This post will be a bit wonky and it is tied to the question of an insurance company building networks outside of its “home base” area. Expanding service areas for current or future insurers is important as it allows for greater competition which theoretically should mean lower prices or at least more choices at a given price point with slightly different selling features.
There are three basic ways an insurer can build out a network. The first is an organic growth push, the second is delegated credentialing, and the final is renting repricer networks. Each have their advantages and disadvantages. Organic growth is the cheapest, while renting and repricing is the most expensive.
In the organic growth model, insurers send their field reps to start talking with doctors, facilities, hospitals and other providers. The providers are offered contracts and some of them sign on. Some don’t and then the insurer decides whether their current iteration of the expanded network is sufficient for both regulatory and marketing requirements. Marketing requirements almost always needs more doctors/hospitals than regulatory requirements.
Organic growth or direct contracting growth is usually a slow process as the pricing process can take a while, especially for a new insurer entering a new area as there is an administrative cost to providers to sign up for a new insurer as they have to submit their credentialling paperwork yet again, plus learn whatever company specific rules plus open their medical records and data to someone else without any compensating new income or patients until they are credentialed and the insurer has membership in the region. The advantage of this process is that the cost per service tends to be the lowest and ongoing network maitenance costs are lower on average.
This strategy works nicely when the expansion area is just outside of the current service area as a doc who is now newly in network can treat and make money from patients/members who live one county over while waiting for the insurer to start selling in the new service area.
Delegated credentialling is an effective strategy for doing a fast expansion that hops over some non-service area to get to a new service area. The insurer contracts with a local credentialing body and gains access to all of their docs for a fixed fee. The docs will have a contract with the local credentialing body that mandates that they also contract with the new insurer at a given rate. The credentialing entity receives a set fee for network construction (say $200 per doc, $3,000 per hospital etc) while all claims payments go straight to the doctor’s accountants. This strategy tends to produce higher administrative costs as well as higher claims costs for the insurer, but it is often the only way an insurer can expand into a new region in less than eighteen months of network construction.
Finally, there is the Assurant model of renting repricer networks. There are several vendors who have assembled a national network of providers who agree to a very high reimbursement rate. The repricer networks receives claims from one of their providers at the chargemaster or usual and customary rate and then the repricer takes a chunk off of the top. The local insurer pays the remainder plus a proportion of the difference between the billed rate and the repricer rate.
Repricing networks are a viable business decision for companies that mainly have a regional presence but need to be able to pay emergency room claims anywhere in the United States. Repricer networks allow for national emergency room coverage at less than chargemaster effective pricing. Relying on repricers like Assurant did means very high claims cost per unit of service received.
The Blues have a fourth model that is available to them to some degree. They share and blend networks, so Blue Cross and Blue Shield of Michigan members can use Blue Cross and Blue Shield North Carolina providers at a repriced rate that is far better than they could get from repricing vendors.
All of these strategies for expanding service area provider networks have their place. Organic direct contracting growth is often the prefered method if the providers are not tightly organized and there is time for outreach while delegate credentialing allows for big chunks to be brought on quickly but more expensively. Repricing providers a backstop of national coverage for regional insurers.
japa21
It is interesting how the repricer networks work. Some very large national networks will use repricer networks in some areas where they don’t see the value in developing their own network due to initial costs as well as maintaining sufficient provider relations staff to maintain the network. Additionally, some states are set up to almost require a national network to use either a rental network or pay an access fee to an existing local network. Minnesota is a state that works that way, for example.
Rental networks are basically paid on a percent of savings. The more the rental network saves off the claim the more the rental network gets paid by the insurer.
Also, although many rental networks are national in scope, a major insurer may use one in one area and another in a different one based upon the rates the rental network has contracted with providers for or the size of the rental networks presence in that area.
Some large insurers actually own rental networks as subsidiaries. This allows them to, in essence, pay themselves for the access.
As you point out, the initial investment in time and money in building a network is huge, but long term savings are greater. The real difficulty in building a network is when the insurer is small or has limited membership. These companies are at a disadvantage when negotiating contracts which creates a vicious cycle.
The Blues have, pretty much, a lock on lowest contracted rates because of their large membership. Some states, the Blues have 80-90% of the group insurance, for example. And their are times a provider can be rather short sighted when negotiating with another large company. Because they get such a low reimbursement from the Blues (from their perspective) they feel the need to push for larger reimbursement from other companies. Of course, what this does, is perpetuate the Blues dominance in the market as they are frequently able to go with lower premiums since they pay less for the same services.
It would actually behoove these providers to accept a little less form the other companies as those companies are then in a better competitive situation versus the Blues and can take business from the Blues which would reduce the leverage the Blues have to demand lower reimbursement rates.
cahuenga
That’s all nice and theoretical, but out West the exact opposite is happening. Networks are dwindling:
http://www.latimes.com/business/la-fi-0928-obamacare-doctors-20140928-story.html#page=1
http://kaiserhealthnews.org/news/insurance-choices-dwindle-in-rural-california-as-blue-shield-pulls-back/
Fair Economist
When you say delegated credentialing is more expensive, does that count negotiation and training expenses? It seems to me that delegated credentialing would be more efficient in the abstract (less of people repeating/redoing stuff) and I wouldn’t think the credentialer’s profit would exceed that.
Richard Mayhew
@Fair Economist: Abstract v. practicality.
Delegated credentialing usually happens when there is a locally medical group with significant market power in a region and the only way an insurer gets into the region is to go through the credentialing group.
Abstractly, if delegate credentialing happened on a frequent basis in low HHI provider markets, the efficiency/single point of contact concern would be quite useful and probably a lot cheaper. However, delegate credentialing agreements tend to happen in high provider HHI areas, so market power overwhelms any efficiency gains.
docg
Blizzards of bullshit. I was born in 1952, 62 years ago. The hospital bill, which I have in my baby book was $46, a 2 day stay, labs, etc. Inflation brings that to just over $400 today. The rest of the thousands for a birth is corporatization of health care. All of your verbal masturbation is just corporate shilling. Go away. You have nothing useful to add.
FlyingToaster
@docg: What planet do you live on?
The real-estate for hospitals is *far* more expensive now than it was in the 1950s.
A full maternity facility now is not just an ob/gyn, midwife, general nurses and orderlies. It’s a dedicated c-section operating room, maternity nurses, neonatal nurses, PAs, and security (seriously, it’s like a lojack) to keep a crazy from walking out with your baby.
Without those, you had both a maternal death rate and an infant mortality rate ‘way higher than currently in the US:
Maternal mortality, 1952: 68 per 100,000
Maternal Mortality, 2013: 18 per 100,000
Infant mortality, 1952: 28.4 per 1000
Infant mortality, 2013: 5.2 per 1000
(sources: CDC and CIA world fact book)
So you’re paying for better outcomes: fewer maternal and infant deaths.
Of course, you may well believe that the better outcome was not worth the increased outlay.
Fuck you, then; I and my daughter would be dead without the emergency c-section and MgS drip.
Corporatization my shiny metal ass.
Richard mayhew
@docg: OK… Did you walk up hill both ways during a July blizzard as well.
I tend to describe things as they not as I or others wish them to be
Prescott Cactus
@Richard mayhew: @Richard mayhew: and we thank you for that.