One analyst sees narrow networks as an effort to form strategic partnerships with support provided by health plans to providers.

Dec. 5—Health plans featuring narrow provider networks continue to spread in government-run marketplaces for individual insurance. And now employers are increasingly considering them, analysts say.

Health maintenance organizations (HMOs) and exclusive provider organizations (EPOs) have expanded to comprise a combined total of 68 percent of all plans providing 2018 coverage on the insurance marketplaces created by the Affordable Care Act (ACA), according to recent data from McKinsey & Co. The share of such plans was only 39 percent in 2014, the first year of the ACA marketplaces.

HMOs and EPOs usually provide no coverage for out-of-network providers, except in emergency or urgent-care situations.

Preferred provider organizations (PPOs) and point-of-service (POS) plans, which generally provide at least some coverage for care offered by out-of-network providers, declined from a combined total of 58 percent of ACA marketplace plans in 2014 to 32 percent for 2018.

Now, some see emerging evidence that employers are looking to move into narrow networks, which they long have avoided over concerns about employee backlash.

“They are starting to be more comfortable with setting up benefit plans that may not have every provider in the network,” Benjamin Isgur, leader of the Health Research Institute for PwC, said in an interview.

Others also are seeing such evidence.

Matthew Borsch, managing director with BMO Capital Markets, has seen evidence that large employers are increasingly using “slicing,” in which they offer employees in some regions the choice of several insurers with narrow networks.

“There is activity, but it’s still on the margins,” Borsch said, referring to the adoption of narrow networks.

The measurable use of narrow networks by employer-sponsored insurance (ESI) plans remains fairly limited. For instance, only 8 percent of employers in 2017 offered ESI plans with a network that they would consider more restrictive than a standard HMO network—up slightly from 6 percent in 2016, according to Kaiser Family Foundation data. Additionally, only 4 percent of firms reported that they or their insurer had eliminated a hospital or health system from a plan network to save money.  

A 'Narrowing of Networks'

Sheryl Skolnick, PhD, managing director of Mizuho Securities USA, described the trend as more of a “narrowing of networks, as opposed to a truly narrow network.”

She cited the effort by UnitedHealthcare to improve the star-rating performance of its Medicare Advantage (MA) plans in recent years by narrowing its provider networks. The effort aimed to strengthen the insurer’s ability to get clinicians to “follow the proper protocols, close the gaps in care, and make sure that patient satisfaction and outcomes were high,” Skolnick said.

However, subsequent physician lawsuits and regulatory scrutiny of those networks demonstrated that “the pushback on narrowing networks is a real issue in some cases,” Skolnick said.

“On the MA side they had to do it because of the constraints they were facing on reimbursement and star scores,” Skolnick said. “On the employer side they are absolutely limited by what the self-insured employer will agree to.”

The narrow networks that Skolnick has seen are usually driven less by rates and more by “quality and outcomes that define a premier provider.” 

Ana Gupte, PhD, managing director at Leerink Partners, credited the increasing use of narrow networks with the ability of insurers to hold down rate increases in recent years. 

“Narrow networks give them the flexibility to just kick someone out of their network” if the provider has sought large rate increases, Gupte said.

Strategic Partnerships

Gupte views narrow networks as an effort to form strategic partnerships between health plans and providers.

“Whether or not there is an outcomes metric that is being attached to it, at least it helps the provider care much more about processes, disease management, care coordination approaches, quality star ratings, and all of those objectives of the payer because they are seeing far more patients coming through their doors that are attached to that particular payer,” Gupte said.

In contrast, under broad networks, health plans and providers have much more of a “transactional” relationship, Gupte said.

In selecting members of narrow networks, health plans examine a provider’s “risk readiness.”

“How ready is this provider to be part of a strategic relationship that I have—they use different algorithms to [determine] that,” Gupte said.

Some insurers are offering providers in their narrow networks the support to develop such capabilities, she said.

The increasing use of centers of excellence and narrower networks by employers should lead hospital executives to view their competition not only as regional or local but as national, Isgur said.

“I could be losing volume right now today from someone being flown or driving to the next hospital over because they are being incentivized to do that,” Isgur said.

Hospitals can consider ways to attract more patients by having the highest quality or the best outcomes, or by taking on risk for clinical outcomes, he said.

“Maybe telling people, ’You could have heart surgery at my hospital, and if it doesn’t go well then you don’t pay for it or you don’t pay for any kind of readmission,’” Isgur said.  

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

Publication Date: Tuesday, December 05, 2017