Both insurers and employers are increasingly shifting to narrow or tiered provider network plans in an effort to keep costs down. According to the American Hospital Association, most commercial insurers are currently offering tiered network plans and around 20% of employers are offering them to their employees.
While tiered plans with large cost differences between tiers can be successful at steering patients towards "preferred" low-cost, high-quality hospitals, preserving provider choice and creating savings, hospitals struggle to understand where they fit in the ecosystem of these plans—and how they can maximize their participation.
How tiered networks impact consumer behavior
In a tiered network plan, hospitals and other providers are placed into tiers based on quality measures and costs. In a recent Commonwealth Fund study of Blue Cross and Blue Shield of Massachusetts members that was conducted at Harvard University, researchers explored the effect of tiered networks on consumer hospital choices. The average cost-sharing per hospital admission was $170 for hospitals in the preferred tier, $360 for middle-tier hospitals and $1,070 for non-preferred hospitals. The researchers found that members of tiered-network plans were more likely than those in non-tiered plans to choose preferred or middle-tier hospitals, as opposed to non-preferred hospitals. Additionally, over the three-year study period, 44% of the hospitals switched tiers, mostly due to a decrease in prices.
Although the Harvard researchers concluded that tiered-networks can successfully guide patients toward preferred hospitals, they also believe they have potential drawbacks. For example, patients using the lower-tier providers may assume more risk in the form of higher out-of-pocket expenses.
Reference pricing plays a part
In its July 2014 edition of Trend Watch, the AHA said in addition to offering tiered-network health plans, employers are also frequently using reference pricing, in which the employer will pay the costs of a certain procedure up to a pre-determined amount, after which the employee has to pay the remainder out-of-pocket. "This encourages consumers to select providers that will perform the service for a price below or close to the employer's contribution," the AHA said. Even though in this case, employees still have access to a broad network in theory, the reality is they are more likely to choose from a narrower set of lower-cost providers to minimize their out-of-pocket expenses.
The effects on hospital bottom line
Based on the results of their study, the Harvard researchers predicted that if all BCBSMA members were in tiered plans, scheduled hospital admissions would drop by 7.6% in non-preferred hospitals and rise by 0.9% in middle-tier hospitals and by 6.6% in preferred hospitals.
According to the AHA, the trend toward narrow or tiered networks can cause hospitals to either gain or lose business. "Hospitals may see declining revenues if they are not included in narrow network or tiered products," the AHA said in its Trend Watch article. "On the other hand, hospitals that contract to participate in narrow networks could see gains in volume as insured patients are directed to a smaller number of hospitals for their care."
Strategies for the future
The AHA advises hospitals to proactively promote patient and provider education, become more transparent about pricing and quality, develop a network strategy and revisit marketing and advocacy efforts in order to respond to demands of the new healthcare marketplace. Specific strategies recommended by the AHA include engaging in the patient plan selection process, being prepared to make prices and quality ratings available, reviewing network contracting strategies and revising if necessary, evaluating branding and value to networks and aligning with local policies and the legal environment.