Economics

In Defense of Narrow Networks

It wasn’t long ago that the newly established health exchanges were being celebrated. Before the ongoing website catastrophe, politicians and policymakers were lauding the low premiums in these new health insurance market places. On September 24, President Obama said, “And the premiums are significantly lower than what they were able to previously get … California — it’s about 33 percent lower. In my home state of Illinois, they just announced it’s about 25 percent lower.”

How times have changed! Even supporters of the exchanges have rightly criticized the technical problems that have prevented millions of Americans from signing up. However, many critics are also complaining about the large number of health plan offerings with “narrow networks” of physicians that enrollees can visit for medical services. The Missouri Health Advocacy Alliance expressed “major concern” when Anthem excluded BJC HealthCare from its narrow network. Seattle Children’s Hospital, which was excluded from several exchange plans, has sued the Washington State Office of Insurance for “failing to ensure adequate network coverage.”

Criticism of narrow networks is misguided and counterproductive. As we explain below, narrow networks will be of little consequence to most of the individuals who sign up for the exchanges, and the elimination of narrow networks could eliminate our single best opportunity to harness market forces to reduce costs and improve quality. Indeed, narrow networks are largely responsible for the low premiums that were being celebrated just one month ago.


We admit that narrow networks may seem like a bad idea. They limit where patients can go to receive care and threaten to interrupt the physician/patient relationship. But there are two major flaws with this line of thinking. First, patients have a choice of many different health plans in the exchanges and these plans all have different network options. A provider who is not in one plan’s narrow network is likely to be another. Patients whose providers are not in any plan’s narrow network can always choose broad network plans in exchange for paying a higher premium. They will be no worse off than they are today, and if competition in exchanges works out as planned they may even be better off.

Once they sign up for a narrow network plan, there is no guarantee that patients will receive care from in-network providers. Big medical bills may result. But we doubt this is likely to be a big concern for very long, as patients learn to navigate the new networks. Seattle Children’s Hospital is rightly worried that some enrollees in narrow network plans will end up at their doorstep. But there are other high quality providers of pediatric services in Seattle. Once patients and referring doctors get used to the new networks, the only children who show up at Seattle Children’s Hospital will be those whose networks include the hospital, or those whose parents are willing to pay for out of network care.

If more of us move into exchanges (something that the Affordable Care Act actually stifles…see our previous op-ed on this topic), we may all have to get use to narrow networks. Employers rarely offer narrow networks because it is very hard to find a single network that appeals to all (or even a large fraction) of their employees and too expensive to offer a large number of different plans. Once individuals are buying insurance for themselves, one-size-fits-all insurance will go by the wayside and people can select the plan and network that best matches their needs.


Narrow networks are not some cruel attempt to limit patient choice foisted upon us by the insurance industry. Instead, these plans may provide our best opportunity for harnessing market forces to lower prices. Even high priced providers know they stand a good chance of being in broad networks. But insurers offering narrow networks can be picky about which providers they select. Across the nation, high quality/high price sellers like Seattle Children’s Hospital will have to prove their worth.

What if insurers ignore quality? If we have learned anything about quality in the past decade, it is that insured patients making their own provider choices have done little to reward measurable high quality, instead relying on more on brand names that may or may not indicate true quality. Will insurers be any worse? While it is theoretically possible that narrow network plans will focus on low costs, quality be damned, we are unaware of any narrow networks that include only the bottom of the quality barrel. It is also hard to imagine how it would be profit maximizing for all insurers or potential entrants to the exchanges to offer only low-quality narrow network plans. Rival insurers will surely be quick to point out the shortcomings of low quality competitors.

As a nation we have reached a consensus that we must lower medical spending. While this is often presented as a choice without trade-offs, that simply is not the case. Making our lower health care cost omelet is going to require breaking some eggs. Most Americans do not place must trust in insurers, but through narrow networks, insurers can introduce some much needed cost discipline on providers. And narrow networks can even include ACOs, should they offer proof of concept.

