Narrow Networks - Yes or No?
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The other day I got into a loud discussion (also known as an “argument”) with a friend of mine who’s the CEO of a community hospital. He’s a good guy - and I hope he feels the same way about me. We were arguing about Willie Sutton. You know, the guy who said he robbed banks because that’s where the money was. I was saying that the big money savings in health care - if we ever have any - will come from three places…
1) Reductions in practice pattern variation (Misuse, Underuse & Overuse of services & technology),
2) Reductions in the differences different providers get paid to do the same thing with the same outcome - or uniform pricing - at least for the blocking and tackling stuff,
3) More attention - make that any attention - on comparative effectiveness. Proton Beam Therapy and IMRT offer slight improvements over 3-D CRT in prostate cancer care, but they cost 2-5 times as much.
My friend was arguing that there is big money to be saved in administrative simplification - that is, simplifying the processes that are used by providers and plans to manage the “business side” of the business. He said too many people spend too much time working on this stuff, and doing a lot of things that don’t add value. While I didn’t dispute his second point, I know that the vast majority of health care premiums get spent on health care delivery - not on provider or plan administration - so I was having trouble seeing how making this better - while certainly worth pursuing - was really going to save anybody any serious money.
On and on we went - and then he said, “You know, if you really want to reduce the cost of health insurance, build and sell a narrow network product.” He went on to say that if Harvard Pilgrim - or someone else - built a health insurance product that only included the less expensive, but high performing provider organizations, it would be much, much cheaper, and people - especially in this economy - would buy it.
As I’ve mulled over his comments on this, I’ve had three thoughts. First, I’m still working on the assumption that most businesses - and most businesses’ employees and their families - still want to be able to go to any physician or hospital in their area - that total choice is still more important than anything else. Second, people would rather have higher out of pocket expenses and still be able to access all providers than have lower co-pays and deductibles, but fewer provider choices. And third, that this sort of plan design would actually work against the administrative simplification agenda we were discussing earlier, because we and the provider community - not to mention the employer, the member and the member’s family, would have to execute on a product that limits provider choice.
Am I right or am I wrong about the narrow network piece? If you answer that one, you can also feel free to tee off on the other questions we were debating as well. Thanks.
Charlie: I strongly agree with your conclusion regarding the greatest cost savings can occur with reductions in practice utilization–frequency of service, intensity of services per visit, and patterns of care per diagnosis. However, I also would support the position of your hospital administrator friend by offering only the highest performing providers in a narrow network based on measured outcomes, cost efficiency, and reasonable access, can indeed drive cost savings. However, it has been my experience that employers of all sizes have been unwilling to take this path and bear the complaints of their employees. The members want it all. In the long-term, healthcare benefits offered through a narrow network are a much better option than no benefits at all. There are many paths to cost control. No silver bullets out there, but we need to keep trying.
Charlie,
I think the question underlying your question is whether, in the current situation, have the luxury of having open access. Without a change in the value (cost/quality) differential for the same services or restricted access, nothing will change. The US faces the possibility of a reduction in its credit rating in 2012, largely because of healthcare costs. The status quo is simply not sustainable any longer.
David - Your observation about employers and employees is consistent with my own. That is, most employers would rather make plan and contribution adjustments instead of limiting employee choice, and employees value free choice over almost everything else. So - any employers and/or employees out there wanna join the discussion? You’re the buyers. What do you think?
Hal - I used to think there was a seminal event/tipping point/moment of truth coming in health care, driven mostly by the growth in cost. But I’ve been waiting for it for almost twenty years, and it never seems to arrive. In the meantime, state and federal government has expanded its reach - without really taking on the cost issue in a serious manner. And so far in 2009, we’ve already expanded SCHIP and plan to significantly expand federal support for other citrizens as part of the stimulus - without taking on the cost or quality question. Kinda odd, no?
I don’t know the answer to your friend’s question. Neither does anyone else.
