In response to demands from rate-hike-weary individuals and employers that are increasingly unwilling to shift more costs onto employees, health plans are turning to a new, old strategy: Tighter provider networks.

Blue Cross Blue Shield of Massachusetts on Feb. 10 said 30% of small-group and individual customers who renewed policies in January selected a new product that tiers network hospitals into “high-cost” or “high-value” categories. The health insurer says its Hospital Choice Cost-Share option offers lower premiums (an average of 5% compared with similar HMO products) and smaller copayments when enrollees seek care from any of the 53 hospitals or specialized centers that the insurer has deemed to be high value. But enrollees who seek care at one of the 11 hospitals identified as high cost will face higher copays in six categories (lab; X-ray and imaging; high-tech radiology; inpatient care; outpatient surgery; and physical, occupational and speech therapy). The copay for an outpatient surgery at a high-cost hospital, for example, is $1,250 — versus a $250 copay at a high-value hospital.

Such arrangements aren’t unheard of. In 2004, citing high costs, the California Public Employees’ Retirement System (CalPERS) cut 38 hospitals, including 13 from Sutter Health, from its Blue Shield of California HMO network. At the time, CalPERS said Sutter’s charges were an average of 60% higher than other providers in Northern California. CalPERS provides coverage for 1.2 million public employees, retirees and their families.

WellPoint, Inc.’s Anthem subsidiary in Missouri offers a network option that excludes the high-profile 13-hospital BJC HealthCare system. While not new, the strategy of excluding a higher-cost medical center, such as in St. Louis, could become more common. And the development of state insurance exchanges could drive even narrower provider networks, says John Jesser, WellPoint’s vice president of provider engagement and contracting.

“Since the individual rather than an employer group is doing the shopping, the network may only need to be broad enough to satisfy the individual. As such, an environment may be created that could drive more narrow provider networks.”

The earliest HMOs had narrow provider networks, but the eventual backlash against the limited access prompted health insurers to build much more inclusive networks, notes consultant and former health plan executive Peter Kongstvedt, M.D., principal of the P.R. Kongstvedt Company, LLC. But large employers are beginning to reconsider narrow networks in an effort to hold down coverage costs. “Excluding one or two large and presumably expensive hospital systems or provider groups is a first step,” he tells HPW. “And there has been discussion about creating even narrower networks.”

But health insurers might find it impossible to exclude a highly specialized hospital or one that dominates a market, even if its costs are higher than those of its competitors, says Russell Robbins, M.D., a principal and senior clinical consultant at Mercer Health and Benefits. “I don’t think we will be moving back to capitation models, but I do think we will see further payment reforms…and more price transparency,” he tells HPW.

Alexander Domaszewicz, a principal in Mercer’s Newport Beach, Calif., office, agrees that high-profile providers typically won’t be excluded from networks unless they are cost outliers and their quality, at least for certain procedures, doesn’t warrant the higher price point. Still, there is increased interest among employers in managing costs through narrower networks. The health reform law “has locked down many other available levers, but this is an avenue still largely open,” he says.

But cutting out some providers could be impossible in some regions, particularly in markets where hospital consolidation has created “a regional hegemony.” In those markets, excluding a particular health system from a network would make it impossible for a health plan to sell its products, Kongstvedt says.

With or Without Mayo?

Since making it available last July, Minnesota-based HealthPartners says about 25,000 members have enrolled in its Perform network, which excludes the high-profile Mayo Clinic.

“We know that Mayo is an important option for some customers, so we offer products with and without Mayo,” says HealthPartners spokesperson Amy VonWalter. In terms of total care costs, Mayo is 30% more expensive than other provider groups that serve a comparable commercial population.

Including Mayo as an in-network provider can mean premiums that are between 5% and 20% lower, depending on the portion of the group that is likely to receive care from a Mayo-related facility, she tells HPW.

But there can be risks for health plans and employers that exclude high-profile providers. “Employees have the perception that Mayo has very high quality, so they don’t trust a network that doesn’t include it,” says Dave Delahanty, an employee benefits consultant in Towers Watson’s Minneapolis office.

And employers typically don’t mind their employees using the Mayo Clinic as long as it’s for the right procedures. “Mayo is great for unusual or complicated medical conditions, but employers don’t want their members to be running there for a normal delivery or a broken bone,” he tells HPW.

Do High Costs = High Value?

Select or high-performance networks carve out the higher-cost providers while maintaining those that demonstrate value.

“It’s a common perception that high quality and high cost go hand in hand, but that isn’t necessarily accurate,” says Jay Savan, an employee benefits consultant in the St. Louis office of Towers Watson. “While some exceptional health systems also tend to be relatively expensive, quality care can also be found at facilities that are relatively less expensive.”