The intensified competition from narrow networks will be messy…patients will make mistakes, and quality will sometimes go unrewarded. This is not unlike our current system, only it will be less expensive and with greater access. The only sure fired alternative way to controlled cost is centralized planning. While some have faith in the ability of bureaucrats to choose what services to cover and how much to pay for them, we are less sanguine about the role of central planning in this and other settings.

David Dranove, PhD is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.” This post first appeared at Code Red.

Craig Garthwaite, PhD is an assistant professor of management and strategy at Northwestern University’s Kellogg Graduate School of Management.

Livongo’s Post Ad Banner 728*90

27
Leave a Reply

21 Comment threads
6 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
11 Comment authors
sharenalan t falkoff, md, faafpcandy cloustonabcLegacy Flyer Recent comment authors
newest oldest most voted
alan t falkoff, md, faafp
Guest

Who decides which physician is on which narrow network? Good luck

candy clouston
Guest
candy clouston

The difficulty with pts. picking the network that meets their needs is that health needs can change unexpectedly, and the pt. may not be in a good position to be trying to make those assessments when they do.

Vince Kuraitis
Guest

The creation and designation of a provider network has traditionally been a health plan responsibility.

This is shifting. New species of provider networks are being created by Medicare ACOs, accountable-care like initiatives between care providers and insurers, provider clinical integration initiatives, etc.

Creation of a (narrow) provider network increasingly will be viewed as a joint health plan/provider responsibility — or even a sole “provider responsibilitiy”, e.g., an ACO contracting directly with employers.

Thus it becomes increasingly difficult simply to attack “the health plan” for a narrow provider network.

Recalling Pogo’s wisdom: “We have met the enemy and he is us.”

abc
Guest
abc

Narrow networks conceptually sound great. However the reality is that they mean creating 3 tiers of service:
One for those with jobs that have health insurance
One for those who have to buy their own insurance
One for Medicaid.

You can sing the praises all day. But that is the reality. Narrow networks eliminate the high end specialty service providers. That means people get less care.

Barry Carol
Guest
Barry Carol

Legacyflyer – I agree with your last comment about the challenges inherent in measuring quality among surgeons especially since the risk adjustment state of the art isn’t where it needs to be (yet). From a patient’s perspective, I think it would be helpful if it were easy to find out how many times a surgeon performed a given procedure both in the past year and cumulatively over the course of his or her career. At the same time, I would want to know the minimum number of procedures per year the experts think are required to keep skills sharp and… Read more »

Legacy Flyer
Guest
Legacy Flyer

Peter1,

I can answer that question.

Despite having had the HSCRC in place for about 30 years, Maryland remains a high cost state (based on Medicare data)

What has happened is that a number of high cost procedures have been “squeezed out” of hospitals into outpatient facilities which are not regulated by the HSCRC.

Despite what a variety of proponents will tell you, the HSCRC has largely had no effect in controlling the cost of health care – its stated aim.

Legacy Flyer
Guest
Legacy Flyer

Barry, I practice in Maryland. Part of the higher cost of Hopkins and U of MD reflect their teaching/training/research mission. Part of the higher cost reflects payor mix because of their location. Getting back to how to measure quality and surgery. It has been shown that physicians and centers that do more of a particular procedure tend to have better results. I trust you went to a Cardiac Surgeon who does a lot of cases. More than that is hard to judge. One surgeon could take on more difficult cases than another and although he has worse results could actually… Read more »

Barry Carol
Guest
Barry Carol

“I hope for a day when all providers and hospitals in a regional area charge the same regulated fees and let the patient choose their own provider.” Peter1 – As you probably know, the state of Maryland implemented an all payer system for hospital based care in the late 1970’s. That means that every payer pays a given hospital the same price for a given service, test or procedure. However, academic medical centers like Johns Hopkins are paid more than community hospitals for similar work to reflect their inherently higher costs. In addition, hospitals in rural Western MD are paid… Read more »

Peter1
Guest
Peter1

Barry, how does Maryland’s cost of care measure against other states without the uniform pay system?

