There is an interesting discussion thread on Twitter about how the way Medicare for All saves money is by significantly reducing provider, device, and prescription payment rates.
— xpostfactoid (@xpostfactoid1) January 15, 201
There was a related but unlinked discussion to how firms were responding to the probability of the Cadillac Tax applying to some if not all of their plans in 2018. The dominant response was to create plans with higher cost sharing to drive down utilization. Another response was to add wellness programs in an attempt to make the pool of covered lives healthier and thus cheaper to insure.
One of the few things that have not been mentioned in either context is network design in a fee for service environment.
Employee Sponsored Insurance (ESI) tends to pay roughly 150% of Medicare rates (this will vary by region, plan design, company etc, but as a rule of thumb 150% Medicare is close enough). That 150% of Medicare is not uniform. It varies by provider. One provider group might only sign a contract at 175% of Medicare while another provider in the same specialty will sign at 150% Medicare. Furthermore, two hospitals that are at the same Medicare multiplier will have different Medicare bases. A teaching hospital will have a higher base Medicare rate than a community hospital. A hospital in the boonies that is designated as a critical access hospital will have a higher Medicare base than a hospital with multiple near substitutes within a 15 minute drive.
Furthermore, two providers in the same specialty who are getting the same multiplier against the same base rate and are practicing in the same office building can have significantly different total claim payments even if they are treating statistically similar populations. One doctor may be inclined to wait and see while the other doctor will be sending the patient out for a lot of testing to rule things out at the first glance of trouble. The end results can be the same quality of care, but the care costs significantly more from one provider than the other.
Networks can be designed (as they are for some self-insured groups) to chop out the 5% to 10% most expensive providers. The most expensive list can be driven by either the multiplier or by risk adjusted and geography adjusted per member per month costs (PMPM). Carving out a very broad network that has 90% or 95% of the total contracted providers will save several percent through the combination of paying a slightly lower average rate per service and paying for fewer services.
If an insurer creates a medium network like this that is competitive and iterative so that the network is re-opened and rebuilt every year with a bidding process by providers to get into the network, it places pressure on providers to lower their contract pricing rates to either keep their place in the network (which should be driving a lot of patients to them as large groups will be very happy to save 3% or 5% without pissing many decision makers off) or to get into the network as the number of patients in the full price 100% participation network is dropping.