High Performance Networks Entice Health Plan Sponsors

Narrow networks of service providers can improve outcomes and control costs

By Joseph Berardo Jr. August 18, 2014

Health plan sponsors are taking a closer look at “high performance” networks—also known as “narrow networks”—which are exclusive groups of high-value health care providers and health professional organizations recruited to serve a defined patient population.

The popularity of high performance networks among employer-sponsored plans has grown in recent years because they promote higher-quality health care services while delivering better value. Employers anticipate that by choosing the highest-quality providers, they can better meet the health care needs of employees, improve individual outcomes and enhance personal satisfaction with the employee benefits package.

Identifying Plan Member Benefits

Some HR professionals question how fewer doctor and hospital options can benefit patients, and they may face employees who are critical of smaller networks that limit their choice of health care providers. However, research conducted by McKinsey & Co. found that the size of a plan’s network is not correlated to its performance as measured by the U.S. Centers for Medicare and Medicaid Services, in terms of outcomes, patient experience and clinical process.

Moreover, less choice in a health plan typically means lower costs for employers and employees for two reasons:

1. A health plan can decide to sign contracts only with the hospitals that charge lower prices. This is important given that there can be enormous variation in health care prices. For example, an appendectomy can cost anywhere from $1,529 to $186,955. By signing contracts only with providers who are much closer to the $1,529 end of that spectrum—and who demonstrate good outcomes—health plans can lower the price of providing health care without compromising quality.

2. Health plans that work with fewer providers have the ability to negotiate lower prices. They’re essentially promising to buy in bulk from a small set of physicians, and can therefore reduce the cost they pay for each visit. This leads to lower out-of-pocket costs for plan members.

According to a National Business Group on Health poll of 46 large U.S. employers, 17 percent already had a high performance network in place, while an additional 24 percent were considering it for 2015 and another 20 percent for 2017.

A University of Chicago survey found that 57 percent of small employers would opt for a high performance network if it would lower costs by 5 percent or more. About 77 percent said they would choose the high performance network if it lowered costs by at least 10 percent.

Shaping and Shrinking Networks

The trend toward establishing high performance networks stems from the realization that a given health plan has access to vital data—from claims, prescriptions and clinical settings—that can be used to identify and “weed out” physicians who tend to order more tests, prescribe more brand-name drugs or take on more complex patients.

But for new high performance networks to thrive, they must also have these important features:

Defined population. Because health plans must keep patients within a defined network to control the costs, they must involve a limited group of providers. In addition to controlling costs, this strategy enables the high performance networks to manage patient information and outcomes across all of the participating providers.

IT infrastructure. Health plans need robust data analytics and risk management tools to address the needs of the member population. These IT tools must be capable of population health management, allowing high performance networks to improve performance with evidence-based guidelines. To do this, they must be able to share claims and clinical data at the point of care to improve decision-making.

An incentive-based payment model.Approximately 11 percent of payments to physicians and health systems are based on performance or cost reduction—a number that is expected to increase with each improvement initiative.

Employer-provider alignment. Health plans and service providers must work together to strengthen the high performance network. Providers can use coordination and transparency to transform care models, while health plans can leverage their reporting and risk management skills to enable data-driven decisions. This approach fosters an environment in which data sharing enables better monitoring of costs and utilization.

Consumer choice and transparency.High performance networks must be prepared to justify high costs to the consumer with greater benefits and better access to quality care.

An Evolving Model

High performance networks can only work if they are able to remain exclusive to a select number of providers. With some exceptions around medical necessity, there should be limited choice for consumers once plan members enter the network. Proposed regulatory standards and transparency will play a role in protecting consumers.

Some industry analysts predict that high performance networks’ appeal will grow even greater as the model evolves to emphasize providers who deliver coordinated, high-quality care rather than only reduced costs, making them that much more appealing. Ultimately, this strategy will shape a more competitive health care system, while providing less-expensive, quality care for plan members.

Joseph Berardo Jr. is CEO of MagnaCare, an administrator of self-insured health plans for employers in New York and New Jersey.

Study Reveals Narrow Networks’ Cost Savings

A study of narrow networks in Massachusetts state employees’ health plans, by the National Bureau of Economic Research, shows that those who switched to a narrow network option spent considerably less on medical care, with spending falling by almost 40 percent for the marginal complier. This reflects both reductions in quantity of services used and prices paid per service.

But spending on primary care actually rose for switchers; the reduction in spending came entirely from spending on specialists and on hospital care, including emergency rooms. This suggests that limited network plans are saving money by directing care towards primary care and away from downstream spending.

Also, these savings were found only for those whose primary care physicians were included in limited network plans, suggesting that networks that are particularly restrictive on primary care access may fare less well than those that impose only stronger downstream restrictions.

Massachusetts provided a three month “premium holiday” for its limited network plans, among other financial incentives, leading 10 percent of eligible employees to switch to these plans.

-- SHRM Online

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