Oct. 10—The first legal action by a provider against approval of new insurance marketplace plans reflects widespread hospital concerns with their designs, according to hospital advocates.

Seattle Children's Hospital filed suit Oct. 4 against the state's insurance regulator for approving few marketplace plans that include it as a preferred provider.

The lawsuit may be among the first legal challenges by a provider excluded from the narrow-provider networks that dominate among plans in the new health insurance marketplaces. But the move reflects widespread hospital concern about the negative financial impacts for them and their patients from the growing use of such narrow provider networks, which can leave enrollees who seek care at nonnetwork providers to bear a significantly higher share of the cost of their care.

"It’s certainly something that has raised widespread concerns among hospitals," said Chad Mulvany, director of healthcare finance policy, strategy, and development at HFMA.

A Troubling Trend

Xiaoyi Huang, assistant vice president for policy at America's Essential Hospitals, which represents many academic medical centers, has heard concerns raised by hospitals across the country excluded from narrow network plans for a variety of reasons. These hospitals fear the trend will result in an increase in uncompensated care costs for excluded hospitals because many patients seeking care out of network are unlikely to be able to afford the higher out-of-pocket costs charged by their plans.

The use of such limited-provider networks appears to have exploded under the health insurance marketplaces created by the Affordable Care Act (ACA). For instance, in the 1,923 plans sold in the 34 federally run marketplaces, or exchanges, 806 are health maintenance organizations (HMO) plans "in which patients have to stay within the network of doctors and hospitals that have contracts with the insurer," according to a Kaiser Health News analysis of data released by the Centers for Medicare & Medicaid Services. By comparison, 714 plans were PPOs "where the insurer has discounted rates with some doctors and hospitals and agrees to pay some portion of the cost if the patient goes to a provider that is out of that network."

The ACA marketplaces’ expansive use of narrow-network plans is a broad expansion of their current use. For instance HMO plans comprised less than 5 percent of individual insurance plans sold through ehealthinsurance.com. 

But healthcare industry research concluded potential enrollees prioritized low premiums over wide provider access. For instance, research on 22,000 marketplace simulation participants by healthcare consultant McKinsey and Co. found many consumers on the exchanges will select individual plans with a comparatively low price within each of the four cost-sharing tiers "even if the plans include high deductibles or network restrictions," a McKinsey report released in May stated.

The narrow network design gave insurers a tool to keep prices down in marketplaces where many of their traditional underwriting practices were barred, according to the health policy experts.

For providers in such plans, the generally lower payments offered by the insurer can be offset by the higher patient volume they bring. However, the narrow networks frequently exclude higher-cost providers, such as academic medical centers and children’s hospitals. 

What's at Stake

In the case of Oregon’s new health insurance marketplace, most plans excluded Seattle Children’s from their lists of in-network providers. The limitation, according to the hospital, could have an impact on the ability of parents to obtain or afford specialty care provided by the only pediatric hospital in King County and the only provider of many specialized pediatric services in the area, including acute cancer care, level IV neonatal intensive care, and heart, liver, and intestinal transplantation.

Hospitals officials worried that parents may enroll in health plans through the exchange without realizing that Children’s is not included in the plan’s network.

The lawsuit seeks reconsideration of the insurance regulator’s approval of plans by two insurers—Molina Healthcare and Coordinated Care—that kept the children’s hospital out of their preferred provider networks.

Huang is advising hospitals excluded from narrow network plans to first contact their local insurance regulator to ensure the plan meets federal network adequacy requirements. Federal rules require marketplace plans to include a certain share of safety net providers, but states can expand on those requirements. Her organization plans to press federal officials to raise those minimum safety-net inclusion standards in updated guidance expected in the spring. 

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare.


Publication Date: Thursday, October 10, 2013