For many years, this has been an internal health plan issue. How big should the network be? Care managers preferred concentrated membership by provider to maximize their ability to impact provider’s behavior. Marketing and sales staff preferred broad networks to maximize the attractiveness of the program to as many potential members as possible. Both sides have their point, but in recent years the scale has tilted to the care manager’s perspective which frankly has become the plan’s perspective.
In technical terms this is called provider disruption. How willing will individuals be to sign up for a new plan given the nature of the network and whether or not they will have to change providers to be a part of the new plan? If the network is narrower than normal, there is a greater likelihood that someone’s provider will not be on the list. The broad network includes most everyone and there is only a remote chance the provider is not on the list. Health plans, insurance brokers and many employers review complex provider disruption analysis to determine how much impact a new program will have on their current population. Up until recently, the prevailing thought was bigger is better, at least we can avoid the complaints from our employees and their dependents. Internally it was generally accepted by health plans that a smaller network was easier to control and would likely to reduced health care costs. Today the importance of health cost reduction has led to more plans offering restricted networks which usually claim lower cost of operations.
The primary logic for the smaller network having the lower cost is based upon the study of provider behavior and the impact of marketshare on that behavior. For most providers, Medicare is the dominant payer. Providers tend to follow the rules of their dominant payer until another payer gets their attention. Then they tend to gravitate to the rules of the top few since it is almost impossible to act differently for each. Providers are focused on meeting the health care needs of their patients and not the unique care management procedures at each plan. Perhaps only in the requirement of pre-authorization does a provider carefully pay attention to individual health plan requirements. This assures the provider’s eventual payment and this is an important aspect of running their business. From the health plan’s perspective, each plan attempts to manage the care in the best way they know. Sometimes health plans develop special initiatives and care management techniques unique to their own operation. Without meeting a minimal critical mass health plan’s face challenges if dissimilar to what other plans are doing. The quickest way to impact provider performance is to concentrate the membership among as few providers as possible (i.e., the narrow network).
Over the past five years health plans have offered narrow networks on an increasing basis. Some have utilized tier networks to do this, others have offered products based upon narrower networks. As significant cost reductions have emerged there are now price reasons to choose the narrower network offering. Some carriers have demonstrated significant savings through the use of their narrow network program. To the extent that price is a key factor in selecting health care benefit options, more and more employers are moving towards these more cost effective programs.
From the provider’s perspective, they too are feeling the pinch of being excluded from the narrower network. Health plans use multiple criteria to exclude providers from these programs. Sometimes it is based upon charge levels, sometimes cost, sometimes provider performance. Most of the time the excluded provider is characterized as a least desired provider. This is creating competition among providers and has been used to improve the cost effectiveness of formerly excluded providers. Sometimes this leads to deeper discounts, a clear reduction in cost.
What drives the patient’s willingness to change providers? The financial penalties of using an out-of-network provider oftentimes drives change. When a patient is in course of treatment, few patients are willing to change. To the extent that “sick” patients move more slowly, this helps reduce the cost of care of the narrow network program. The lower costing program usually have lower payroll deductions which also motivates individuals to choose the narrow network program.
As the cost of care continues to increase faster than desired, more and more individuals will likely select the narrow network option to keep their costs down while maintaining their health coverage. Health plans win with smaller networks. Providers win with smaller networks. Individuals win with smaller networks. Smaller networks offer a valuable cost effective alternate to most benefit offerings.