the return of narrow provider networks under reform

As narrow provider networks grow in popularity, innovative providers are working with payers to develop mutually beneficial plans that emphasize value.

The emergence of public and private health insurance marketplaces are allowing more Americans to make their own insurance decisions than at any point in recent history. Many of those consumers are willing to limit their choices of hospitals and physicians to obtain lower premiums via the marketplaces, also known as exchanges. That trade-off is spawning a rapid increase in narrow provider networks as well as new relationships between health systems and insurers.

How Providers Are Exploring Narrow Networks

In Michigan, Mercy Health partnered with the state's largest insurer to create an insurance product built around its hospitals and physicians serving a three-county area.

In New York, North Shore-Long Island Jewish Health System (North ShoreLIJ) has formed its own insurance company to sell plans with a provider network limited to the system's physicians, facilities and healthcare services. And in Vermont, Dartmouth-Hitchcock Medical Center is using a narrow provider network to test a new payment system with a major insurer.

Like dozens of other health systems across the country, these health systems are preparing for a seismic shift in the way healthcare coverage is purchased and priced. Kevin Sears, vice president for payer and product innovation at CHE Trinity Health, parent of Mercy Health, says that over the next five years, more than one-third of the people purchasing coverage will do so in the individual marketplace.

"With consumers being exposed to more of the premium price, it's becoming very clear that they are willing to make trade-offs between the monthly premium price of their insurance product and the size of their network," he says. "That is what has set the stage for narrow networks to come back into play in a significant way."

For organizations like North Shore-LIJ, which includes 15 hospitals, more than 400 ambulatory sites, more than 3,700 employed physicians, a home health agency, and other services, the rise of consumerism in health care creates an opportunity. "North Shore has a history of dealing with individuals-we have literally millions of patients who we talk to every year," says Alan Murray, president of North Shore-LIJ's newly formed insurance company. "So we have a very strong distribution channel, and it's already built. That's the opportunity that's out there."

But the opportunity comes with new responsibilities. Providers in narrow networks will succeed only if they are true partners with payers, working together to create the benefit design and physician incentives needed to deliver high-value care, says Ben Carter, executive vice president of finance for CHE Trinity Health.

The "new world order," as Carter calls it, requires an end to the tug-of-war between providers and payers. Healthcare purchasers, whether they are individuals or employers, are demanding lower costs, and the only way to deliver lower costs in the long term is through a mutually beneficial relationship.

"The key to all of this is the triple win-the patient wins, the payer wins, and we win," he says. "And that is the glue to these types of arrangements."

View from the Top Tier

For the past two decades, employers-the primary purchasers of private health insurance-have rebuffed narrow provider networks because their workers want to choose from a broad selection of physicians and hospitals. Scott & White Health Plan, which has more than 300,000 members in 50 counties in central Texas, has found a way to offer that breadth and a narrow provider network at the same time.

Two years ago, the health plan introduced a threetier preferred provider organization (PPO). The bottom tier allows members to choose any provider and pay much higher out-of-pocket costs for doing so; the middle tier comes with fewer options and less out-of-pocket expense.

The top tier includes only provider components of Scott & White Healthcare. Patients who choose to use the system's 14 hospitals, more than 140 clinics, and about 1,300 employed physicians have at least 30 percent less out-of-pocket expense than they would incur in the middle tier.

About 65 percent of the health plan's PPO members have gravitated to the top tier, and Allan Einboden, CEO of Scott & White Health Plan, expects the momentum to continue.

"I think we're going to see more interest in narrow networks, so that will probably increase to maybe 80 percent in five years," he says.

A Scott & White provider-only insurance plan is now for sale on the public health exchange in Texas. The exchange is expected to include an estimated 370,000 people in Scott & White's service area who will qualify for government subsidies to help pay their premiums.

Although price is important to consumers, Einboden says the narrow network-and the tiered strategy of the PPO-works primarily because Scott & White providers offer the best value in the market. "We've never been focused on, 'Well, let's just go create a really low-cost plan,' because we don't believe in the long run that just driving cost is the solution that is needed," he says. "You're not giving up anything when you are using Scott & White providers because the data shows we provide the highest-quality care, and we are doing that at a lower cost."

Marketing the Simplicity of a Narrow Network Plan

While Scott & White Healthcare has been under the same umbrella as the Scott & White Health Plan for decades, North Shore-LIJ had no such relationship in place. So it created one. In July, the North Shore-LIJ Insurance Company Inc. became the first provider-owned health plan in New York.

In October, North Shore-LIJ CareConnect-the brand name for the plan-began marketing commercial insurance plans to businesses, families and individuals. The plans are sold both on and off the state-run health insurance exchange. North Shore-LIJ executives say a provider-owned insurance company has positioned their health system to accept financial risk for the quality of care provided, a move that reflects the healthcare industry's ongoing shift from a fee-for-service to a pay-for-value model.

North Shore-LIJ believes the best way to mitigate the risk is to sell health plans with exclusive provider organization (EPO) networks that include only North Shore-LIJ providers, Murray says. Those EPO networks also include thousands of independent physicians aligned with the system through a clinically integrated network.

"For North Shore to succeed on the vision of simplicity, we need to be able to control the network, and we need to be able to control the patient experience," Murray says. "I believe when people interact with those providers and experience that value, the fact that there is a perceived narrow network will become secondary to the sheer positive experience they will have with us."

Such simplicity in vision is key to North Shore's marketing strategy. Murray is positioning CareConnect as a "one-stop" site where members can call to make an appointment, be referred to an advice nurse, or check an insurance claim.

