Driven by steady cost increases combined with various aspects of public policy, the healthcare industry is once again in a state of increasing instability as the revolutionary transition from activity-based to value-based care gets underway in earnest. Concurrently individual consumers are being more directly exposed to the cost of their healthcare in an effort to expand traditional market discipline on pricing in other industries. One constant is the imperative to balance access, cost, and quality objectives when designing benefit plans and their component provider networks. Achieving the desired balance is even more challenging for a value based healthcare and reimbursement environment. Consider these 4 factors when balancing access, cost, and quality through plan and network design.

1. Wide or Narrow Provider Networks

Greater access generally means wider networks, more providers, less pricing leverage and therefore higher total cost. Narrow or “high performing” networks, if properly designed, are arguably more likely to produce a good balance of cost and quality. They are more likely to be price competitive in exchange for volume – particularly in competitive provider markets. And fewer providers (but enough of each type) make it easier to coordinate and integrate care for patients who receive all of their care in network.

But other factors are also at play.

For one, history tells us that all other things being equal, consumers prefer wider networks with more choice and greater capacity, as the historic popularity of PPOs has shown. As long as cost sharing was relatively low and patient steerage incentives to use the lowest cost providers in the network were mild, patients enjoyed easy access to a wide number of providers.

So the challenge is to tailor network design to meet plan sponsor balanced and prioritized objectives. Increased cost sharing has, not surprisingly, increased consumer tolerance for less choice in providers. But that doesn’t mean they are happy about it. Factors that could potentially drive increasing acceptance of tighter networks include greater price transparency and better quality. Patients want to know their total out of pocket expense prior to their service. Real and clearly communicated healthcare quality – expressed in metrics that really matter to patients – can buy a lot of acceptance of less choice and potentially somewhat lower service levels.

On the other hand, a PPO or something like it can be designed to be a narrow network within a wider choice wrapper. Consider a three tiered option using a:

  • Narrow/high performance network core
  • Wrap around PPO
  • Separate out-of-network benefit

If properly designed it can find that sweet spot of patient acceptance where there are strong cost sharing financial incentives to use the “truly” preferred providers at its core, while offering an “out” to access other providers with less financial support if it is really important to the individual.

2. Centers of Excellence

Also an option is the inclusion of Centers of Excellence (COE’s) in a network. Contracting with COE’s to care for specific conditions or procedures can be cost effective in terms of quality outcomes (even if travel cost is included) and attractive to employees. Employees and members like the idea of branded world class care for serious conditions. COE’s can be either included in the main network or carved out and contracted by the employer directly.

3. Reasonable Access

While working on network design, be sensitive to “reasonable access” requirements and regulations at federal and state level as they evolve. The National Association of Insurance Commissioners is recommending sweeping new standards to address complaints from consumers about limited access to doctors and hospitals in health plans sold under the Affordable Care Act. Even in PPO-type designs the preferred/narrow part of the network should offer reasonable access by regulator definition.

4. Price Contracting

Price contracting is another key consideration. The traditional discounts off fee schedules approach is increasingly viewed as meaningless. It results in price being disconnected from true cost and to some extent, value. In markets with significant provider competition there is some competitive check on fee schedules. But in many markets where competition is lacking, scheduled rates can rise and unreasonably distort investment priority signals to providers. Best practice today is to move to some form of reference pricing. Many plans are defaulting to percent of Medicare fee schedules as a reasonable approach that ties price to cost of delivery.

Remember that each healthcare market has its own characteristics. Sponsors and their payers and TPAs have an advantage in provider competitive markets. High quality but narrow networks (or narrow preferred portions of PPO-type networks) can be designed with excellent quality and decent access for reasonable cost in areas with multiple provider systems in place. In noncompetitive markets, it may make more sense to consider COE type alternatives involving medical travel to providers willing to offer high value and service in return for patient flow.

For more information on optimizing value based benefit plan and provider network design, download this related ebook: Optimizing Plan & Network Design for Value Based Care.

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