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Rural Health Insurance
Cooperative Bob Crittenden 7-26-98 Summary: This proposal supports many
of the principles outlined in the NRHA Issue Paper of February 1998 - A Vision
for Health Reform Models For America's Rural Communities. The principles in that paper include: -A
bold vision -High
level of teamwork -A
willingness to take risks -A
willingness to be open to partnerships and affiliations -Access
to relevant, practical information and successful rural models -Successful
coordination and control of local health dollars, both through expanding the
range of services and the market share, and by assuming appropriate levels of
financial control and financial risk.
To meet these principles,
some communities will want to organize their own health financing systems
including risk bearing. The main barriers faced by
rural providers as they develop community-based health delivery systems
including provider sponsored organizations (PSOs) and other local health
systems are the lack of human and financial resources in rural communities. The pressure to develop these systems
include the current move toward managed care accompanied with the move toward
making health care a commodity.
The resources that need to be available in rural should be cognizant of
the differences and needs of rural communities and rural health systems. A large part of the difference is the
variability of rural health systems from place to place. Making rural health systems fit an
urban model or ignoring the rural community needs altogether are the two most
common responses of large urban managed care systems. Neither are functional for rural communities in the long
run. A support mechanism is needed
that allows rural communities to develop their own health care systems and organize
as PSOs with sufficient expertise and finances, yet allows those systems the
individuality that they need to meet the health needs of their rural
community. This cooperative
proposal overcomes these barriers and provides the expertise and financial
reserves most absent in rural communities. Background: Rural communities need
assistance in developing organizations - like provider sponsored organizations
(PSOs) - that can contract with payers like Medicare (allowed in recent
Balanced Budget Act) and take risk.
It is not just the development of an organization, it is much broader
and includes solvency, organizational development, practical information
systems, efficient administrative functions, and behavior change on the part of
the providers in these communities.
Rural communities are too small and have too few human and financial
resources to accomplish all of these goals by themselves. There has been interest since
the national debate on health reform in developing rural based health systems
that can contract with major public and private payers. But, with few exceptions, most of
the managed care contracting is done by major urban based health systems that
then sub-contract with providers including those in rural communities. There is at least one exception to this
in the State of Washington where a group of community and rural health clinics
formed their own insurance firm that provides solvency and administrative
functions, yet allows the rural community clinics to structure their services to
meet the needs of their communities. With the passage of the
Balanced Budget Act of 1997 there is renewed interest in rural communities in
organizing rural-based organizations that could contract for Medicare and for
other lines of business.
But, developing organizations that can do this contracting poses huge
barriers and risks for rural providers.
These barriers include: a.
Developing capital to
have sufficient reserves to weather adverse selection or the normal spate of
high risk and costly cases. b.
Developing a population
base large enough to fund the reserves and to provide an actuarial base that
will decrease the risk of adverse selection and decrease the variability of
charges found in small population numbers. c.
Organizing
administrative functions that are needed to contract, pay bills, and manage the
flow of funds in an insuring entity. d.
Having available an
information system that can be used to help the providers managed the care and
help the administrators manage the business aspects of the concern. e.
Having actuarial
services available to price and manage products. f.
Technical assistance to
assist the providers in the rural community in organizing themselves to
cost-effectively develop the above functions. g.
Expertise in meeting all
of the regulatory hurdles - public and private. h.
Willingness on the part
of the providers to change organizational relationships to make an organized
system of care work. i.
Willingness of
independent providers and organizations to share risk. These barriers may be
addressed locally with great difficulty, but they can also be overcome if the
services are loaned, purchased, or supplied by an entity outside the rural
community that has the interests of the rural community at heart. Occasionally, insurance companies have
done this for short periods of time, but usually they find this is not in their
best interests as their is little profit or long term benefit for the insurance
company. There are examples where
this has been done on a more local level (e.g. a statewide group of Rural,
Migrant, and Community Health Centers) and the organization has been able to
develop a financially viable model that does enable rural providers to remain independent, contract for
business directly with payers, and overcome the barriers listed above. A repetition of the few
successful models is unlikely without assistance. (i.e. One of the most successful was able to use FQHC
back-funding to develop their reserves.)
Developing a national entity with branches regionally based could
provide this resource for many rural communities. Proposal: 1.
A not-for-profit private
entity would be established by Congress.
The organization would have as its sole function the provision of the
services as listed below. It would
be known as the Rural Health Insurance Cooperative (called cooperative
below). 2.
The cooperative would be
controlled by a board of directors that would be composed of a workable number
of people - perhaps eight people.
