Could narrow networks be the next big cost cutter?
Restricted networks can mean lower costs, but also less flexibility for members and likely lower patient satisfaction.
After HMOs and high-deductible plans, employers are eyeing the next bid for value.
In line: Narrow provider networks.
HMOs, tiered networks, high deductible plans and moving care away from hospitals to lower-cost outpatient facilities are among the bids by payers and employers in recent years to drive quality for the best price.
Most employers haven’t pulled the narrow network lever yet despite payers finding success in the Medicare Advantage (MA) and Affordable Care Act (ACA) exchange markets. Employers move more slowly with new insurance models, but seeing effective government programs could prod them to take the leap.
The Centers for Medicare and Medicaid Services under President Barack Obama emphasized experimenting with payment models and other methods that promote quality over quantity with just this goal in mind.
Narrow networks go a step beyond HMOs and tiered networks. They restrict networks only to providers and hospitals that agree to meet specific quality requirements and likely accept lower reimbursements.
The theory is to offer higher value care at a lower cost.
Restricting patients to a smaller group of providers and hospitals also allows payers to negotiate lower prices. This leads to lower premiums and out-of-pocket costs for members and lower costs to payers.
Payers and employers using narrow networks only work with providers offering higher measured quality and better outcomes. For providers and hospitals, this means they can become part of an exclusive club, which can give them a competitive advantage in a region.
Some analysts say these high-performance networks are not about getting bargain rates for high-volume procedures, but providing the highest quality.
“It’s an intriguing model, which looks like it’s gaining steam,” Shakil Haroon, chief executive officer and founder at MPIRICA Health Analytics, which sells quality metrics on quality to patients and employers, told Healthcare Dive.
There are concerns, however. Patients bristle at the prospect of having fewer doctors to choose from, and narrow networks can limit access to care. This is particularly troublesome for patients in rural areas and those who have a rare condition or need specialized care.
Also, providers or hospitals outside of narrow networks may lose business to rivals inside of those networks. Those left out of narrow networks can include large urban hospitals, such as teaching facilities, that are often more expensive.
Haroon said another positive for narrow networks is their ability to fit into the move to value-based care. They can incentivize patients to use providers in an accountable care organization (ACO) or similar grouping that’s dedicated to care coordination, improved quality and controlled costs.
Narrow networks could especially be a boon for lower-cost community hospitals.
Rosemarie Day, former deputy director and chief operating officer of the Massachusetts Health Connector, the precursor to the ACA exchanges, said the state viewed high-quality community hospitals as an important piece of containing health costs and improving quality.
These could be smaller community hospitals that don’t have the brand recognition of a larger health system, said Day, who now runs her own consulting firm.
Popularity and growing research in Medicare Advantage, ACA exchanges
Narrow networks are already the norm in MA and ACA exchange plans. A recent Kaiser Family Foundation (KFF) study found that 35% of MA enrollees were in narrow-network plans in 2015, compared to 22% in broad-network plans. In the ACA exchange market, Avalere recently reported that more restrictive networks make up nearly three-fourths of that market. That’s an increase from 68% in 2017 and 54% in 2015.
Research shows that narrow networks lead to lower member costs. In its study of 2015 MA plans, KFF said broad-network HMO premiums’ averaged $54 per month, while narrow-network plans cost only $4. The same went for PPO plans. Broad network plans cost an average of $100 per month and narrow network were $28 per month, according to KFF.
A recent Health Affairs study found ACA plans with narrow networks that covered less than 10% of physicians in a region charged nearly 7% lower premiums than broader network plans. In another study, researchers reported individual ACA silver plans with narrow provider networks were 16% cheaper for patients. The report found narrowing networks resulted in decreased premiums because of lower prescription drug and outpatient costs. The study found that narrowing either physicians or hospitals would lead to 6% to 9% in savings.
Employers haven’t warmed to narrow networks — yet
Despite payer interest in the MA and ACA markets and research that shows potential savings, narrow networks remain rare in the employer-based market.