"Healthcare reform will put more individuals in the very bizarrely complex world of health care and require them to navigate that," Murray says. "The unique value that North Shore, and possibly other integrated deliveiy systems, can provide is simplicity."

One Strategy: Start Small, then Grow

Two New Hampshire systems-DartmouthHitchcock and Elliot Health System-recently partnered with a major payer, Harvard Pilgrim Health Care, to create ElevateHealth, an HMO plan with a premium at least 10 percent less than any other Harvard Pilgrim plan.

For Dartmouth-Hitchcock, the partnership is the latest in a long series of incremental efforts to move away from fee-for-service payment. A pioneer in pay-for-performance, the system has long searched for a model to best support its goals for population health management and value-based care, says Stephen J. LeBlanc, executive vice president for strategy and network relationships at Dartmouth-Hitchcock.

"We want to move more quickly toward capitatedtype contracts because those reward value rather than volume, and that's where the future is," he says. "That's an additional level of risk that providers have to be prepared to take on, and we have to partner with others to have populations that are significant in size to be able to do that effectively. That's the direction we would like to move in."

The three partners in ElevateHealth have a shared-risk arrangement, and they can offer the lower premium because of changes in the way health care is delivered and the way in which payers and providers work together, LeBlanc says.

The insurance product became available to New Hampshire businesses in December 3013. Initially, the provider network is limited to five hospitals, 400 primary care physicians and 3,600 specialists. But LeBlanc expects the network to grow.

"The principal reason for having the limited network was to develop the partnership-to start small and walk before we run," LeBlanc says. "Hopefully, it will be successful and will be considered a better value option by employers and patient. Then we can build the network over time."

The ElevateHealth partners aim to lower the costs of care delivery through several strategies, including e-consults, patient liaisons, and improved care coordination.

"Rather than maintaining the traditional armslength provider/insurer arrangement, by working together, we can advance care in a more innovative way," LeBlanc says.

Th« Narrow Bot

Financial leaders at Blue Cross and Blue Shield of Michigan(BCBSM) and Mercy Health are following a similar path to advance care. They spent more than a year jointly developing a health plan for individuals buying coverage through Michigan's federally operated insurance exchange.

"Our goal was to get more people into the system so that we could take a population-based approach to improving the health of the community," says Jeff Connolly, the insurer's president of west Michigan operations and managed care. "That requires a collaborative model."

Neither party wanted Mercy to simply discount its charges in exchange for increased market share. Instead, both the insurer and provider want to move to a pay-for-outcomes contract, which required the creation of a new relationship that worked for both parties.

"Together, we determined the price point we wanted this product to be at in the market," Sears says. "We also worked together to design the benefits and the coverage levels and to define the operational rules around prior authorization and referrals and every other aspect of this program."

The result was a BCBSM insurance plan for three counties in the Grand Rapids area with a provider network limited to Mercy's four hospitals and the 700 physicians in its clinically integrated network. The plan's premium is about 30 percent less than other plans offered on the exchange.

"Our belief-and early indications support this- is that we as a health system will be able to grow market share in this business segment because consumers are willing to choose a smaller network for lower premium price," Sears says. "That's the bet."

Mercy expects the plan's popularity will allow it to capture from 50 to 70 percent of the health insurance exchange market in the Grand Rapids area. For Mercy and its parent CHE Trinity Health, the BCBSM plan is the beginning of a business model built around what it calls "high performance" networks.

CHE Trinity Health has developed 18 such networks to partner with payers offering insurance in the individual and Medicare Advantage markets, and it is working on narrow network arrangements for private exchanges as well.

"We anticipate that more than half of our business over time is going to be delivered through these high-performance networks," Carter says.

How Narrow Payer-Provider Plans Work

The new type of payer-provider partnership created by CHE Trinity Health gives the health system responsibility for creating a provider network capable of delivering the type of high-value care needed to succeed in a low-premium health plan. CHE Trinity Health uses the term high performance network to delineate providers that are able to share information, have aligned incentives, and share common work processes and protocols to deliver high-quality care as efficiently as possible.

"Network design becomes really important to the overall performance of the product," Sears says.

"When you put together a price point and you file with the state [for approval of the insurance product], you make certain assumptions about your ability to manage medical expense."

But the provider network is only one critical success factor. To make the plan work financially, as much care as possible needs to be delivered within the network. So benefit design must encourage patients to stay within the network wherever possible.

"Incorporating all of those elements into the benefit design actually creates the dynamic that optimizes the operational performance of the plan," Sears says.

As part of its new relationship, BCBSM sends claims data to Mercy each month. "Part of the beauty of working with a payer they have all the claims information, so we work with them to look at utilization rates and to set targets for the population of patients," Carter says. "When we see trends that we are concerned about, we can talk about it with the provider and help manage those trends back to norms."

Although this type of collaborative approach between insurers and providers is still rare in most markets, BCBSM's Connolly says it is the key to success in the era of healthcare reform.

"We both have very vested interests in making this work," he says. "We said, 'Let's align on what we have in common and work together.'"

AT A GLANCE

Providers participating in narrow networks are more likely to benefit from such an arrangement if they:

> Work together with payers to create the benefit design and physician incentives needed to support high-value care

> Jointly develop plans that encourage patients to stay within the network wherever possible

> Have access to claims data that can help to identify trends and determine strategies for population health management

CHE Trinity Health uses the term high performance network to delineate providers that are able to share information, have aligned incentives, and share common work processes and protocols to deliver high-quality care as efficiently as possible.

Lola Butcher is a healthcare freelance writer and editor based in Missouri.