Healthcare Business News
Eric Schultz, President and CEO of Harvard Pilgrim Health Care
"These narrow networks have become very common now in Massachusetts and increasingly in New Hampshire." Eric Schultz, President and CEO of Harvard Pilgrim Health Care

Building narrow networks that work

By Merrill Goozner
Posted: December 21, 2013 - 12:01 am ET

Narrow networks are here to stay. Some of the nation's top payers and providers are leading the way.

Last month, Modern Healthcare brought together representative frontline players building narrow networks for a webinar to find out how they plan to maintain customer and patient satisfaction while restricting access to some high-cost providers.

Modern Healthcare Editor Merrill Goozner spoke with Eric Schultz, president and CEO of Harvard Pilgrim Health Care; Amy Oldenburg, head of national provider networks for Aetna; and Dr. Craig Samitt, now president of HealthCare Partners, a division of DaVita. During a lively question-and-answer session, each speaker addressed how they plan to overcome the major roadblocks that stand in the way of building narrow networks that work. Below is an edited transcript.

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Eric Schultz: These narrow networks have become very common in Massachusetts and increasingly in New Hampshire. This only works if there is a sufficient supply of providers, both physicians and hospitals, in a geographic marketplace to create some competition.

In Massachusetts, we established a narrow network for the entire state. It was important that we covered a large geography because most of the insurance is still purchased by employers and they want to have a product built on a narrow network that covers all of their employees, where they live and where they work.

Having a narrow network built around one cost-effective, high-quality healthcare system can be a good opportunity for individuals purchasing insurance in the retail marketplace. It becomes increasingly less attractive to employers who want to have a broader geographic area covered.

Amy Oldenburg: What resonated for (employers) was not only the narrow network delivering a reduced cost, but the need for a quality component built within that network. Plan sponsors felt it was very important.

We used quality and cost-efficiency data to identify hospitals along with specialists. We initially started with 12 specialties but expanded that to 20 to identify those who were the highest-quality and most cost-effective providers and built our networks around those providers. As we have morphed over time, what we have found is that there are providers … that are willing to deliver a rate reduction in exchange for increased steerage.

Web extra

Listen to the exclusive webinar on narrow networks and download slides of the presentation.
Dr. Craig Samitt: I'm going to offer the provider perspective (and) use the term high-performing network instead of narrow network because it really is more characteristic of the environment that we're in.

The open network does not work. One of the key problems is that our incentive system rewards open networks, rewards fragmentation of care, rewards silo-based thinking. That is (the) imperative for a high-performance network.

Not only are we seeing results in high-performing networks, but we can predict that payers, whether it's Harvard Pilgrim Health Care or Aetna or the CMS or any other payers, will seek over time to reward high-performing networks that can demonstrate higher quality and lower cost. (They) will steer patients to high-performing networks with the presumption being that the more we can make it worth the beneficiary or the member's while to be part of a high-performing network, the more everyone wins: better outcomes, lower cost, higher performance than the industry overall.

Modern Healthcare: How do you balance quality and cost considerations in forming your networks?

Schultz: We were fortunate in Massachusetts to have the attorney general's office lead a review of all of the hospitals and a review of the physician care delivery systems in the state and rank them according to cost and quality. The data were all case-mix adjusted to make the comparison and the analysis credible and useful for managing.

We used that information to guide our selection of the systems of care. … The hospitals delivering care in Massachusetts are all doing a very good job. It was a matter of degree of difference—good to best. Were there some exclusions? There were a couple where there were concerns about quality, but it was really more one of cost.

Amy Oldenburg, Head of National Provider Networks Aetna
"We used quality and cost-efficiency data to identify hospitals along with specialists." Amy Oldenburg, Head of National Provider Networks Aetna
Oldenburg: We have a set of standards that we utilize from a quality perspective specific to our networks. There was a mix of standard data items such as average length of stay, 30-day readmit, some CMS process measures and our claims data to (make) the first cut.

We applied it across all of the hospitals and ranked them from a quality perspective. ... You then make sure that you've got facilities that will provide adequate coverage in terms of all of the services that would be needed, and ensure that you have facilities that membership would actually utilize because sometimes there are some facilities that have very low utilization across your current book of business. We wanted to make sure that we had an adequate mixture.

