Reprinted from AIS's HEALTH REFORM WEEK, the nation’s leading publication on the business implications of the massive changes for the health industry mandated by reform.
A backlash is heating up against the practice of insurers using narrow networks for products sold on insurance exchanges. Network design is one of the few cost-saving tools available to carriers operating in the exchange where there are strict requirements on most other plan-design features. But experts contacted by HRW assert that consumers, lawmakers and regulators who are unhappy with the restricted choice of providers could force carriers to broaden their networks as early as next year. On the other side of the equation, some physician groups themselves are declining to join the exchange networks because of financial concerns, including what they say are low reimbursement rates.
For now, narrow networks appear to be the key factor in driving down premiums on the exchange.
WellPoint, Inc.’s Anthem Blue Cross and Blue Shield unit, for example, says its narrow network on the New Hampshire exchange resulted in premium rates that are 25% lower than those of its broad-network plans. Without this network design, consumers on the exchange “would see much higher prices,” says Anthem spokesperson Chris Dugan. He also notes that Anthem, which is the only carrier on the New Hampshire exchange, took into account a great deal of established research when creating its network.
“The national data consistently holds that when given the opportunity to choose lower costs or a doctor, many consumers want the choice of a lower cost,” he tells HRW. Anthem’s narrow network includes:
74% of the state’s primary care physicians;
78% of specialists and allied and other professional providers;
83% of ambulatory surgery providers;
98% of its current ancillary network (e.g., lab, ambulance and home care); and
16 of the state’s 26 acute care hospitals.
“We feel we have a very strong network,” Dugan asserts. “I would not characterize it as bare bones. It contains more than three-quarters of the state’s primary care providers [and] a high degree of specialists.”
Anthem’s exchange network met the “network adequacy requirements of New Hampshire,” says Tyler Brannen, health policy analyst with the New Hampshire Insurance Department. Those requirements set a floor for the provider networks of products sold on a statewide basis.
But, he adds, consumers so far don’t appear to be pleased with the choice.
“Most consumers in New Hampshire have been enrolled in health insurance products that include all of the hospitals in the state,” Brannen tells HRW. “Many consumers feel that the Anthem narrow network is too limited for their preferences, and are uncomfortable obtaining care from a new hospital or making other changes to the way they access health care services.”
Brannen adds that some of the hospitals excluded from the network have publicly expressed their disappointment and are seeking additional regulatory action through legislation or other means.
Indeed, two bills due to go before the New Hampshire state legislature in 2014 would require insurers on the exchange to expand the number of providers included in the networks. The legislation had not been posted online as of HRW press time. One of the bills would require insurers to include one hospital in each county, and the other would require all hospitals to be allowed to participate, according to an Oct. 28 article in the Concord Monitor.
Other states are considering or moving forward with legislative and regulatory fixes to increase access to providers in exchange plans.
In Washington state, Insurance Commissioner Mike Kreidler (D) in September started an official inquiry to clarify the state’s minimum requirements for adequate networks. This summer, Kreidler blocked several insurers from selling on the exchange because their networks were deemed “inadequate.” But that didn’t satisfy some hospitals who were rejected from other exchange plans. Seattle Children’s Hospital in October sued the state, citing failure to “ensure adequate network coverage” in several of the state’s exchange plans.
In Maine, Insurance Superintendent Eric Cioppa in October rejected Anthem’s request to switch members into a plan that excluded six of the state’s 20 hospitals in southern Maine. The decision also said Anthem’s proposal “significantly reduces the number of participating providers.”
In New Hampshire, Brannen says the state can’t unilaterally require Anthem to increase its network. “Because Anthem met the regulatory requirements, we don’t have that flexibility,” he says.
Brannen also declined to comment on the pending legislation in his state, noting that he hadn’t yet seen the bills. But he did note that any changes to increase access to hospitals would likely raise the prices paid for the services.
“The legislature will need to determine if the likely price increase is worth the improvement in access to local hospital services,” Brannen says. “The current network adequacy requirements include language that provides some protection to carriers if they have offered a market competitive rate.”
On the other side of the country, the network picture in California is still coming into view, says William Barcellona, senior vice president of government affairs at the California Association of Physician Groups.
Roughly half of the plans on the exchange, including Kaiser Permanente, Sharp Health Plan, Western Health Advantage and LA Care, are using their full existing provider networks, he says. Others, including Anthem Blue Cross, Blue Shield of California and Health Net, have yet to release complete data, he says. Barcellona adds that these three plans all have vast provider networks for other lines of business.
“I would imagine that they can augment their exchange networks very quickly, and that they are probably doing that right now, from the rumors that I’m hearing,” Barcellona tells HRW.
But the narrowness of a network doesn’t tell the entire story. Barcellona says high-performing networks of doctors and hospitals are working very well. By contrast, “narrow networks based on cheap provider networks that have inadequate infrastructure to medically manage patients don’t deliver and don’t last in this market,” he says.
Others argue that a well-designed narrow network can be good approach to lowering health care costs.
Craig Garthwaite, Ph.D., assistant professor of management and strategy at Northwestern University’s Kellogg Graduate School of Management, notes that many people who will purchase coverage on the new exchanges previously did not have insurance.
“It’s not as if the other choice these individuals would have is some gold-plated plan,” he tells HRW of the aim to provide coverage in a cost-effective way. “Given that they don’t have a full network of doctors to begin with, maybe it’s not a bad idea that where we would choose to have compromise is on the choice of physicians.” By limiting that choice a little, “we reduce prices and reduce overall health care spending,” Garthwaite adds.
Still, he cautions, a network must ensure there is enough capacity to handle the demand. “You don’t want a narrow network that is controlling costs by making it too hard to see the doctor,” Garthwaite says. “What you want the narrow network to do is influence the price margin, not the quantity margin.”
Concerns about price margins and other financial risks has prompted some physician groups to reject the exchange networks, says Joseph Geraci, a health care attorney and partner at the law firm Husch Blackwell LLP in Austin, Texas. The concept that a narrow network will drive more patient volume doesn’t necessarily mean a provider will reap the financial benefits, he tells HRW.
“The economies of scale are a funny thing in health care,” says Geraci, who represents provider clients. “It’s not like you set up an assembly line and all of a sudden you can drive down the costs. It’s more nuanced than that, as far as quality goes and everything else.”
This is especially true of solo and small practices, he adds. “You’ve got only so many hours in a day,” Geraci notes. “And you’re filling that up with either higher rates or lower rates. The ones that could presumably make it work when you have smaller and smaller margins are the bigger groups.”
Ultimately, market forces will determine the shape of the networks, others say. “We will see a broadening of the current networks in the exchange very early in 2014 for those [plans] that aren’t already using most of their existing networks,” Barcellona predicts. “Consumers will demand it.”
© 2013 by Atlantic Information Services, Inc. All Rights Reserved.
A recent AIS webinar on narrow networks is available at the AIS Marketplace. Click here to listen On-Demand or get a CD of Designing and Managing Narrow Networks: Winning Strategies for Insurers.