Navigating Narrow Networks

Narrow networks, aka high-performance networks, are luring employers due to their potential for cost savings and better healthcare delivery, but they present HR challenges, as well.

Tuesday, June 17, 2014
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Less is more.

That's what some people believe is the main attraction of narrow networks, otherwise called high-performance networks. Such networks are mainly composed of physicians and hospitals but contain fewer providers than traditional health networks. Their purpose is to drive higher quality healthcare services for a better value. While they've existed for many years in one form or another, employers are now taking a second look, hoping that, by only choosing quality providers, they can drive up patient volume, negotiate better deals for services and save double digits in healthcare costs.

Among the reasons why narrow networks are taking center stage is the Affordable Care Act. The ACA created public exchanges, which are considered by many health plans as a fresh marketplace where the old rules of engagement simply don't apply, says Patrick Travis, senior manager at Deloitte in Chicago.

He says health plans consider public exchanges as the "new battlefield," offering networks two-thirds the size of traditional networks that may translate into 10 percent, maybe even 20 percent savings. Travis explains that the savings result from eliminating higher cost doctors who have not produced better outcomes. By doing so, he says, average transaction costs drop.

Some employers are monitoring these networks very closely, watching how they perform. Others are actually using them. A 2011 Mercer survey of employers revealed that 14 percent of large employers were using such networks, states an issue brief by America's Health Insurance Plans. Likewise, the brief points to results from the 2013 Morning Consult National Healthcare Tracking Poll, which showed a similar outcome. The majority of respondents -- 58 percent -- preferred "less expensive plans with a limited network of doctors and hospitals" to "more expensive plans with a broader network of doctors and hospitals."

Although some people are concerned about smaller networks -- believing they offer the same restrictions as 20-year-old managed-care products -- research shows otherwise.

The brief mentions two plans -- one that assesses providers across 21 specialties based on quality of care and cost efficiency, estimating the average savings at 14 percent, and another that uses clinical performance and cost efficiency criteria to evaluate providers in 12 specialties. Employers can also determine the level of incentives to drive employee behavior. The plan reports that its high-value providers are "one percent to eight percent more cost-efficient relative to other providers within the network."

Although too premature to tell, narrow networks may also offer an indirect benefit - motivating other health care providers to improve their performance so they can be included in such networks in the future.

Although narrow networks are proving their worth, nothing is perfect.

"If the cost savings don't materialize, then you've gone through a lot of administrative effort, communication and cost . . .," says Travis. ". . . [T]hat's dollars wasted, so there's a risk that these [networks] don't always pan out."

However, the No. 1 downside is provider-patient disruption, because of which some employees may be forced to seek new providers if their current doctors are not selected for the network, for example.

"That can be a tremendous disruption for employees with ongoing medical conditions, that they have to leave their doctor," he says. "But you can mitigate that by looking at private exchanges."

Here's why: Most private exchanges offer a choice of carriers. So if an employee's doctor is not in network A, which is a narrow network, the physician may belong to network B or network C. So now the employee has options, Travis says, adding that employers can greatly reduce the chance of disruption by offering a narrow network in conjunction with a private exchange.

Until now, the adoption rate of narrow networks has always been small, mainly because they never generated substantial savings when weighed against the work required to implement and promote them. But now healthcare plans are pushing the envelope, says Travis. While they're creating more narrow networks, they're also introducing better tools around transparency that create better visibility into the performance of doctors and hospitals, encouraging employers to redesign their health benefits.

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That may explain why narrow networks are gaining in popularity. In May, the National Business Group on Health conducted an informal poll of 46 large employers and found that 17 percent already have a narrow network in place; an additional 24 percent are considering it for 2015 or 2016, and another 20 percent may use one in 2017.

Another reason why they're so attractive is they keep plan costs low, which means many employers may avoid paying the Cadillac tax starting in 2018, an excise tax imposed under the ACA for high-end health plans, explains Steve Wojcik, VP of public policy at the NBGH.

Still, introducing narrow networks to a workforce poses some challenges for HR.

"Try to provide as much education as possible -- why these providers were selected and the criteria used," says Wojcik. "The more, the better, in this case, so they know the reason for the [network], that it does have positive benefits in terms of better care and lower costs for both them and the company."

Just make sure your analysis is accurate. If you use a narrow network, how many employees will be disrupted? 2 percent? 20 percent? Are the projected savings worth it, considering the cost and time of your communication and implementation efforts?

Realize that HR may receive a backlash from employees who experienced HMOs, he says, explaining that they may believe narrow networks are similar in nature. In this scenario, pushing savings as the primary advantage may need to take a back seat to promoting higher quality healthcare. HR can communicate that the company vetted the providers in the network to create a "superior network," sending a strong message that it cares about employee health, he says.

"Narrow networks is one of the ways to start picking winners and losers, and recognizing those providers who are doing a better job by promising them more volume so they're at least financially rewarded...," Wojcik says. "If we can't do that, it's going to be really hard to do real health reform."

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