KFF said only 8% of companies offering health benefits this year have narrow networks, which is the same percentage as a year ago. Just 6% of companies said they eliminated hospitals or health systems from a network in the past year as a way to reduce cost.
Narrow networks are most common with large businesses, which are also the companies most likely to provide other cost-saving plans, such as HDHPs and tiered networks. Nearly one-third of large employers said their largest plan includes a tiered network or high-performance network, according to KFF.
Employers have increasingly turned to HDHPs as a way to control healthcare costs. However, that has resulted in skyrocketing out-of-pocket costs for members, without improvements of care or outcomes in return.
“High-deductible health plans are blunt instruments. They place a higher burden on patients to be judicious about the providers they seek out for care. But patients, unfortunately, don’t have the data, or the data-literacy, to make the most cost-effective choices. And there is mounting evidence of patients postponing or avoiding necessary care, in the face of high out-of-pocket costs,” Haroon said.
Narrow networks, on the other hand, are often built on data-driven measures of quality and cost. “They’re much more likely to reduce costs, including upfront costs and the costs of avoidable complications and re-admits,” Haroon said.
Why haven’t employers tapped into narrow networks?
The Employee Benefit Research Institute pointed to reasons employers haven’t moved more heavily into narrow networks, including a lack of evidence for sustained long-term savings, worry about upsetting employees, political uncertainty in Washington, among other reasons.
EBRI suggested employers that offer narrow networks could increase usage by “giving workers stronger financial incentives to consider them.” One way is to offer workers a fixed contribution that doesn't vary by type of plan.
Though employers remain cool to the idea of narrow networks at the moment, Matthew Fisher, partner and chair of the Health Law Group at Mirick O’Connell, told Healthcare Dive he expects that to change soon.
He contends that costs aren't sustainable for employers, especially those that are self-insured. They need to figure out ways to stop that growth, he said. “Narrow networks could potentially be one of those things that helps bend the cost curve,” he said.
Day suggested employers shouldn't ignore any plan design that can reduce healthcare costs. “When you see that healthcare costs continue to outpace inflation, nothing should be off the table for employers to consider,” she said.
Patients may balk
Perhaps the biggest area of concern for employers: patients like as much choice as possible, especially in rural areas and for rare and complicated cases.
“Occasionally, adequate coverage can become a problem for patients. Sometimes, as in the case of rural areas, this means patients must travel to get the care they need. In the worst cases, patients with complicated care needs may find it extremely difficult to coordinate care across a series of providers,” said Haroon.
Also, Fisher said people don’t like feeling that someone is dictating to them, so it’s vital that employers and payers explain the narrow networks aren't “low cost, low value.”
To address the access issue, Haroon said payers must be “fair and transparent” when constructing narrow networks. “They need to show patients that price is not their only concern.”
How can providers and hospitals prepare for narrow networks?
With payers and employers eyeing narrow networks, providers and hospitals should view these high-performance networks as a way to control costs and improve quality.
Providers must think about how best to offer better value, such as in accountable care organizations.
“This isn't simply cutting rates. It’s about improving quality and outcomes in smart ways to control costs overall,” Day said. “This can be very strategic and serve multiple purposes.”
Fisher said that to prepare for more narrow networks, providers should run the numbers for your patient population and competitive landscape.
Haroon suggested providers and hospitals transitioning to value-based care are in a good spot to prepare for more narrow networks in the employer market. Providers and hospitals that adopt transparent practices concerning public disclosure of cost and quality of their outcomes are best prepared for narrow networks.
“This can help healthcare organizations capture a bigger share of patients,” Haroon said.
- Washington Post Obamacare’s narrow networks are going to make people furious — but they might control costs
- NPR ACA's Narrow Networks Leave Big Gaps In Health Care Coverage
- Wall Street Journal Insurers Move to Limit Options in Health-Care Exchange Plans
- The New York Times Savings? Yes. But Narrow Health Networks Also Show Troubling Signs.
- NEJM Catalyst Are High-Deductible Plans vs. Narrow Networks Really Our Two Options?