MCOL Thought Leaders: Implications of Narrow Networks

ow far will the trend towards narrower health plan networks go – and what are the implications?”

ACA legislation put many guardrails on health program design – premium cost sharing must be affordable based on percent of pay and cost sharing through design requires at least a 60% value plan. Narrow networks are one of the few areas that insurers and program sponsors still have left to positively impact cost and quality while staying compliant. The increased use and focus on local plans through exchanges, both public and private, will also spur greater use of narrow networks. With so many forces encouraging folks to get the right care, at the right time, for the right price, with the right outcome, narrow networks will continue to grow, evolve and add value. Despite their opportunity, there are still substantial risks around member understanding. If more efforts aren’t made to educate participants about the trade-offs they’re making when electing less expensive but narrower network insurance offerings, there could be meaningful backlash against the trend.

“Narrow networks” will be with us — but their etiology will not be predominantly through payors culling their networks via economic credentialing. More often beneficiaries needing more intensive case management will “opt in” to a care path administered by providers who are paid as their “home” or through shared savings. Also, “narrow networks” will occur through default–that is through the combined effect of higher deductibles and additional price transparency. As beneficiaries continue to shoulder more of the first tier of risk for their own care, and mobile tools become increasingly available forecasting the costs of episodes, de facto narrow networks of price competitive, accessible (and telehealth friendly) providers will emerge.

Instead of asking “How far will the trend towards narrower health plan networks go” I suggest that we explore the question “How far will consumers push this trend?”

The opening of the healthcare exchanges last year brought consumer choice into the spotlight. The relentless attention to the individual’s “new found responsibility” for their healthcare choices worked to obscure the fact that employers have been shifting the benefit purchasing decisions to the individual for quite some time. Nothing has defined this shift more clearly than high-deductible health plans with fewer provider choices.

Now, with more of their dollars at stake, consumers are becoming more keenly invested in their healthcare choices. Not surprisingly, when consumers are given a choice between lower priced products with narrower networks, or higher cost products with broader networks, the vast majority opt for the former. And, this holds true for consumers who are interested in a richer benefit package. I think the industry experienced mild surprise by the success of gold-level insurance products sold on the healthcare exchange which offered a narrower network.

Notwithstanding the availability of new products driven by individual buying preferences, narrow networks have real implications for the uneducated consumer. Already, we see some anecdotal evidence of the financial impact consumers experience as a result of out-of-network care. Health systems, along with health plans, will need to take an active role in helping the newly insured understand their chosen network options. As more of the cost of care shifts to the individual, not aiding them will cause already-slim provider margins to squeeze even tighter in the form of uncollected healthcare debt.

If they are to thrive, health systems must clearly show their value proposition to the consumer. This is no easy feat in the world of reform where health systems across the country are scrambling to redefine value. And once defined, health systems must go about proving – with real data – whatever value they claim to deliver. As consumers increasingly utilize healthcare, and their own dollars are at risk, the trend toward narrower health plan networks may ultimately reward higher quality, lower cost providers. Get the value-defining exercise right, and consumers will look for that health system’s inclusion in their narrow network. The onus will then be on health plans to construct network options based on varying levels of value; as proven by the provider and perceived by the consumer.

And the old axiom is true: perception is reality.

The trend of “networks” (more specifically – “accountable care networks”) is huge and we’ll be figuring it out for the next decade.

The trend of “narrow” networks has been grossly mis-characterized in the press. “Narrowness” is simply one characteristic of networks, albeit an important one. The issue isn’t new, but has gained visibility as a result of the “narrow” provider directories being offered in the Federal and state health insurance exchanges. In the future narrowness and many other network characteristics will be important considerations for all health plans.

What health plans have offered in the past (and most offerings on today’s early Federal/state exchanges) aren’t truly “networks”. More accurately they should be called provider directories, or simply lists. The word “network” implies connectivity and coordination, and provider directories to-date have been differentiated almost exclusively by low price.

A few other observations about this “narrow network” trend:

Control. In the past, network management has been considered a health plan responsibility and control point. In the future we’ll see many more provider driven and operated networks. We’ll also see collaborative approaches – where health plans and providers work together to share data and workflow on network creation and operation.

Neutral connotations. The term narrow network has taken on a negative meaning…but it shouldn’t. Almost all of the accountable care arrangements being developed today – ACOs, bundled payments, medical homes, etc. – have limitations and/or incentives on provider selection; almost none of them have open provider panels. If you think of the opposite of “narrowness” as being “unfettered choice”, I’d argue that’s the source of much of the disfunctionality of today’s U.S. healthcare non-system. Patient’s need guidance on healthcare choices…helping patients “narrow” their choice will have many positive connotations.

Value networks. Creating high value networks will be the challenge of the upcoming decade. Patients will differentiate not simply on low cost, but also high quality and positive patient experience.

The use of narrow provider networks as a means to lower overall costs has been increasingly in the spotlight over the past year due to the key role this is playing in the health plans’ State Exchange strategies throughout the United States. A recent major survey shows that health plans overwhelmingly believe that newer health care consumers entering the market because of the Affordable Care Act will tend to make premium-driven choices.

Saying that, the move to narrow physician and hospital networks has been a marketplace approach for many health plans, not just recently, but for a number of years. A National Institutes of Health study found that a majority of small employers are attracted to lower premiums of narrow network plans and that savings of 20% or greater would convince more than 80% to make such a move. We have also seen similar designs in the Pharmacy Benefit Management (PBM) arena as a mechanism to lower overall costs by limiting the number of large chain pharmacies in a PBM’s network.

An extension of narrow provider networks are provider-sponsored health plans. In California, several hospital/medical group based health plans have been prototypes for this model which is now growing rapidly throughout the country.

In building narrow networks it is essential for health plans to include not just cost but also quality criteria in presenting alternative delivery systems regardless of product lines. Quality measurements, though far from perfect, and at times controversial, have seen increasing improvements over the past few years. The trend towards cost effective, high quality provider networks – also known as high performance networks – will be refined over the coming years and become an important element for delivering affordable health care.

Health plan narrow networks have come under significant scrutiny as of late in many State Exchanges because of networks being too small to meet the needs of the enrollees. Consumer groups have also been part of the backlash. This has led to calls for Federal and State legislation to ensure provider networks are large enough and have sufficient capacity. Thus, it is essential that narrow networks be adequate to meet the expected enrollee demand, irrespective of product line.

What will not work, however, is the development of narrow networks based upon negotiated price alone–and this is still happening so very frequently. On a personal note, I’m amazed that this continues to be the number one reason for creating or leasing a narrow network. Contract pricing, without regard to transparent patient safety, patient access to data, or process/program/outcomes measures, is exactly what failed in the 90s. What Einstein really said was, “We cannot find the solution with the same thinking that caused the problem.” I will put my efforts into promoting the results of the true pioneers in narrow networks circa 2014, and those that wish to contribute to the information through the Center of Health Engagement will find a welcome home to measure and disseminate the output.