The Rise of Narrow Networks and What it Means for Hospitals

Facing significant industry changes in 2014, health insurer WellPoint is turning to narrow provider networks.

The insurance company has established narrow networks through its subsidiary plans in 14 states to support health plans sold through the insurance exchanges under the Patient Protection and Affordable Care Act, according to market intelligence provider HealthLeaders-InterStudy. That means people enrolled in those health plans will only receive covered care from certain providers and will get little or no coverage if they seek services from out-of-network facilities, although emergency and urgent care is covered outside of the network.

Anthem Blue Cross and Blue Shield in particular is moving forward with plans to establish narrow provider networks in New Hampshire, Maine and Missouri, actions that have resulted in scrutiny from state policymakers and criticism from some providers.

Supporters of this strategy say it will lower health insurance premiums by excluding high-cost providers, while some policymakers and excluded providers say the narrow networks could limit access to care.

Anthem's new network: controversy in Maine
In Maine, Anthem has partnered with the state's largest health system — Portland, Maine-based MaineHealth — to form an insurance network including 31 of the state's 38 hospitals to offer coverage through the PPACA exchanges. The Maine Bureau of Insurance approved the proposed network in July.

Anthem has said the network will cost enrollees in Maine’s southern counties  about 12 percent less than a broader plan would. Additionally, the insurer has told policymakers less than 9 percent of the insurer's individual subscribers use specialists and primary care physicians who aren't included in the new network.

However, in August, the proposal was criticized at a public comment session because of the insurer's plans to transfer thousands of current customers to narrow-network plans.

That complaint was partly addressed in early October, when Maine Superintendent of Insurance Eric Cioppa denied Anthem's request to move current non-grandfathered individual insurance enrollees to the narrow network in Maine’s southern counties. However, he approved the insurer's plans to transition enrollees in northern counties, and opponents still don't like the idea of Anthem enacting the network for new enrollees.

Lewiston-based Central Maine Medical Center — one of the seven hospitals excluded from the network — has said the narrow plan puts insurance consumers in the central and western part of the state at a disadvantage, since they would have to travel farther to reach physicians.

Additionally, Central Maine Vice President of Public Affairs Chuck Gill says the competing nonprofit Maine Community Health Options Co-op that contracts with all Maine hospitals and physicians turns out to cost some 9 percent less than the Anthem narrow network products.  However, Anthem spokesman Chris Dugan says that statement is inaccurate.

"That's simply not true as a blanket statement," Mr. Dugan says.  "There are many variables which contribute to rates.  For some consumers, our rates will be lower, for others the co-op may be lower." 

According to the Maine Bureau of Insurance, the rates for individual insurance plans vary depending on numerous factors such as an enrollee's age and which region of the state they live in.

Central Maine is appealing the insurance bureau's July decision to approve the narrow network plans, Mr. Gill says.

"We believe there is not reasonable access," he says. "Insurance companies should not step between the doctor and the patient. People want care locally."

Mr. Dugan says the insurer is simply trying to give people access to affordable care.

"It's important to note that we strongly view this product offering as a choice that the consumer is able to make," he says. "When given the choice of a particular provider or a lower price point, many consumers will choose a lower price point."

Mr. Dugan also says the Maine narrow network plans will only serve Anthem’s individual, non-grandfathered members; this represents a "small component" of the overall business Anthem does in the state.  "This does not impact grandfathered members, small or large group customers, federal employees or those on Medicare," he says. 

It's not clear yet what kind of impact the narrow network will have on the state's hospitals, says Jeffrey Austin, vice president of government affairs and communications for the Maine Hospital Association.

"It's more like a headline issue right now," he says. "It's got people's attention, certainly."

The impact on providers: Greater incentives for alignment and efficiency
Narrow networks could pose challenges for providers who are included as well as those who are excluded, says Beth Wexler, vice president and senior credit officer for Moody's Investors Service.

While out-of-network hospitals will see a drop in volume, in-network facilities will take "a haircut" on commercial payer rates, she says.

"They'll see business, but it's not going to be very profitable business," she says. "It will definitely shrink the margins. It's really going to be a market-to-market issue on how the hospitals can position themselves to take thinner levels of reimbursement."

Some providers might cope by shrinking their infrastructure costs, while others might join larger systems to help shoulder the financial burden. They could also shrink their workforces or generally look for ways to be as efficient as possible, she says. 

How fast narrow networks take hold will vary by market
Although it's hard to tell if narrow networks will become the new normal at this point, Ms. Wexler says the takeover rate will vary from market to market, if the networks do become the standard for individual insurance policies.

In markets with a multitude of payers, she predicts narrow networks won't catch on as quickly.

"It will depend on how dominant one payer is in market," she says. "Where there's a good diversity of payers, it might be a little slower to come in terms of one payer taking the leap of faith that they're going to be the payer of choice."

Conclusion: An uncertain future
Overall, predicting the impact and prevalence of narrow networks in future years isn't easy at this point, Ms. Wexler says.

"We're at the precipice now where the industry's going to start making a lot of hard choices," she says. "It's a somewhat difficult call." 

More Articles on Narrow Networks:
Narrow Network Health Plans Face Backlash From State Officials  
WellPoint Turning to Narrow Provider Network Strategy  
New Hampshire Senators Scrutinize Anthem Blue Cross Narrow Network 

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