There’s only one way to find out: ask the market. Allow Massachusetts residents to vote with their premium dollars. Wide access for higher premiums / narrow access for lower.
My guess (assuming this is implemented correctly and marketed well - admittedly, a big assumption): some people will tradeoff price for choice. No one knows how many. I probably would, depending of course, on the details.
Our historical experience with narrow networks is, I think, invalid, as healthcare costs have more than doubled in the past 15 +/- years. I think David and Hal nailed it by equating open access with luxury. Some people choose luxury, others don’t.
But I worry that imposing the open access / luxury value on everyone simply adds costs without benefits to consumers. Let them decide for themselves.
As an employee, if I was enrolled in a CDHP/ HDHP and if narrower access meant higher coverage or lower deductibles, and lower charges with access to reasonably reputed (not necessarily the highest rated) hospitals/ physicians, I would be willing to look at it.
But if my copay is $15 to $25, and my deductibles are comparable between the two networks, I really do not have any incentive of going for a narrower network, with the possibility of suffering a change of my doctors.
A lot also depends on how the plans brand their narrower network - if the narrower network is communicated as just a cheaper alternative, to save costs, there is a risk of it being associated with lower quality, which I believe is not what the idea of narrower network implies.
Coming to the other points, my thoughts are as below:
1) Reductions in practice pattern variation (Misuse, Underuse & Overuse of services & technology),
This stems from over cautiousness of the doctors to really do as much investigation as possible, a serious hinderance in actually verifying previous tests to prevent duplication and a lack of patient awareness (because it rarely costs the patient anything significantly additional out-of-pocket).
2) Reductions in the differences different providers get paid to do the same thing with the same outcome - or uniform pricing - at least for the blocking and tackling stuff,
I differ with you here - this is where market & pricing power comes in, through either size and scale or through branding and customer perception of quality. Similar or same services, being delivered at different price points (think about your gas prices). Eventually the market catches up, but it is not through legislation.
3) More attention - make that any attention - on comparative effectiveness.
This again is a case of patient insensitivity to the cost/ benefits, because for them, one therapy does not cost signficantly higher than the other from a patient’s perspective. So they would naturally go for even a marginally higher effectiveness, irrespective of the vast differential in cost.
Charlie, I don’t think you got the point about the cost-savings potential of administrative simplification. Some administrative costs are obviously necessary for the healthcare system to function. The problem comes when administrative requirements become redundant, inconsistent and excessive. They burden providers and patients with paperwork and unnecessary costs, and offer no measurable benefit to the healthcare system as a whole.
In Massachusetts, the health plans spend approximately 11% of the premium dollar on administrative costs. This number is deceptive because it doesn’t take into account the significant downstream costs borne by hospitals, doctors and other clinicians, and patients. We’re not talking exclusively about health plans’ administrative costs; Massachusetts healthcare providers have to shoulder some $2 billion annually in order to comply with the myriad benefit, coding and administrative differences built into the insurance system and multiple governmental regulation, reporting and licensure requirements.
Massachusetts Hospital Association just published the first in a series of reports on controlling healthcare costs, and the new report focuses on administrative simplification. Your friend at the community hospital is right: there is “big money to be saved in administrative simplification.” The cost of billing and insurance-related activities in Massachusetts exceeds $5 billion a year. Even a 20 percent reduction in these administrative costs – $1 billion – would equal the amount necessary to fully fund the current annual cost of the Commonwealth Care program (the state’s subsidized insurance program for low-income eligible residents).
The MHA report calls for healthcare stakeholders to collectively implement four action items:
* Standardized transactions between providers and payers
* Standardized reporting requirements
* Improved claims processing and denial management procedures by payers
* Simplified and streamlined insurance cost and benefit information for patients and providers
By the way, the Mass Medical Society sees the issue exactly the same way and the last thing we need to do is unnecessarily burden physicians, especially primary care and others who are in scarce demand and struggling to find ways to spend more time with their patients. All healthcare stakeholders recognize the value of reducing clinical variation to save lives and save money. Why should healthcare administrative variation be any diffferent?
