More is not always better. In fact, health plans and providers might benefit by limiting the number of organizations with which they contract. Especially as the industry consolidates, health plans can stand out from competitors by having distinctive networks. They might even achieve some level of exclusivity with key or highly visible providers. The plans can drive higher volume to fewer contracted providers and negotiate lower rates with those providers. In addition, smaller provider networks should reduce administrative expenses, because there would be fewer yearly negotiations, renewals, and budgeting and adjudicating claims.
Before canceling existing contracts to reduce their networks, however, plans need to carefully consider the marketing, operational and financial ramifications of reducing network size.
Benefits to health plans. Some health plans already have fewer provider contracts because of plan and provider mergers and acquisitions. A smaller provider network should improve plans' abilities to monitor quality of care (for example, through the National Committee on Quality Assurance's Health Plan Employer Data and Information Set, patient satisfaction surveys and encounter data). Given the recent concerns about the financial viability of physician practice management companies and other providers, health plans with smaller networks could better monitor their contracted providers' financial well-being. True monitoring of financial viability requires more than looking at financial statements, and it can be daunting as plans consider monitoring entire, sizable networks.
Providers, too, can prosper. Many providers are stuck with the consequences of a "sign every contract because you may not have another chance" philosophy. If they can, providers should limit the number of health plans with which they contract, eliminating nonperforming contracts, or those that don't direct new business their way or that cause them to be paid at rates below break-even. With fewer health plan contracts to manage, they can develop stronger relationships with the plans with which they do contract. Health plans and providers can develop more-effective partnerships for activities such as accreditation, credentialing, encounter data management, marketing and medical management.
A provider that decreases its volume of health plan contracts can establish a level of mutual exclusivity in a geographic area. That will improve the provider's contract rates and ensure network availability for the plans' members.
Providers should selectively contract with payers who pay promptly, are easy to work with and pay rates that the providers find acceptable. Health plans can help providers be more efficient by promptly returning calls and resolving issues, paying claims within contractually stated periods and providing timely eligibility and benefit information. Health plans that readily fulfill their contractual obligations help providers avoid the costs of inefficiency and are more likely to get the cooperation they need.
When reducing the number of contracted plans, providers should strive for similarity in the rate structures of the remaining plans. Some of the plans may have such low rates that providers can't increase them to the level of the others in the first year but must establish a two- or three-year plan for rate increases. They should maintain a level playing field for all the plans in the local market to avoid giving any plan an unfair cost advantage with local employers.
Hospitals and physician organizations can determine which of their contracted health plans can best direct members to contracted providers. As providers successfully reduce the number of plans with which they contract, they will have incentives to contract with plans at mutually beneficial rates and to work with plans to resolve issues.
Careful thought. To be sure, health plans have had their reasons for establishing large provider networks. They were intended to satisfy employer group and beneficiary demands for multiple provider options and to minimize risk in case of financial or other failure that causes a provider to leave the network.
Providers, too, have incentives for contracting with many health plans. They want to avoid the risk of losing business to competitors, to spread the risk in case one or more health plans fail or are poor business partners, and to maintain relationships with health plans with which the provider already does business through another type of insurance product-HMO, PPO or indemnity.
Obviously reducing network size is not an option for all plans. Consider the strategic and financial benefit of each contract before proceeding with contract reduction.