Managed care may be coming full circle.
After years of expanding their networks to meet customers' demand for greater choice, health insurers once again are starting to battle rising healthcare costs the old-fashioned way-by restricting patients' access to providers.
Blue Cross of California last week became the latest insurer to launch a so-called narrow-network HMO, designed to save employers money by limiting coverage to a select panel of doctors. Reminiscent of the bygone era of tightly managed care, narrow networks run counter to the current trend of "consumer-driven healthcare," which aims to give patients greater choice and control over their medical spending.
Dubbed Power Select HMO, Blue Cross' new plan restricts patients' access to a carefully chosen group of 5,400 primary-care physicians and 8,400 specialists, or roughly half of the 29,000 doctors with whom the insurer typically contracts. The plan, which is available to employers with more than 50 workers, will cost an average of 15% less than other HMO products, company officials said.
"We're offering a viable alternative to employers who are finding it's increasingly difficult to afford health benefits or are considering dropping their health benefits altogether," said Larry Rehhaut, general manager of key accounts for Woodland Hills-based Blue Cross, a unit of national giant WellPoint Health Networks.
The HMO also emphasizes greater cost-sharing by employees, with copayments of $15 to $20 to see a primary-care physician and $30 to see a specialist. The average copayment for a doctor visit nationwide was $12 in 2002, according to Mercer Human Resource Consulting. For inpatient care, Power Select members could be fully covered or could have to pay either $100 per day or 20% of their total bill, depending on the benefit design.
Back to the future
Rehhaut shied away from labeling Power Select a narrow-network product, arguing that its 13,800 doctors span 22 California counties and are free to admit patients to any of Blue Cross' 400 contracted hospitals. The HMO also includes a tiered pharmacy benefit and coverage of preventative care.
Yet in many ways, Power Select is a return to the original concept of managed care, which successfully curbed healthcare cost inflation in the early to mid-1990s by carefully managing patients' access to care.
In the latter half of the decade, a consumer backlash against HMOs' strict "gatekeeping" tactics-coupled with new government benefit mandates-compelled insurers to loosen their coverage restrictions, drop most of their preauthorization requirements and broaden their networks to include nearly every available provider. But as employers brace for what's expected to be the fourth straight year of double-digit premium increases, many are looking to sacrifice some flexibility for greater cost savings.
"It's `what goes around, comes around,' " said Linda Cushman Ruth, senior healthcare strategist with Hewitt Associates. "Narrower networks became prevalent in the '80s when (healthcare) costs were going up. ... Now, with costs skyrocketing again, employers are considering going back to the future."
Power Select is designed to save money by steering patients to the most cost-conscious providers. Blue Cross, the state's largest insurer, used extensive claims data to select only those doctors or medical groups that were most cost-efficient in using hospitals, ordering tests and procedures and prescribing pharmaceuticals. It also factored in each practice's financial stability, administrative efficiency and ability to accept new members.
Ruth adds that narrow-network plans also could entice providers to become more cost-efficient by guaranteeing greater patient volume to those who participate. "These plans get at the supply side of medical care, as well as the demand side," she said.
Intentionally or not, the strict cost efficiency-and in some cases, quality-requirements of narrow networks allow insurers to circumvent controversial state "any willing provider" laws upheld by the U.S. Supreme Court in April. Insurers have complained that the laws, which require HMOs to open their networks to any provider willing to abide by the plan's contract terms, stymie their ability to manage healthcare costs (April 7, p. 6).
Many insurers have been trying to guide members to more cost-efficient providers through the use of tiered networks, which group hospitals or doctors by relative cost and increase copayments for patients who use providers in the more costly groups. But partly because of pressure from providers reluctant to be relegated to a lower tier, such networks have become increasingly inclusive, making cost variation in many areas minimal, experts said. For example, the lowest-priced level of Blue Shield of California's tiered hospital network now includes 84% of all the insurer's contracted facilities, including every hospital in the high-priced Sacramento area.
Experts also have questioned whether consumers have the information-and the motivation-needed to make truly cost-conscious decisions when choosing where to seek care. Narrow networks eliminate that uncertainty by allowing members to choose only among those providers that essentially would have qualified for a preferred cost tier, said Michael Chee, spokesman for Blue Cross, which last year shelved plans to launch its own tiered network.
While a limited number of narrow-network plans always have been available, the idea has gained ground in the past year, with Aetna, PacifiCare Health Systems and UnitedHealth Group all trying new twists on the concept.
Aetna, for example, plans on Jan. 1 to roll out a narrow network made up of specialists who meet high standards in both cost efficiency and clinical quality. Participating doctors were chosen based on total treatment costs as well as outcomes, volume of procedures performed and rate of adverse events, such as post-operative infections and hospital readmissions within 30 days of initial treatment.
The network, called Aexcel, consists of doctors in the six specialties that account for an inordinate share of total medical spending-cardiology, cardiothoracic surgery, gastroenterology, general surgery, obstetrics/gynecology and orthopedics, said Don Liss, Aetna's senior medical director. It will be available to self-insured employers in select markets, either as a stand-alone narrow network or as part of a broader tiered network.
Aetna decided to focus solely on specialists because its large clients wanted to retain the broadest possible network of primary-care physicians, Liss said. "Because specialty care tends to be more episodic ... there would be less risk of significantly disrupting long-standing patient-provider relationships," he said.
How well the narrow concept will fly with employers, however, remains to be seen. According to a recent survey by Hewitt, 5% of large employers currently offer a narrow-network product, and an additional 1% plan to adopt one in 2004. But 66% of the 500 companies surveyed said they had no interest in the option.
Cypress-Calif.-based PacifiCare, which launched a narrow network of doctors and hospitals in October 2002, said it is enjoying strong interest from employers. Called Value Network, the HMO includes about 200 hospitals and 250 medical groups that scored high on cost and quality-of-care measures.
But other narrow-network plans have fizzled. For instance, High-mark, a Pittsburgh-based Blues plan, intends to phase out its 5-year-old narrow network of hospitals, called Community Blue, by the end of 2004 because of dwindling employer interest and growing provider resistance. Highmark spokesman Michael Weinstein said contracting with a select group of hospitals simply wasn't providing cost savings.
"Member satisfaction was lower than with our broader network products," he said. "And with hospitals pushing for rate increases, we realized that we wouldn't be able to sustain our pricing levels."
Weinstein said many of Community Blue's problems have been market-specific. For example, the plan didn't include 12-hospital UPMC Health System, western Pennsylvania's largest hospital network.
Blue Cross' Power Select also omits a number of the state's major providers, including San Fran-cisco's largest medical group, 1,600-doctor Brown & Toland Medical Group. But Rehhaut said he still expects Power Select to be "quite successful" with midsize and large employers, adding that the insurer signed its first customer last week-a 70-employee company in Los Angeles County whose name he wouldn't disclose.
Power Select also could get a boost from the recent passage of a California law that will require all businesses with 50 or more employees to provide health benefits directly to workers or pay fees into a state-run insurance pool to cover them (Sept. 22, p. 22). The law takes effect in 2006.