I am coming to the Mass Association of Health Plans Board meeting next week to talk about this very issue. I hope to see you there. I think there is a lot to be gained if providers and payors tackle this together. Here is the link to our report (www.mhalink.org/member/MHA_singles.color.pdf ) perhaps your readers are interested in seeing it.
Charlie - As is often the case, I think a compromise is the best solution. Instead of limiting the network, have lower cost sharing for providers that have proved more cost effective in the long run. Patients can still choose to use providers who haven’t been as cost effective, but they will pay a higher co-payment, coinsurance or deductible amount. This is similar to how prescription drugs are now priced. People have a choice between brands and generics and pay a certain tier based on how much the prescription costs.
Of course when placing providers in a “tier,” it is important to take into account the health of their patient base. Providers should not be punished for being able to provide first class service to sick patients.
I can say from speaking with health care consumers on an almost daily basis at health fairs and on the phone that NOBODY wants a limited network. The first thing they want is their own doctor. The second thing they want is access to ALL other doctors “just in case”. And yes they are willing to pay higher copays and premiums for that access.
I can also say that the year I lived and worked in health care in Florida and worked for an HMO with a VERY limited network, this had to be the number one complaint I heard. I even had a conversation with a woman on the phone who was originally from Boston, who’s husband died of heart disease who said to me “I know he’d be alive today if I just could have taken him back to Boston” That may be hard to say, but she believed it and would have paid more for a plan that allowed her to do that.
I honestly think that the majority of every day people using health care just don’t understand the cost/quality issues. They are far too detached from what is paid to their doctors to know whether they are making a purchase that has value, or if they could have the same outcome with less dollars spent somewhere else. I even had a woman on the GIC Independence Plan argue with me that her doctor couldn’t possibly be on the third tier, because “He’s the best doctor around - He orders EVERY test under the sun”.
I do think that if they were properly educated, and had the information available to them, people would make changes based on cost and quality, but I also believe that they want, and will continue to want, to be able to make their own choice about who they want to be treated by and to have a wide network available to choose from.
I think most people, women like me especially, like to shop for high quality at lower prices, but we want access to ALL the stores to shop from. Unfortunately we don’t have the tools available to make those decisions in health care right now, nor do we have much of an incentive to do so either.
Charlie I think you are right. thoughtful employers and their employees value and will demand choice as number one – how cant they with access to and transparency of so much up to the minute information? For sure, uniform pricing just makes sense and will take care of most administrative cost variances – why reinvent the wheel. In regards to comparative effectiveness, shouldn’t this tie to practice pattern variation? If it costs more, why not allow recipients to ‘upgrade’ their care (and pay out of pocket) based on what they choose? Insist on a menu with charges which are explained to the healthcare consumer at point of care (and effectiveness of treatment options) sort of like caloric value - maybe provide ‘allowances’ and let the consumers help to determine what works and at what cost – within a network or vetted providers.
Hey Guys (and Gals) - These are GREAT COMMENTS!!! Really. Love it. Gary - while I share your view that people should choose for themselves, we need to remember that most people get their coverage through their employer, making it difficult to put the trade-offs you’re discussing directly in front of the person choosing coverage. In the individual market, there might be a chance to put your option to the test.
Aditya - So your view would be that people would accept a narrower network as long as the price difference was significant (more than 5%? more than 10%?), and the network could be “sold” as something other than a discounted network - because too many people connect high cost with high quality in health care. I agree with you that they do - although there’s nothing in literature to suggest that one correlates with the other. As far as your answers on 1, 2 and 3 are concerned, I’d offer the following…
1) I think you underestimate how much of variation is simply practice style. Google Eliot Fisher or Jack Wennberg and check out some of the stuff they’ve written on MOU.
2) I’m not looking for government set prices, but I am looking for public disclosure on all prices. That - all by itself - would create a market price for many simple, uncomplicated services.
