Tiered-network plans may be off to a rocky start, but health insurers insist they're here to stay.
A relatively new concept in managed care, tiered plans group hospitals based on cost and then charge enrollees extra if they choose to use the pricier facilities. A growing list of insurers-including PacifiCare Health Systems and Tufts Health Plan-have embraced this model in recent months as a way to contain soaring hospital spending by making consumers more cost-conscious when deciding where to get their care.
Hospitals, however, have fought back. Two Northern California facilities, for instance, canceled contracts with Blue Shield of California last month when they failed to make the insurer's A-list of hospitals. Meanwhile, heated opposition from providers compelled Blue Cross of California last month to shelve plans for its own tiered product.
The 121-bed NorthBay Medical Center in Fairfield, Calif., and 43-bed VacaValley Hospital in Vacaville severed ties with Blue Shield on May 14, arguing that the San Francisco-based insurer's "controversial tiering system" ignored differences in the quality and scope of services offered among facilities, and that it penalized lower-income people by leaving them with little or no choice of hospitals.
"Blue Shield is using the pocketbooks of members to force concessions from hospitals that they haven't been able to achieve at the negotiating table," said Gary Passama, president and chief executive officer of NorthBay Healthcare Corp., which owns the two hospitals.
Blue Cross suspended its tiered program after members of its provider-relations committee voiced similar objections, said Michael Chee, spokesman for the Woodland Hills, Calif.-based insurer.
"Our competitors in California had already introduced their (tiered) products by the time we presented our version of the concept to the committee," Chee explained. "Based on their experience with the products that were already out there, our providers weren't overwhelmingly supportive of the idea."
However, many insurers-and even some hospitals-contend that tiered plans are the way of the future.
David Joyner, Blue Shield's senior vice president of network services, predicts that over the next five years the tiered-network model will become as conventional as tiered pharmacy benefits are today.
"People these days understand and accept the rationale behind paying more for a brand-name drug than for a generic," Joyner said. "In the same way, I believe the public will become more comfortable with the tiered-network concept as it becomes more familiar over time."
A handful of hospitals already have come around.
Watsonville (Calif.) Community Hospital, a 130-bed facility on Monterey Bay, agreed last month to reduce its rates to be promoted into Blue Shield's preferred or "choice" category of providers.
Sharp HealthCare also renewed its contract with Blue Shield last month, moving four of its five acute-care hospitals into the "choice" echelon. The San Diego-based hospital system had terminated its relationship with Blue Shield in December when its facilities were relegated to the insurer's nonpreferred or "affiliate" list.
"This was a decision that was beneficial for both parties," said Sharp spokeswoman Eileen Cornish, acknowledging that the hospital system had to agree to certain rate reductions.
Blue Shield, which began to convert all of its health plans to the tiered model in April, is now looking into applying the concept to its physician groups as well. Meanwhile, Health Net and Premera Blue Cross are considering tiered plans of their own. And Blue Cross and Blue Shield of Massachusetts, which launched a tiered option called HMO Blue Preferences in January, plans to roll out further tiered benefit designs in coming months, said Susan Lahey, spokeswoman for the Boston-based insurer.
Even Blue Cross of California hasn't ruled out the possibility of launching a tiered plan. The insurer inched in that direction last month when it decided to rank the hospitals in its network by how expensive they are.
Each facility listed in the insurer's membership materials will be ranked based on cost. Enrollees won't pay a higher surcharge to use any of the hospitals, but Blue Cross hopes members will use the system to make wiser spending choices.
"This is just a first step toward creating transparency for consumers with regard to the vast differences in hospital rates," Chee said.
How much employers will take to the tiered-network concept remains another question.
In January, Waltham, Mass.-based Tufts launched a tiered option in which members pay extra to be treated at an academic medical center instead of at a less expensive community hospital. The move was a step toward containing rising costs, given that about 40% of patient admissions in Boston are to teaching hospitals, compared with 18% nationally, said Tufts spokeswoman Catherine Grant.
So far, only a handful of employers have joined Tufts' Choice Co-Pay Plan, Grant says.
Likewise, just two employers-representing 2,000 of the Massachusetts Blues' 2.4 million members-are enrolled in HMO Blue Preferences. One of them is a community hospital, Lahey said. "We knew this was going to be a niche product," she said.