Narrow Provider Networks Set to Spread

As the healthcare industry focuses on cutting costs, narrow provider networks designed to deliver value are taking hold as a widespread business practice.

With their prominent cost-containing role in the new public exchanges, narrow provider networks have been the object of persistent healthcare industry hand-wringing this year.

But narrow networks are not only a well-established industry practice, thrifty consumers are also open to them, according to Joseph Berardo Jr., president and CEO of New York, NY-based MagnaCare, a health plan that features a provider network with 70,000 locations in the New York and New Jersey markets.

"There's been slowly, a narrowing of networks, quietly over time," he says, noting that narrow networks are appealing to small group plans. "There's a paradigm shift here. Small groups are price-sensitive."

Narrow networks are becoming an important factor in the large group market as well, Berardo says, with health plans offering narrow networks as an effective mechanism for controlling costs when companies operate in locations spread over a wide geographic area.

In May, the National Business Group on Health conducted a poll of 46 large employers and found that 17 percent already have a narrow network in place. The poll results, which were made available to NBGH members, also found that an additional 24 percent of large employers were considering narrow network health plans for 2015 and 2016, and another 20 percent were mulling narrow networks for 2017.

As consumers become a more important factor in the health insurance market, many of them will demand the affordability that comes with health policies linked to narrow networks, Berardo believes. "Consumers are less concerned about networks. The members, left to their own devices, will pick value."

The MagnaCare chief says narrow networks are "the only way we're going to hit price points."

Further ensuring the spread, providers are creating de facto narrow networks as they reorganize to achieve greater efficiency through efforts such as accountable care initiatives, Berardo said. "It's not completely driven by the payer world," he says.

"There's a fifty-fifty split here. This is collaborative, all in an effort to become more clinically integrated… It's probably a ten-year journey."

In a bit of irony given the payer arm-twisting often associated with narrow networks, forward-thinking hospital executives need to embrace clinically integrated care in general and narrow networks in particular, Berardo argues.

"Long-term, [hospitals] need to morph into a more integrated system," he says, noting the financial pressure these capital-intensive organizations face will spur many of them to open their own health plans or seek insurer partners. "They're going to be part of a large ecosystem."  

Berardo says it is highly likely that adoption of narrow networks will become widespread. "It's going to be the norm rather than the exception. It's not apparent to me that you can keep broad, fee-for-service networks and get to the payment reform everyone wants."

A Cautious Voice
JoAnn Volk, a research professor and project director at the Georgetown University Health Policy Institute, is more cautious about the long-term prospects of narrow networks.

"It's a pendulum," she says of the private healthcare insurance market, noting that the consumer backlash to health maintenance organizations that fueled growth in broad provider networks over the past two decades.

There are also regulatory barriers in the way of narrow network growth, Volk says, "regulators at the state and federal level are looking at changing the network adequacy standards." Many government officials are seeking to protect consumers who are unable to get specialty care in a narrow network to "hold them harmless," she adds.

Despite her qualms, Volk acknowledges that market conditions are ripe for adoption of narrow provider networks. "It's not a surprise that large employers are using narrow networks. [It is] a way to control costs."

Insurance carriers find narrow networks appealing because other cost containment levers, such as the ability to deny coverage to individuals with pre-existing conditions, were banned under the federal Patient Protection and Affordable Care Act. "The ACA took away tools that insurers could use to control costs," Volk says.

With the nation's focus on healthcare costs at a historic level of intensity, a bottom-line moment has seized both payers and providers, she says: "They're trying a bunch of different things at once, and seeing what lowers costs."