Narrow Networks, a.k.a., High Performance Networks, are back, and are likely here to stay. In 2011, 20% of employer groups that offered health benefits included some tiered provider network.(1) Health plans and purchasers see the benefit of funneling members to the cheapest sub-set of providers, and in doing so realize further cost compression through increased pricing leverage. It all makes perfect sense provided that consumers are willing to elect benefits that limit their choice of providers in exchange for a share of the savings. Current experience suggest inducements must be high for consumers to take the bait. According to BDC Advisors “To be attractive, narrow, tailored, tiered and high performance networks will need a 20%-25% price advantage over PPO and HMO products.”(2) Today it seems “choice,” like everything else, has price. However, does it need to going forward? Specifically, in the future will consumers value the right to choose from a broad set providers whenever they want to? Maybe not, or at least not as much, and not always.
Imagine a community where at least some provider groups are considered by many to be the “best.” Best in this context includes convenience, access, real & perceived quality, staff sociability, attractiveness of physical infrastructure, etc. Could not these providers create their own managed care products, either on their own in conjunction with an established managed care entity-- effectively a “narrow network” product? They can, and they are already starting to do so.(3) Calling these “Narrow Network Plans” is like calling a Porsche a “Compact Car” because they fit into tiny parking spots. Technically the name may work, but it is hardly descriptive of the value proposition or customer promise. Rather, I prefer the term “Exclusive Network Products.” These Exclusive Network Products do not need to be the cheapest in the market even though out-of-network care is highly limited. Rather, consumers may be willing to pay a premium to see these “best doctors,” especially if other insurance products preclude them from doing so. Finally, what is truly exciting about these Exclusive Network Products is they can be both highly demanded by consumers and the lowest cost option as well.
The requirements for providers that want to participate in Narrow Network insurance products, or even launch their own, are straightforward. Firstly, they must be low-cost, either on a per service unit basis or via some other mechanism that allows for premium discounts. Secondly, they must provide reasonably high-quality care. Finally, the patient experience must again be reasonably solid, as consumers know their choices to go elsewhere are limited. However, to be clear, providers participating in old-fashioned Narrow Networks need not be best-in-class in anything save price. Much of their patient volume is driven through plan steerage, not the provider's consumer brand. In summary, for a traditional Narrow Network provider, the customer promise is “quality care at a great price.”
Becoming an Exclusive Network provider is different. Rather than becoming efficient enough for the managed care plan to steer volume to the group, the provider group is the dominant brand. Such an exclusive provider:
Is perceived as a leader in the community for patient experience and care quality,
Has a sufficiently broad scope of services such that a large swath of consumers feel much of their care needs can be fulfilled "in house," and remaining service gaps can be filled through relationships with other trusted providers,
Is particularly strong at Primary Care, the lynchpin of an integrated health system and the most important consumer touchpoint, and,
Has marketing and brand building infrastructure in place to consistently communicate to the market its unique value proposition.
The Exclusive Network insurance product is simply wrapping a risk arrangement around this high-performing delivery system. Further, the Exclusive Provider Network, ideally unfettered with legacy fixed assets that it needs to keep occupied (e.g., hospitals, large staff of salaried surgical staff), can right-size its services against patient needs to reduce the temptation for over utilization. Because the care is concentrated on a provider group the excesses associated with system fragmentation can be minimized. Finally, by taking significant risk on the population health, the Exclusive Network, through providing more coordinated care, can actually be cheaper to consumers. While data is still emerging, Exclusive Provider’s, with their deep patient trust, may be best positioned to reduce avoidable hospitalizations, supply-sensitive care, imaging and medication over use, and other wastes.
Will consumers embrace Narrow Network products, especially if their employers are not offering many other affordable choices? Most likely some will. There is a demand curve for insurance like any other product. However, can this trade-off between provider choice and price be broken? It seems quite likely it can. “Provider choice” and “broad networks” only have value if consumers think they will potentially utilize lots of different of providers. If select providers can create this consumer demand for them and only them, then the network is not “Narrow,” it is “Exclusive.” Some providers will undoubtedly make the transition from satisfying patients and purchasers to being truly demanded by consumers. When this happens, there is no need to price the plan as the lowest in the market, even though the day-to-day ability to choose providers is all but gone. A select few pioneers, including The Villages Health System in Florida, have already begun to do make the transition to Exclusive Networks. I hope other pioneers continue to as well.(4)
1. Kaiser Family Foundation & HRET. “Employer Health Benefits, 2011.” Annual Survey. P. 217.
2. Eggbeer B, et. al. “Narrow, Tailored, Tiered and High Performance Networks: An Emerging Trend.” White Paper.
3. Kutscher B. “One Again, Hospital Systems See Value in Adding Health Plans to Their Organization.” Modern Healthcare Online. Jan 19. 2013.
4. Author’s experience. Author Disclosure. Agate Consulting maintains an advisory relationship with The Villages Health System.