3) This is less about the patient than it is about Medicare. Medicare’s reimbursement methodology is input driven - how much does it cost to do something - not output driven - how does it work for the money it requires. Medicare is the benchmark for almost everyone else, and it’s a flawed benchmark.
Lynn - I look forward to reading MHA’s study - but have to say, as I’ve said before, that major success on administrative costs - let’s say we reduce them by 50%, or $2.5 billion, using your numbers - is small potatoes in the grand scheme of things. We spend North of $50 billion on health care in Massachusetts. $2.5 billion in savings doesn’t even cover half of one year’s medical expense inflation. Not saying it’s not worth doing, but it’s a pipe dream to think it’s “enough.”
Allen - Tiering care delivery networks the same way we tier pharmaceuticals is certainly possible - but requires creating a context like the one we have for drugs. With pharmaceuticals, we have transparent pricing, a federal agency (the FDA) that determines “clinical equivalence” between brands and generics, and a “generic prescribing” requirement in many states. We have a long way to go to make the rest of health care as publicly open and accountable as pharmaceuticals are - and until that happens, it’s hard for me to see tiering for hospitals and physicians succeeding the way it has for drugs.
AnnMarie - Great line about wanting to shop in ALL the stores, and your comment about how “he does ALL the tests” is a familiar one - at least to me.
Michael - nice post - and I share your view that transparency is a pre-requisite to significant adoption of either tiered or narrow network products.
Narrow networks - yes.
When you spoke to our Managing Healthcare Costs class, you mentioned the price difference for the basic blocking and tackling stuff you wrote about above. I think a major reason we don’t have uniform pricing for such services is that large providers have too much market power. Such providers know they can charge double the rates for basic services because 1) They have the reputation and they know that is basically all patient’s have to go by given the lack of user friendly outcome data 2) Insured patients don’t care about the total cost but rather the price they see and 3) Patients often don’t know the price before they consume services. Short of better distribution of final cost to patients (before they choose to consume services), such narrow networks would allow patients to choose lower cost alternatives for basic services in advance. One solution might be to carve out such narrow networks within the more standard plans. The default in such a plan might be a community hospital for a basic procedure like a lap-choly but with the option of still going to MGH or the Brigham if the patient is willing to pay a higher percentage of the total cost of the procedure. MGH and the Brigham would then be forced to bring rates down to compete and thus move us closer to the goal of uniform pricing.
Charlie,
Looks like you’ve hit on a hot topic.
Limited or tiered networks can be an effective way of reducing costs without sacrificing access to care. But only if the enrollee recognizes and receives the full benefit of the trade off will it be a successful strategy for employers. Unfortunately, most employers that offer a select or tiered network product (e.g., the GIC) only pass along a portion of the savings to the members. That is, the GIC pays 80-85 percent of the premium for all plan offerings, regardless of price.
So, if they offer a broad network plan alongside a limited network plan, and the total premium difference between the two is $100, the GIC picks up $80-$85 of the premium savings. And the member saves only $15 or $20. Too insignificant a difference for most employees to opt for a select network plan.
If the contribution strategy was structured to require the employee to pay the full difference in cost, or conversely to allow the employees to pocket the savings, lots more members would migrate to the lower cost plans.
In the individual marketplace (e.g., the Connector), evidence to date shows that people that pay 100% of the premium are more likely to enroll in: (1) lower cost products (Bronze instead of Silver or Bronze), and;
(2) limited network plans (i.e., NHP and Fallon have larger market shares in the individual market than they do in the employer/group market).
Shielding the member from the true difference in cost distorts the market and perpetuates the mistaken belief that consumers aren’t willing to accept a limited network in exchange for real savings.
Charlie –
This is edited version of earlier post. I got a call and when I came back, the protection code had “aged out.”
Bottom line of my earlier, much more loquacious comment was simple —
First, I agree with you, not your hospital buddy that the treatment savings will SWAMP the admin savings.
