A regular commenter asked me a good question via e-mail this morning:
This morning on my local NYC public radio station, there was a call in segment regarding the cost of polices on the exchanges coming in lower than anticipated. A woman caller, claiming to be a physician, was stating that she would not buy her coverage on the exchange, because the payment rates to providers was less than what is paid, if she buys her insurance directly from the provider. (Blue Cross.) She also stated that a significant number of doctors will not accept the exchange coverage policies as a result of the lower levels of reimbursement. If this is true….
This is true. This is the provider side of low cost narrow networks.
Wonkblog has a good explainer on narrow networks from the patient point of view:
Narrow networks are health insurance plans that place limits on the doctors and hospitals available to their subscribers…
Less choice in a health plan typically means lower premiums. First, the insurance plan can decide to only sign contracts with the hospitals that charge lower prices…
Narrow network plans have become increasingly popular in recent years, growing from 15 percent of the insurance plans that employers offered in 2007 to 23 percent in 2012….
approximately 70 percent of the exchange plans are either narrow or ultra-narrow plans, according to a study by McKinsey and Co. The consulting firm defined “narrow” as having at least 30 percent of the 20 largest hospitals in the geographic region not participating
Pricing and indepdendent quality metrics are at best minimally correlated. Narrow networks can be both cheap and effective at delivering high quality health care. They can also be cluster-fucks, but that is not a function of narrowness per se.
So how does a network go from being a broad network to a narrow network. Let me take Mayhew Insurance as an example. We offer two networks on the Exchange. The first is our regular commercial network minus a few idiosyncratic opt-outs. It is 99.8% of our regular network. Since we are including everyone, we don’t have a ton of pricing leverage as the providers know we are the price-taker in this case. We’ve offered our standard commercial rates which range from Medicare plus 20% to Medicare plus 125% depending on specialty, location and group size/clout.
The other network is Mayhew Narrow. This is a network that is 47% of the general network. The way that the network was assembled was that we set a price that we would pay at Medicare plus a smidgen (highly technical term right there). Company reps went out to the general network and asked if they wanted into the Exchange network at Medicare plus a smidgen. This allowed us to be price-makers as a company. The first round produce a network that was almost good enough to sell. A second pass at a slightly better smidgen went to several selected specialty groups that filled out the network to a point where the sales people thought we could sell a broad enough network at a low enough price point.
There are a lot of providers who aren’t in Mayhew Narrow but are in Mayhew Big. Most of those providers are out for one of two reasons. The first is that they were willing to take Medicare plus a smidgen but did not have admitting privileges to hospitals that were also willing to take Medicare plus a smidgen and were unwilling to get privilges at a Mayhew Narrow hospital. The second is a provider or their finance manager looked at Medicare plus a smidgen and laughed at the number.