Waynes World - November 2006

THIS MONTH, PART TWO OF AN INFORMATIVE
THREE-PART SERIES COVERING...

THE INS & OUTS OF JOINING
A CONSORTIUM
By Wayne Schooling

Although there are many advantages (particularly for small employers) in joining a consortium, the advantages do entail costs. You should consider the implications of those costs prior to joining a consortium. Allowances must be made for shared design, reduced control and start-up fees. Let’s look a little closer at each of these considerations.

SHARED DESIGN. As a consortium is essentially a committee and because compromise is inherent in the nature of all committees, it is possible that you will have to compromise on some of the non-regulated elements of your controlled substances use and alcohol misuse program design. For example, you may join a small clinic, which is running a consortium, that has a core of services that comply with some of the FMCSA and DOT regulations but they may not offer other elements that are considered important to your program. That is why FMCSA and DOT encourage everyone to find an accredited program that covers all of your needs.

REDUCED CONTROL. If you operated your own program, the managers in charge of it would be your managers, and they would operate according to your own policies and procedures under your sole control. This will not be the case in a consortium. As a result, it will be more difficult to make changes in the program, and changes that you do make will take longer to implement than if you operated your own program. Conversely, the consortium may make changes to the program that you do not want to make, but may be powerless to avoid.

FINANCIAL CONSIDERATIONS. Although the net financial results of a consortium should be to reduce your substance abuse program costs, financial risks exist. Failure of some consortium members to pay their costs may increase the financial burden on other members. In addition, it is a common practice for consortiums to require a membership payment in addition to payments for services as they are delivered. This membership payment may support initial services such as policy development or education materials. Charging a membership fee is a reasonable and common practice, and in virtually all cases, the membership fee will be less than the initial investment of starting your own in-house program. Nonetheless, the fee may be several times the cost of a single controlled substances test, and small employers who anticipate joining a consortium should expect the fee and budget accordingly.

TYPES OF CONSORTIUMS. Consortium arrangements can be made to provide collectively the same types of services as those available through separate or individual contract arrangements (education, training, specimen collection, laboratory analysis, MRO services and more). There are a number of models of consortiums, each with its own advantages and disadvantages. Let’s look at four popular types of consortiums.

PURCHASING COOPERATIVE. In this model, the consortium contracts for services at a volume price to take advantage of volume buying power and management efficiencies. Suppliers deal directly with each employer. This model is similar to a cooperative formed by a group of small retailers to purchase merchandise at volume discounts. In this case, the cooperative or consortium negotiates terms and conditions with suppliers. The actual orders for delivery of goods and services, however, are conducted between the individual members and the suppliers.

SEPARATE ENTITY. If the number of drivers represented by all consortium members is large enough, it may be cost effective to form a separate entity. The consortium manager hires a manager whose responsibility it is to provide services at the cost of purchasing the services, plus the costs incurred in operating the consortium. A similar example is a food cooperative. Consumers form cooperatives because they want the highest quality product at the lowest price.

MANAGING PARTNER. In this model, smaller employers contract for services with larger employers subject to DOT controlled substances use and alcohol misuse testing regulation (such as a state DOT, a transit agency or an airline). A large employer that has the staff and resources to service its own controlled substances use and alcohol misuse testing program may also be able to sell surplus staff time to small employers, thereby providing an economic benefit to both. This model is similar to a limited partnership in which investors pool resources. Usually the investor with the greatest investment becomes the managing partner with the responsibility of managing the partnership.

EXTERNAL MANAGEMENT. Under this model, employer’s contract with an external company (a third-party administrator or TPA) for the services desired. The company should have expertise in the transportation substance abuse field. This model is similar to a pension fund management service or an insurance health benefits manager. A management company may operate more than one consortium. External management may be considered both by a consortium and by individual employers. A consortium of organizations with a full time controlled substances use and alcohol misuse program manager provides members with specialized expertise without each member having to hire its own specialist. This model is cost-effective, since it spreads administrative costs over a greater base, while providing greater expertise than any consortium member is likely to have on its staff without additional hiring.

Several nationally based third party organizations provide consortium services for employers. The largest in the U.S. is the NorthAmerican Transportation Association. Employers should consult the Drug & Alcohol Testing Industry Association (DATIA) for the accredited consortium that fits their needs, as some consortiums specialize in only certain modes of transportation. Next month, the third and final installment in this series will explore how to choose the right consortium. Until then, “Drive Safe – Drive Smart!”