Back in the Day — Lessons Learned from Pre-reform Days: Going “Old School” with Narrow Networks

In 1986, I and a few other members of an exclusive group of people in Indiana who knew the difference between HBO and HMO, were wooed away from our positions with other HMOs by Key Health Plan, a start-up HMO owned by the Associated Group (Anthem’s forerunner).

I was hired to help Key Health Plan establish a statewide provider network and my territory was mostly-rural southeastern Indiana.  In that part of the state, the marketing people were doing a bang-up job of signing employer groups and they needed a provider network in place before the open enrollment periods started.  So, I set to work calling on physician practices in the cities of Jeffersonville, Clarksville and New Albany and the many smaller towns in the rural areas.

It would be a stretch to say we would contract with just about anyone whose name was followed by “M.D.” or “D.O,” but not much of one.  A provider credentialing program was in place, but the parameters were broad.  Still, we didn’t take the small town GP who delivered babies and didn’t carry malpractice insurance because, in his words, “I know all my patients and none of them would ever sue me.”   We did take the solo practitioner in a town where the local factory that employed most of his patients would be offering our plan, even though he called me a Communist after I explained how capitation worked.

Don’t get me wrong. There were plenty of business-savvy physicians in the area who were skilled negotiators.  One of them – a young, small-town solo practitioner – had calculated the savings in billings and collections he would realize through a capitation payment system and told me he would do better with capitation than he would with fee-for-service payment — helpful information for a Communist like me.

But that was then, and the days of “(almost) any warm body” network building are long gone.  As my CHIR colleagues David Cusano and Amy Thomas pointed out in a recent Health Affairs blog, insurers in today’s market face a number of new financial challenges accompanied by restrictions that leave them fewer options for addressing those challenges.  They noted that negotiating lower provider reimbursements is one of the few remaining cost-cutting (and profit increasing) methods available to issuers in the Post-ACA markets.

Still, the way insurers go about controlling provider reimbursement costs through their network-building practices has really not changed much from the approaches used in the 80’s.  Back then, we assured the capitation-wary primary care physicians the system would work because patient volume, based on enrollment projections, would make them profitable.  The projections were premised on the lower, ultra-competitive premiums resulting from the offering of a “restricted” network plan (HMO) for the first time in that part of the state.  Also, because there are no benefits available outside of the network in an HMO plan, providers could be assured of a certain volume of business.  In today’s market, the narrow networks we are hearing so much about are developed using the same premise: the projection of patient volume due to fewer providers and lower premiums.

The difference is that today no one is talking about volume in exchange for lower reimbursement.  They’re using other, more attractive terms like “quality control” and “case management” to explain why networks are narrow.  But, it should be obvious to even the most casual observer that the narrow network plans exist because patient volume is a powerful negotiating tool for insurers and the lower reimbursements negotiated by the assurance of volume are good for the bottom line.  That’s not necessarily a bad thing; unless the practice is so pervasive in a particular market that it leaves consumers with little or no provider choices.  In fact, it could be a good thing if savings are passed on to consumers in the form of lower premiums.

Through our work with the Robert Wood Johnson State Health Reform Assistance Network, we’ve learned that network adequacy, and narrow networks in particular, are high on the list of priority issues for state regulators.  But, for regulators, insurers, and providers to address the issue, everyone needs to be forthcoming about their motivations and use terminology that accurately describes the issue’s causes and components. To that end, insurers need to go “old school” when discussing their reasons for developing narrow networks because honest, open discussion is always a good place to start.

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The opinions expressed here are solely those of the individual blog post authors and do not represent the views of Georgetown University, the Center on Health Insurance Reforms, any organization that the author is affiliated with, or the opinions of any other author who publishes on this blog.