Home care for hire: Management contracts need more than buzzwords

Not all agreements control costs, nor are they designed to

It is a home care trend that may grow as Medicare cost reimbursement goes the way of the dinosaur: More hospitals will seek outside help to manage their home health agencies. Some may regret it.

Driven as well by cost-containment pressures applied by managed care companies, hospitals are contracting with large home care providers — Olsten Health Services, HealthFirst, and Staff Builders, for instance — as well as with management services organizations to deliver care and run their businesses.

Olsten boasts about 200 hospital home health agencies under contract. No one can say for certain what the national numbers are, but only last October CCF Health Care Ventures, a wholly owned subsidiary of The Cleveland (OH) Clinic Foundation, signed a joint venture to run MetroHealth System’s home care program. MetroHealth, also based in Cleveland, is one of the largest medical centers in the northeast part of the state.

While this so-called "turn-key" approach to home care may be attractive, it is not always wise, according to Schuyler Hoss, a health care consultant in Vancouver, WA. Hoss estimates that in 1994, 12% to 15% of hospitals in the United States had home health management contracts. "What agreements they have vary," he says. (See related charts, inserted in this issue.) "Some are only retainers for ongoing consulting, others are tied to visits. It’s a small number, but it’s been a little boom industry."

Management fees add up

Hoss’ company, Northwest Healthcare Management, specializes in strategic positioning and managed care relationships for home health providers. He casts a gimlet eye on management arrangements. "Hospitals have to be very careful in terms of looking at what they are buying for management fees."

Hoss estimates that only about a third of the management contracts he sees are a good value.

A typical scenario that he describes "is where a suburban hospital enters into a management contract with an organization, and basically, they are put into the home care business in 120 days. They may get some billing services out of it, maybe a manager, and are being charged $12 to $14 a home care visit." That runs into big money in an agency that makes 100,000 or more visits annually — $1.2 million to $1.4 million — especially if the management company is only helping with licensure and payroll.

"The hospital is adding significant costs, where if they had done it themselves, they could have done it cheaper."

But getting it done cheaper is not what the contract is about in many cases, Hoss contends. It’s all about cost-shifting through cost reimbursement from Medicare. "There are people who have spent years learning the subtleties of cost reimbursement," he says. "In my mind, it’s a racket. I’ve seen hospitals pay $10 to $12 for bad information and these management companies are making $500,000 to $750,000 a year off a contract. Their pitch is, ‘Hey, give us twelve bucks a visit and we might even show you how to get 2% more of the CEO’s salary allocated.’"

That, however, is about to change. President Clinton’s January reform package proposal calls for trimming $138 billion in Medicare growth over the next six years, with $20 billion of that coming from home care. How? Through "the transition to and establishment of a new prospective payment system and a number of program integrity initiatives," the Health Care Financing Administration (HCFA) says.

Hoss predicts that "over the next couple of years, I think you’ll see the financial game [of cost shifting] fall by the wayside."

A contract with value

The home health providers who prevail will be those whose management contracts have value, Hoss reiterates, "like clinical care management protocols, superior ways of doing business, financial expertise, like cost management, negotiating managed care contracts, managing the implementation of risk-based capitated deals, and proprietary software they use. You pay money for this, but it’s far cheaper than doing it yourself."

Big hospitals have found other ways of preparing for the future. Some are splitting patients, Hoss says. "They’re running Medicare patients through their own agency, and if they have managed care contracts, they outsource to a more efficient provider."

That is what the MetroHealth System did through its partnership with CCF Health Care Ventures, which also is one of the leading home care agencies in the country. Under the umbrella of MetroHealth at Home, fee-for-service patients are cared for by the hospital-based agency, while CCF Health Ventures focuses on the managed care side.

Under their agreement, hospital-based Health Care Ventures — which Hoss says is one of the companies that offers value — will provide home nursing, infusion services, and home health aides. MetroHealth will provide specialized staff, such as physical therapists and rehabilitation nurses.

Pauline Degenfelder, PhD, vice president of MetroHealth System, explains that the decision to enter a joint venture was based on a need for a partner who had managed care contract experience and a desire to "control the dollars, as well as extend our continuum of care. We are a large academic medical center," says Degenfelder.

Looking for a long-term relationship rather than just a management contract, which it previously had, MetroHealth issued a RFP with 56 requirements before selecting Health Care Ventures. "They are going to supply home health care services to us for the most part. We, however, are going to have our own employees delivering services."

So far, Degenfelder says, Health Care Ventures "is meeting expectations in terms of volume," although she wouldn’t disclose what the numbers were.

Metro Health System includes a 750-bed hospital with a regional trauma center and rehabilitation, says Degenfelder; "Everything but transplants." Metro Health at Home makes 100,000 annual visits, she says.

CCF Health Care Ventures now has eight similar arrangements, split between skilled-nursing facilities and hospitals, according to Health Care Ventures CEO and President Carol Shaffer, RN, MSN, JD, MBA.

Long-term relationships

Shaffer says her management services organization is committed to the long haul. "We like getting under their skin. We want a long-term commitment. Although our contracts are for one year, renewable, the effect is we don’t have any clients leaving. They stay because of what we give in the MIS [management information systems] area — laptop computers, care maps, managed care contracting, and all the people behind it to keep it running. That’s an enormous investment. We’re in a $5 million-a-year [home care] arena."

All this tends to exceed the abilities of most home health agencies. Shaffer says her clients, according to the annual number of visits, range in size from 10,000 to 150,000. The average is about 40,000 visits a year.

That’s the kind of value Hoss says is needed. Its focus is on cost containment, rather than maximizing revenue for a hospital. "I’ve seen some of the other, larger management companies’ products, and frankly, they have all the right buzzwords, but that’s about all."

And today’s buzzwords won’t get you tomorrow’s managed care contracts, Hoss says. "Whoever can be cost-effective — whoever is efficient in a prospective-pay environment — will survive."