“Narrow network.” It’s a term that’s getting a lot of attention now – and a concept that every manager in the health and human service field should be familiar with.
First, what is it? Essentially, a narrow network is a service delivery system with fewer provider organizations – generally including provider organizations who agree to lower prices with the expectation that patient volume will grow. Insurers pass some of the savings due to lower prices on to consumers. In a recent study, Hospital Networks: Configurations On The Exchanges And Their Impact On Premiums, analysts from the McKinsey Center for U.S. Health System Reform defined a “narrow network” as a health insurance product that has at least 30% of the 20 largest hospitals in a geographic area not participating in the plan.
The reasons for narrow networks are obvious. Consumers are willing to give up choice for lower premiums. According to a PricewaterhouseCoopers survey, Open For Business: Insurers Prepare For New Consumer Market, executives of health insurance exchange plans believe consumers care most about premiums, with concerns about out-of-pocket costs coming in a distant second. And, most small employers (82%) would choose a smaller provider network if that network produced 20% lower premiums (see Provider Performance Measures In Private And Public Programs: Achieving Meaningful Alignment With Flexibility To Innovate). These themes are echoed in other recent articles:
- Obamacare’s Narrow Networks Are Going To Make People Furious — But They Might Control Costs
- Narrow Networks Found To Yield Substantial Savings
- Less Choice, Lower Premiums
But narrow networks are not without their critics – both consumer advocates and policy makers. Developing scenarios in three states quickly jump to mind:
- California – Covered California managers are using mystery-shoppers to check provider networks for accessibility, and to see which ones are using a narrow-network cost control strategy (see California May Add Provider Network Checkers).
- New Hampshire – The New Hampshire insurance department is investigating current network adequacy standards, including some plans that are excluding some doctors and hospitals (see Regulators Begin Redraft Of ‘Narrow Network’ Insurance Rules).
- Washington State – The Washington state insurance department adopted a new rule in April, 2014 that requires insurers to incorporate adequacy standards in provider networks, including having enough doctors and facilities in the network to avoid delays in care. (See Insurers Must Expand Provider Networks In Washington).
Narrow networks have strategic implications for provider organizations. Out-of-network provider organizations are likely to see a decrease in market share while those in-network will have to absorb a decrease in commercial payer rates. And, despite the concerns noted above, there are four forces that make “narrow networks” inevitable – even if by default:
- The desire by consumers, payers, and policymakers for lower cost. There are only a few options for decreasing health care spending – volume purchasing, use of more effective treatment programs, lower fees for services, utilization restrictions. Narrow network models offer an opportunity for some of these savings. And this is not just a health plan phenomenon, as many large employer have moved in this direction in recent months, including WalMart and Intel Corporation (see Up The Food Chain – From FFS To Preferred & Exclusive Status).
- The push by Medicare (and health insurers) to use accountable care organizations. ACOs are, by design, a narrow network construct. Even with consumer choice, the structure creates a natural channeling effect.
- The growing prevalence of medical homes and health homes. Payers preferences for “coordinated care management” creates a “funnel” for patient decisionmaking and referrals.
- Use of performance-based contracting. By their very nature, pay-for-performance (P4P) and risk-based contracts reduce the size of provider networks. The more “risk” is shared between the payer and provider organizations, the greater the likelihood of a smaller number of provider organizations.
What strategy should your organization consider to address the growth of market share among “narrow network” health plans in your geographic area? The ability to measure “value” of your services in terms that are meaningful to payers and consumers is a key first step – the narrow network phenomenon is a symptom of the search for value in the health care system. Secondly, developing the infrastructure to manage performance-based contracting is another key. And, finally, enhancing your organization’s role within a payer system by developing vertical market strategies (see Sustainability – During & After The Perfect Storm) is another key. In short, this is another way of saying – stay below the mean on cost , demonstrate superior performance, communicate your value, and be willing to put your money where your mouth is.