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It’s a Narrow World After All

By Kim Bellard, November 6, 2013

The promise of the Affordable Care Act is that everyone can obtain affordable coverage (this is not to be confused with the promise that if you like your plan or your doctor, you can keep them, which, as is becoming more widely known, is not and never was quite true).  Buried in that promise is the fact that choices – of health plans and of providers in those health plans – are going to be more restricted than most people expected.

This fact was crystalized in a recent op-ed in The Wall Street Journal by Edie Littlefield Sundby.  Ms. Sundby has been fighting stage 4 gallbladder cancer for seven years, costing her insurer – United HealthCare – over $1 million.  She has nothing but praise for United, except that the insurer is pulling out of the individual market where Ms. Sundby lives, thus forcing her to obtain new coverage through the exchange.  The problem is that none of her choices in the exchange would allow her to keep her existing provider relationships.

Tone-deaf once again, the White House blamed everyone but themselves, or the regulatory structure set up by Obamacare, for the situation. 

Let’s face it: the “new normal” for health plans may be narrower networks.  An analysis of the exchange filings by McKinsey & Co. found that 47% of the plans offered were HMO or other closed network plans, compared to less than 14% of enrollment in such plans for employer plans (according to the most recent Kaiser Family Foundation/HRET survey).  Moreover, the providers in the exchange networks may not include some of the most respected ones. 

For example, compared the US News & World Report’s list of top ranked hospitals, and found many were opting out or were just participating with a small number of the plans in the exchanges.  CNN, PWC, The Wall Street Journal,  The New York Times, the Los Angeles Times, to name a few, have all come to the same conclusion. 

To add insult to injury, the provider finder search tools on most of the state run exchanges appear to leave something to be desired, making it hard for consumers like Ms. Sundby to figure out how to decide which plan might be best -- or the least worse -- for their situation.  I doubt many expect that is likely to be any better.

At least there’s more choice of health plans, right?  Not so fast.  It’s true that if you live in an urban area, you’ll probably have multiple plans from multiple carriers to choose from, but if you live in a rural area, maybe not so much.  An analysis by The New York Times found that in 58% of the 2,500 counties served by the federal exchange only one or two carriers were available, with only one carrier as an option in about 20% of those counties.  Granted, these rural counties may not have had many choices before ACA, but this barren marketplace is not quite what President Obama presumably envisioned.   

Not everyone thinks the reduced choice is a bad thing, especially in regards to choice of providers.  Avik Roy proposes that the narrower networks will force providers to compete on price, and concludes that “[T]his is, in general, a good thing.”  Let’s hope so.

Booz & Company researchers Sanjay Saxena and Nate Holobinko, reach similar conclusions.  Their conjoint analysis of interviews with 20,000 consumers led them to conclude that health care consumers are, in fact, highly price sensitive.  Contrary to conventional wisdom, consumers valued lower price over broad networks, and inclusion of high quality health systems was more important than having their own PCP in-network.  Consumers also don’t necessarily view the most well-known hospitals – e.g., academic medical centers or other flagship institutions – as “must have” providers; other respected local health systems could also suffice (although consumers like the aforementioned Ms. Sundby might disagree). 

Of course, responding to a survey is not quite the same as acting in real life, conjoint analyses notwithstanding.

The trend towards narrower networks is part of, although not synonymous with, a move towards paying providers more for how well they provide care rather than simply how much care they provide.  This is variously called pay-for-performance, value-based purchasing, or outcomes-based payment.  McKinsey & Co. believes such approaches can save over $1 trillion over the next decade, although they acknowledge the magnitude of the transition required to achieve those savings. 

Some might object that many of these payment approaches leave the consumer out of the equation, as they can result in ever-more arcane cost/quality/outcome contractual arrangements between insurers and providers, making price transparency more difficult.  One alternative approach is “reference pricing,” under which the payor sets fixed payment levels for drugs, procedures, or bundles of services, and encourages consumers to shop.  If they find providers who can deliver at the set price, fine, but if they choose a more expensive provider, they pay the difference between the reference price and that provider’s price.  That tends to get their attention.

CalPERS has been testing the approach for several years, and reports some striking results.  The number of enrollees using lower-priced hospitals for orthopedic procedures increased 21% in the first year, and those using high priced facilities fell by 34%.  Better yet, many hospitals saw the writing on the wall, and dropped their prices to get closer to the reference pricing.  CalPERS claims $6 million in savings for the first 2 years. 

Of course, the approach relies on having a choice of providers, adequate price transparency for the impacted services, and engaged consumers.  Failure in any of those components is likely to lead to failure to change behavior – and some deeply disgruntled consumers.   Let’s not forget that, according to Gallup, 20% of the uninsured still don’t know about the mandate, 27% don’t know about the exchanges, and 25% still don’t intend to buy coverage, so expecting them to know the prices for, say, hip surgery is perhaps optimistic.

Reference pricing will require a lot of work to make it successful on a broad scale and is itself likely only an interim step, but between it and narrow networks as a strategy, I’ll take reference pricing.

While I understand the rationale for the narrow networks, I think they will prove to be a dead end, for two reasons.  The first is that, as we should have learned from the 1990’s, ultimately consumers will balk at the restrictions.  The second is that market consolidation, which I’ve written about previously, will make such narrowing difficult in many markets. 

In the more perfect health care system to which we should be aspiring, we should be encouraging consumers to find the best providers, as long as that “best” is based on value.  It’s hard to argue that this choice should be geographically limited, and I think it will become increasingly hard to argue that having a contract with a specific carrier should be a limiting factor in choice of the best provider either -- as long as the provider actually offers the best value. 

Still, whether it is narrow networks, value-based pricing, PCMH, ACOs, or any of the myriad of other experiments being tried, whenever people start talking about the potential savings offered by various approaches, the elephant in the room (or maybe the ox in the room, as I discussed in Gore Someone Else’s Ox, Please) is from which providers the money is going to come.  Public officials in general, and Congress in particular, appear helpless against the forces of lobbyists and/or the fear of lost jobs in their district.  We need only look at the history of Medicare’s “sustainable growth rate” mechanism, or, in another context, weapons systems that even the Pentagon doesn’t want but which represent defense contractor jobs, to illustrate this type of lack of will.  Screams of pain from health care providers will be hard for them to ignore, especially when they start trotting out potentially impacted employees and, more powerfully, patients.

We need to be tougher but also smarter and more targeted.  When it’s the demonstrably poorer performing providers which start losing significant revenue, or even start going out of business, that’s the kind of narrowing of networks I can buy into.

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