The Chairman would serve at the pleasure of the Secretary of HHS. The members of the board would consist
of members from each of the
following categories; knowledgeable and experienced in health insurance,
experienced in information systems supporting managed care, rural health provider,
rural community member, representative of HCFA, and a representative of the
Department of Labor. At least four
of the members should be from rural communities or experienced in issues
concerning rural communities such as rural health systems and economic
development. The board would be
responsible for hiring the Executive Director, reviewing and setting policy,
and ensuring the financial
viability of the cooperative. 3.
The executive director
would be responsible for the operations of the cooperative, hiring and firing
of employees, and ensuring that the policies and goals of the Board are
accomplished. 4.
Powers and Duties: a.
The cooperative may
contract with organizations in rural communities that meet the criteria set by
the Board. The Board is not
required to contract with a rural health entity unless that entity meets the
criteria established by the Board - especially that the rural entity not put
the resources of the cooperative at undue risk. The function of the contracts would be to: n
Assist rural providers
and communities in assessing the potential for developing a provider n
Provide actuarial and
technical assistance to those organizations as they structure and organize. n
Aid in contracting and
marketing the products offered by the rural PSO. n
Contract as a re-insurer
for the PSO to ensure that the PSO has reasonable solvency. This would n
Provide, if necessary,
administrative functions for the PSO to enable efficient handling of the n
Provide, if needed, a
medical directors function that would assist in quality assurance and system n
Develop and provide an
information system that is cost-effective for rural health systems that b.
The cooperative shall
develop and hold funds sufficient for ensuring the solvency of all entities
with which it is contracted. c.
The cooperative may
establish branches anywhere in the United States that it feels is necessary to
meet the goals set by the Board. d.
The cooperative may
develop technical expertise to advise and assess rural health organizations with
which it is evaluating or contracting.
e.
The cooperative may
develop internally or contract with vendors to provider administrative services
for its contracted organizations. f.
The cooperative shall
develop, assess and/or recommend information systems for its contracted
organizations. 5.
The cooperative would be funded by an
initial investment by the Federal Government towards initial start-up costs and
permanent financial reserves.
Additional yearly funds would be needed for technical assistance that
could not be expected to be provided from the business derived from the
contracts. The cooperative would
be expected to be otherwise self-supportive through operational income. 6.
The cooperative could
receive other contributions and develop income from its activities to support
its permanent reserves as well as support its technical assistance. 7.
The cooperative would be
regulated by the Department of Labor for its solvency and business practices
and would be exempt from state regulation. Example: (The example below is meant
to help understand the concept and is not necessarily the mechanism that the
cooperative may develop or use.) A group of providers and
local/regional leaders desire to form a provider sponsored organization (PSO)
that can contract for medical services with Medicare. They
incorporate as a PSO and
collect a few tens of thousands of dollars from among themselves. Phase I Contract: The PSO enters into "phase I
contract" with cooperative to define market area and service population,
do a feasibility study, and refine their organizational structure. This initial phase would be technical
assistance for the local community organizers. The PSO pays its own
staff. The PSO pays the
"cooperative" some money, but this phase of "cooperative"
TA is subsidized. At the end of
this phase the PSO and the Cooperative have each invested something in the
$10-100K area. A decision then
made by PSO and Cooperative to go forward or to discontinue efforts. Phase II contract: PSO
pays Cooperative at some low rate, say 25% of Cooperative's costs, for actuarial help
defining products, setting up strategies for marketing plan to other providers
and to buyers of care. Decisions
are made about how to implement the business. The cooperative provides a loan to PSO for start-up costs
and a three year line of credit.
Cooperative may agree to provide care management, claims processing, and
other administrative functions, and it may provide TA to the PSO to assist in
reviewing proposals from payers.
The PSO would be able to establish many of its own internal functions as
might be prudent. Phase III Contract. The PSO starts selling coverage, paying
providers. The PSO pays the cooperative for access to solvency reserves similar
to a re-insurance product: maybe 5-10% of premium per year. PSO pays cooperative interest on
start-up loan, or interest goes on line of credit for the first year or
two. The rate is set high
enough to let cooperative recapture part of its front end TA investment. The cooperative may have an ongoing
contract to provide management assistance which might range from a
knowledgeable person reviewing performance and trends every month, to providing
most of the actual transaction management. Fees for this are structured to be profitable for the
cooperative, helping offset front end costs. Reference: A
Vision for Health Reform Models For America's Rural Communities - An issue paper prepared by the National Rural Health
Association - Feb 98 |