As to lawyers charging more for the same work (not including double billing) cause they’re “experienced” does not mean they do a better job – it just means they can. Some lawyers charge a % of the selling price to close a house (in a lawyer state), that’s a scam as the only difference is the decimal places not the work.

Peter1
Guest
Peter1

Networks, narrow or not only serve insurance and providers – not the patient. They are designed to protect markets and restrict access.

I hope for a day when all providers and hospitals in a regional area charge the same regulated fees and let the patient choose their own provider.

If a doctor has a particular skill and experience that a patient wants/needs why should the patient pay more only because their insurance carrier does not have a payment contract with the doctor.

Barry Carol
Guest
Barry Carol

Legacyflyer – As I think you well know, I’ve never worked in the medical field so this is not my area of expertise. However, my layman’s perception of outcomes as discussed here relates mainly to surgical procedures. In other words, how well did the surgeon do his or her job given the complexity of the case as well as the age and overall health status of the patient? If I get heart bypass surgery, which I’ve had, the surgeon could do a fine job but I could get a hospital acquired infection later. Under those circumstances, I would credit the… Read more »

legacyflyer
Guest
legacyflyer

Barry Carol,

I generally find myself on the same page as you. But, explain to me the difference between “Outcomes” and “Safety”.

“2. Outcomes – preferably risk adjusted.”
“3. Safety – minimizing infections, preventable readmissions, etc.”

To the extent that “Safety” really measures safety and not some politically correct abstraction, why wouldn’t it show up in “Outcomes”. In other words if one place has a higher infection rate, why wouldn’t that show up as an “Outcome” of higher morbidity and mortality? And if it doesn’t, why do we care about it?

legacyflyer
Guest
legacyflyer

Let me give you some sense of how hard it is to develop a “valid quality metric” – at least in my field. I am a Radiologist. The difference between a great Radiologist and an average or poor Radiologist is probably only a couple of percent. The reason is because: most X-Rays are normal or near normal, most people aren’t that sick, most people get better (or die) anyway and/or the difference in quality of their surgeon, internist, etc. overwhelms the difference in the Radiologist anyway. To get statistically valid morbidity and mortality data attributable to Radiology would probably require… Read more »

Kevin Yen
Guest

LegacyFlyer — I highly value your real world insights. Thank you.

sharen
Guest
sharen

Yup, I had a very unhappy experience at our community hospital-wrong meds and adverse reactions. They had the nerve to bill me for it! $4,000 of wrong meds! I didn’t pay and wrote them a letter-its been six month and no followup bills. I also never got a survey even though all of their “advertising” said I would. Narrow networks here in CA are very narrow indeed. I wouldn’t ever consider signing up under CoveredCA because I don’t think there will be a dozen primary physicians in our small city who will be in the network. None of my doctors… Read more »

Barry Carol
Guest
Barry Carol

Measuring care quality, especially in hospitals, is indeed a challenge to put it mildly. I’ve heard experts suggest that quality in this context has four main components each of which would have to be appropriately weighted. They are: 1. Process – following evidence based guidelines and protocols. 2. Outcomes – preferably risk adjusted. 3. Safety – minimizing infections, preventable readmissions, etc. 4. Satisfaction – which could encompass anything from the competence and responsiveness of the nurses to the quality of the food to weather the room has a flat screen TV and the hospital offers valet parking. If it were… Read more »

Kevin Yen
Guest

Good list.
And there’s also the fun question of “at what level?” Eg, Hospital System, Hospital Site, Office, Physician.

And with Outcomes adjusted for degree of difficulty of the patients.

Easy 🙂

Affordable Self Care
Guest

Well, at least the nation has reached a consensus about something: lower health care spending. My guess is we have a ways to go before finding the solution that actually accomplishes this. Until then, we just have to keep trying.

Kevin Yen
Guest

Personally, I do not.
But I do like to support and encourage those who are trying.

Maybe just needs some magic, like Harry Potter and FL.