Second, why make it hard? Everyone’s suggesting that you offer this or offer that.
Fact is, except for the very smallest accounts, HPHC allows dual option plans. Have the best of both worlds:
1 - offer a traditional wide-network at, say, $1.00
2 - Offer a narrow network at, say, $0.73 or whatever.
Going in every employee KNOWS what he or she is giving up. And they make the choice intelligently.
Lots of folks will select narrow for the savings — the only reason they “want it all” today is that’s been the option they’ve had for the last 30 years — one full generation.
Go for it!
It seems that cost containment here in MA is moving towards narrower networks, but in a somewhat covert way, while other states are doing it in a more overt fashion by reforming their delivery system at the micro level.
Specifically, here in MA, some of the Connector plans have lower premiums because they use restricted networks, and the GIC’s physician tiering system is one step on the road towards narrower networks - i.e. the next step would be a plan that only has tier 1 & 2 physicians. (Yes, I know - lawsuits galore too.)
In other states, (and in a Medicare Demonstration), Medical Home initiatives are a movement that could be viewed as a way to build a narrower provider networks from the ground up by having patients connected to a specific PCP (individual or small group) which would then be responsible for effectively creating an individualized network for each of their Medical Home patients.
In all these cases, the result will hopefully be the same - more efficient and quality care for the patient and lower costs - or at least a lower growth rate in costs. Which brings me back to your original argument. Yes, Charlie, it is hard to see the validity in the argument that cutting a certain percentage of costs (say 10%) would produce more savings when done to administrative spending (10% of 10-20% is only 1-2%), versus cutting 10% of actual clinical care - which could yield savings of ~8% of total healthcare costs (10% of 80%). This is why focusing on individual physician behaviors as a mechanism for controlling costs has long been seen as the best way to control the growth in healthcare spending. (I recently wrote about this at http://www.healthpolcom.com/blog/2009/01/15/health-spending-health-reform-and-physicians/) Unfortunately, there have been very few successful initiatives that have focused on physician behaviors and care coordination - but Medical Homes with blended care coordinate PMPM payments and incentives (e.g. bonus payments) tied to actual clinical outcomes are very promising. Only time will tell if the state initiatives and the Medicare Demonstration projects will yield positive results…. Iin the meantime, I’m curious as to why Massachusetts isn’t investigating Medical Homes? There seems to be too much focus here on implementing technologies and other macro solutions, while not looking at the micro level structural problems - As one person said, it’s sort of like putting new chairs, radar and entertainment on the Titanic….. after it’s hit the iceberg.
Bob Carey and Allen Fensington’s commentaries highlight that for narrow network products to work, everyone in the purchasing chain needs to benefit.
Bob nicely illustrates why members don’t embrace these products - they don’t see the savings. Employers would love the savings, but can’t stomach the pushback from employees. As a result, plans don’t see demand…
I think there would be huge demand for a narrow or tiered network product if employers could be more assured of buy-in from employees…
I’m also interested to know if the market is “too far gone” from a provider consolidation point of view to create narrow networks. Is it even possible to create a non-Partners product in Eastern MA?
Or are there provisions in (certain) provider contracts that limit the plan’s ability to significantly vary cost-sharing between provider A and provider B?
The mere idea of Medical Homes scares me. The incentives are all wrong.
I myself like the idea of nurse-care for ordinary problems, like coughs, cat-bites and check-ups. And with the money saved by NOT consulting a doctor, I could more easily afford a higher co-pay to see a specialist where I need one, for my one chronic medical problem.
As a health care consumer, I do think the idea of picking your own doctors is a privilege, which I\\\’m willing to pay a premium for. At least for now!
This is an interesting topic. I completely agree with your points on practice variation and comparative effectiveness. One of my first healthcare projects 15 years ago in business school was an activity-based costing project comparing different radiation therapies, their costs, and the outcomes.
