The skinny on narrow networks
By Michael E. Joseph and Brandon P. Long
The insurance exchanges created under Affordable Care Act have facilitated increased competition. Old version managed care models implemented cost-savings measures like pre-authorizations for medical care, hospital length of stay restrictions, determinations of medical necessity for coverage, second opinions for surgery, exclusions of procedures or services, cost-shifting using higher deductibles and co-payments, and caps on coverage. New accountable care models focus on quality, efficiency, access, clinical performance, patient satisfaction, and limiting provider choice as cost-savings measures. Health plans have changed direction by creating narrow networks (which are also called skinny networks, tailored networks, restricted networks, high performance networks, and focused networks).
Healthcare provider networks are not new. Health plans have contracted with HMOs, PPOs, PHOs, IPAs, POS plans and other networks for several decades dating back to the era of managed care. Narrow networks are different. In narrow networks, health plan and healthcare provider networks contract with a limited number of participating healthcare providers. Participating providers in many cases, but not always, are selected based on quality, geographic coverage, service, accessibility, clinical performance and efficiency. More commonly they are selected because they offer premium discounts, with the expectation that they will receive a higher volume of patients. Most of the health plans offered on Affordable Care Act public insurance exchanges are narrow networks.
The new model of narrow networks is different from the somewhat broader networks of the managed care era. During the 1990s, a principal focus of managed care was medical necessity of care — with the accompanying reduction of waste and elimination of abuse in the system. There was an expectation that measures to reduce waste and eliminate cost wouldn’t affect patients, but could improve patient care. Also, employers offered limited choice plans to employees who had coverage, but who hadn’t previously been limited in the selection of their healthcare providers. Today, health plans and employers recognize that limiting choice will change the way individuals select healthcare providers and obtain care. Additionally, the expectation is that coverage will be offered to individuals who were previously uninsured or underinsured.
The Affordable Care Act requires certain health plans to offer networks that are “sufficient in numbers and types of providers, including providers that specialize in mental health and substance abuse services, to assure that all services will be accessible without unreasonable delay.” Network adequacy requirements take into account the minimum number and types of healthcare providers, appointment scheduling wait times, maximum driving distance times, convenience, clinical scope, and other factors to assure that a range of healthcare services will be readily accessible. Health plans can exclude from participation healthcare providers who charge higher prices for routine services, spend more on treating their patients, or have low quality ratings. Employers with self-funded medical plans may have even more flexibility.
The limited number of participating providers is less significant than the adequacy of access, the quality of care provided by participating providers, and efficiency in obtaining and providing healthcare services.
Health plans and healthcare providers are responding to the demands of employers and brokers by designing lower-cost plans with skinny networks. Some have created networks with patient-centered medical homes that provide care coordination for patients with specific chronic conditions, such as cancer, hypertension, diabetes, heart disease or other conditions. Some have created ultra-skinny networks of limited categories of specialists who are required to meet quality, clinical performance and efficiency requirements. Health plans and healthcare providers have also joined together to develop private-label health plan products utilizing narrow networks with a limited number of participating providers, offering a value-based design with financial incentives, lower copayments, coordinated care and access efficiencies. Inefficiency and poor clinical performance are not acceptable.
Offerings by the insurance exchanges created under Affordable Care Act tend to focus primarily on price. As a result, consumers are finding network offerings that do not include high-end specialty providers because the high-end providers will not agree to the level of discounts that insurers require in order to offer competitive, low-cost products on the exchange. Other concerns are raised by the exclusion of children’s hospitals, specialized facilities, academic medical centers, “brand name” facilities, and regionally and nationally-recognized healthcare providers that offer reputation, concentrated specialization, or sophistication.
Narrow networks with limited numbers of participating healthcare providers have raised a number of legal concerns.
In some states, legislation has been introduced to require health plans to expand their networks. Some states have enacted or introduced legislation or promulgated regulations relating to network adequacy. Others have proposed requirements relating to network disclosure and patient cost-sharing obligations.
Exclusion of healthcare providers raises antitrust concerns, especially in communities where the network maintains significant market share. Network price fixing is a concern where the network is comprised of independent physicians who are not financially or clinically integrated.
Consumers have already commenced legal actions against health plans for switching them to narrow network plans with a limited selection of physicians, claiming that the health plan misrepresented the size of the physician network and the insurance benefits provided. As a result of the switch, the consumers incurred medical expenses from physicians who had previously been network participants, but who became out-of-network providers following the switch to a narrow network.
Under the Affordable Care Act, an insurance plan that is certified by the health insurance marketplace must provide essential health benefits, follow established limits on cost-sharing (like deductibles, copayments, and out-of-pocket maximum amounts), and meet other requirements. Among other requirements, it must include essential community providers, be sufficient in numbers and types of healthcare providers, and satisfy federal network adequacy provisions.
Many of the network requirements that are discussed above apply to fully-insured health plans offered through the public exchange, including those purchased by employers for their employees. But more and more employers, especially larger employers, offer a self-funded health plan instead of a fully-insured plan. Like insurers, employers are becoming more aggressive and creative in their attempts to control costs by limiting the size of their networks. Unlike insurers, self-funded employers are not subject to all of the same network rules and requirements that apply to plans offered through the exchange – because with respect to self-funded plans, such rules are pre-empted by the ERISA. While the Affordable Care Act does prohibit self-funded (and other) plans from discriminating against certain health care providers, it does not require plans to accept all healthcare providers into their network. Thus, self-funded employers are likely to continue to utilize narrow networks (and various tiered pricing strategies) to control costs.