Samitt: We have partnerships with several academic medical centers in our market. There's a level of expertise that academic medical centers bring that other hospital systems do not, so we partner with academic medical centers to provide care when it is in our patient's best interests.

Where this becomes obviously a bit of a rub is what happens when an academic medical center's outcomes are not better than a community hospital's outcomes. This would more likely be for some of the more common admissions that are very well served by community hospitals.

MH: Are the cost reductions in these networks primarily due to the reduced rates or better outcomes?

Schultz: It really depends on the market and it depends on the design of the narrow network. … If I build a network around a large, single, multispecialty group practice and hospital system; and if their current delivery system is highly efficient and they have mechanisms and committees in place and their outcomes are measured regularly; and we really do know what the quality of care is ... then it's a matter of sitting down with the leadership there and determining the price that is needed to sell a product with that network.

It might be that the price can be built on the rates that are already in place and there's no negotiation to lower the rates; it's adequate. … We simply excluded the highest-cost providers and still had excellent choice and good-to-excellent quality and reduced the overall cost of insurance by 10%.

Oldenburg: We have markets where we have achieved a 10% reduction without actually seeking rate reductions from providers. … (Given) the disparity that we have among providers in that market in terms of their cost structure, (it is) easier for us to drive to that 10% by reducing the size of the provider panel by culling out certain providers.

In other markets (that are) not as broad or we don't see as much disparity, we have used cost reductions or initial rate reductions with a provider in order to make sure that we can reach that 10% point. So it really has depended upon the local market.

MH: How do you get consumers or patients effectively engaged so that reduced utilization in a narrow network becomes practical?

Samitt: This is one of the critical concerns that current or future accountable care organizations have in participating in an open-network program. There isn't the ability to really align interests and align incentives with patients.

We're beginning to see more and more, especially driven by employers (who) are seeking to align incentives for employees as well as patients, wherever feasible, to reward them personally for a focus on wellness and prevention and adherence. But we haven't gone far enough yet. My prediction is we're going to begin to see the notion that gain-sharing, the sharing of benefits from a healthier population, doesn't just accrue to health plans or providers or hospitals but also accrues to patients. … Only when we achieve that level of alignment through a share-and-share-alike approach will we really improve the health of the population.

Schultz: Patient engagement and consumer engagement—and I use those phrases deliberately because they are different in our world—is critical to creating a real marketplace. Consumer engagement is where we are offering a narrow network-based product alongside a broad network-based product and we are engaging the consumer, the employee, with a fixed-dollar contribution from their employer and showing them what their choices are. We are very clear about the pros and cons of both, how these products work and asking them to make a decision that works best for them and their family.

Based on our experience in Massachusetts, where we have had the exchange in place for the past seven years, consumers are highly price sensitive. They will discount brand faster than a New York minute. This is a piece that's really worrying to high-cost, high-brand clinical-care systems because they have to rapidly figure out how do they remain a viable economic option for a lot of the market that will shift for price.

 Dr. Craig Samitt, President of HealthCare Partners
"I'm going to offer the provider perspective (and) use the term high-performing network instead of narrow network because it really is more characteristic of the environment we're in." Dr. Craig Samitt, President of HealthCare Partners
MH: How do you engage clinicians in these narrow networks? How do you get them to do the things that reduce utilization and reduce cost?

Samitt: I would dub it the art of physician persuasion (and) it's a complicated science. … There's no one fixed solution. There are multiple levers we need to pull. It's vision and it's incentives and it's data and it's peer pressure and it's empowerment. It's involving physicians in finding solutions and developing new programs. It's a skill that takes time to develop.

Schultz: I was fortunate to have led a physician group practice for six years, a primary-care group practice. Being an insurance guy now, it was a humbling experience because we can see just how much insurance companies can mess up a physician-patient relationship.

I would focus on one piece that we as a payer are bringing to this opportunity and challenge. We bring … a very powerful informatics system (which) the care delivery systems can use to measure performance in a variety of ways.

Without that, we can't manage these changes that we need to bring about. So informatics are key. We're all about opening up the black box. This is not going to work unless we open the kimono and share what information we have.

Follow Merrill Goozner on Twitter: @MHgoozner

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