Relative to limited networks, I worked on this a lot at Express Scripts. For pharmacy, this is a normal solution around mail and something whose time has come for retail. Members will never like it, but it is better than losing the benefit. I put some additional thoughts at http://georgevanantwerp.com/2009/02/25/limited-networks/.
As a consumer, I want the best healthcare possible at a price that I can afford. That price is primarily my cost of insurance. If you can prove to me that you are including the best in class or even “high performing” providers in your narrow network and you are willing to sell access to that network at a lower price, then I would be foolish to go anywhere else. The only reason I want access to every provider today is because of imperfect information…I have very little ability to distinguish a good provider from a bad one so I want to have access to all “just in case”. So, if you are confident that you can pull together a network like this then (which I see as no small task) then the challenge is education. Proving through marketing and otherwise, that high quality healthcare is not synonymous with high cost healthcare.
One addition: The challenge of education/marketing of a plan like this is one of the toughest because it revolves around trust. If an individual has a doctor they like (no mention of the quality of the doctor), they are more likely to trust them. You will essentially be asking people to trust the insurer to sort out good provider from bad…and why would I trust you, potentially over and above “my doctor”. Breaking into that relationship of trust is possible in my opinion, but difficult. In the case of employer sponsored plans, it’s probably an easier feat.
Sir, I believe that if the networks are nrrowed that would be just like saying only the wealthy population can live because costs of the plans would only be in an affordable price range for those making Six figures a year. unless it could be set up so the plan is based off a percentage of monthly income for coverage. in Example Low income housing, is 30% of gross monthly income.
Dustin has a good point about the trust issue. Personally, my concern would be whether a limited network would provide the best care. If the network promised value - quick appointments, short wait times, good doctors, I’d consider it.
I think you make an important point about focusing on the effectiveness of treatments relative to the cost -but of course that doesn’t matter to consumers if they’re not paying for it.
Guys (and Gals) - Your comments, as always, are very much appreciated. And I can tell from reading these that the big question remains A BIG QUESTION. Yes if, no but, perhaps but only if, no because, yes because - and on and on.
I think Dustin nailed it - “The only reason I want access to every provider today is because of imperfect information. I have very little ability to distinguish a good provider from a bad one so I want to have access to all ‘just in case.’”
In this world in which we live - today - there is probably not enough publicly available information to give comfort to employers or consumers about the relative capacity of a narrow network vis.a.vis. an all-in. And while any carrier could easily build a narrow network that works clinically (good access to top drawer providers) and financially (a 10% discount off of typical premiums), that might not be enough information or a big enough discount to move people. At least not yet.
Again - thanks for your thoughts and ideas. This was one of the more interesting posts I’ve ever put up. And I apologize for my relative lack of involvement. New years are tough for me. I didn’t post much at the beginning of 2008 either. I’ll do better going forward - especially if you all keep pounding away with your own thoughts and ideas.
I believe to achieve administrative simplification and ultimately cost savings in healthcare we need to give patients tools to make informed healthcare decisions. Healthagen,LLC has an iPhone application called iTriage that empowers healthcare consumers. iTriage was developed by two practicing ED physicians who wrestle with the daily reality of high medical costs and administrative red tape. iTriage uses a symptom based methodology to allow the non-clinical consumer to determine a possible cause for symptoms and how to access the appropriate level of medical care. iTriage enables users to find emergency departments, urgent care clinics, retail clinics and pharmacies with a location based service. Check out the website at: http://www.healthagen.com.
It is intuitive that there would be so many comments on this post as this is such a fascinating topic. I have been taught that one of the only things that was trule effective in curbing healthcare costs was the advent of selective contracting.
I agree with your point Charlie. What it all boils down to is that people are more sensitive to choice than they are to price. If people were more sensitive to price, then the strategy that Tufts Health Plan tried (and the Boston Globe documented) when it took Partners out of its network would have worked like a charm. But the decision bombed, the executives caved, and the people spoke, “Don’t narrow my network!
Hey, it’s their money, if they want to pay 30% more for the same outcome just because of provider brand image, then that’s their choice.