure, "you want the rest of the agreement strong enough that [the relationship] would not be considered a payment for referral," Gilliland advises. Still, flat fees or those based on achieving budgetary goals are less risky, he says.

In addition to fraud and abuse regulations, provider-managers must also clear anti-competition hurdles. "It can be hard to manage a competitor. If there is a lot of [territory] overlap, you may potentially violate antitrust laws," says Gilliland. Even when not illegal, such arrangements may be a conflict of interest, he adds.

The line dividing friendly competition and adverse relationships is blurry and very dependent on individual considerations. It veers toward anti-competition when it influences either party’s judgment, he says.

North Arundel and its managed partner have "almost no overlapping territories," Zients says. Also, expansion plans for the hospital-based agency involve maximizing hospital-related activity, as opposed to reaching for new business from other sources, she notes.

Providers should also clearly understand their own costs and capabilities before proposing an agreement, Zients advises. If your expertise does not match your potential partner’s needs, the agreement stands less chance of success.

"Make sure you’ll be properly compensated with a clear understanding of the services provided," Gilliland suggests. Consider charging an upfront fee to cover extra staff time required at the contract’s onset, Zients adds.

Most management agreements have financial and operational performance targets, such as achieving certain net income levels or receiving licensure or accreditation renewals. Provider-managers should "negotiate performance parameters they can live with," she advises.

While management contracts do require additional effort during already challenging times, they also represent an excellent opportunity as many hospitals try to maintain home care programs struggling under Medicare interim payment system reductions, according to sources. "It’s easier with provider-sponsored organizations," not only because smaller hospital programs in particular may have fewer competitive issues, but also because hospitals are looking for home care alternatives, Zients says.


John Gilliland, Attorney, 2670 Chancellor Dr., Suite 290, Crestview Hills, KY 41017. Telephone: (606) 344-8515.

Deborah Zients, Vice President for Community Operations, North Arundel Health System, 1708 W. Rogers Ave., Baltimore, MD 21209-4545. Telephone: (410) 578-8600.