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Narrow networks and MedInsight

In the late 1980s and early 1990s, managed care plans frequently featured offerings with provider networks of limited size, based on the idea that using the most cost-effective and efficient providers would result in lower healthcare expenses. As a result, these plans, which usually had lower premiums than larger network counterparts, were hoped to funnel a greater number of patients to smaller networks, resulting in an additional “volume” of traffic to the providers. Advocates of this approach also argued that a smaller network would produce a more favorable risk profile, because members willing to choose from a smaller list of providers were less likely to have an existing condition already in treatment.

A variation on this theme is the “tiered network,” in which the highest benefits are paid when members visit the most efficient providers. However, a “narrow network” is not necessarily a tiered network because the concepts involved represent two different methods for reducing costs while improving access and quality (although “narrow networks” and “tiered network” concepts are often utilized in tandem).

The narrow network approach, which was often combined with other payment methodologies such as capitation or staff-model network design, did produce significant cost savings, but several market factors, including members’ demand to see specific providers, and provider contracts that made inclusion in the most favorable tier a requirement for participation, caused typical network size to steadily increase in the years since.

Another factor that affected the success of this approach was the diverse methods payors used to define the network’s composition; in addition to fee negotiation, providers were often analyzed using a variety of measures, to determine those with the best quality outcomes. However, because these analysis methods varied between payors and were usually not completely disclosed, providers often challenged the results, arguing that important factors such as the health status of a particular group of patients had been overlooked.

Now, with the Patient Protection and Affordable Care Act (PPACA) and its associated exchange dynamics, as alternative reimbursement methodologies and risk adjustment are fundamentally changing the way health plan business is conducted, the narrow network concept is being revisited. Several plans have introduced narrow network offerings in hopes that such plans will be attractive in the exchange environment.

MedInsight has always offered a variety of innovative ways for payors to measure provider quality. The platform includes provider network management capabilities, which enable organizations to analyze, compare, and manage the performance of providers and provider networks. These analytic techniques include the ability to understand both the overall and relative cost performance of provider contracts, analyze how well specific disease and healthcare conditions are managed by providers, compare efficiency within provider peer groups, and identify best practice patterns, all of which can assist in developing and administering “narrow networks.” In addition, MedInsight supports a variety of analytic tools, both proprietary and from third parties, which assist in the quality measurement process. Table 1 below provides an example, derived using MedInsight sample data:

Table 1: Sample Provider Measurement Report

Because many new contracting methodologies, including accountable care organizations (ACOs), rely on quality measures, and because federal and state risk adjustment will incorporate payor-provided claims and electronic health records (EHR) data submitted for audit, these abilities will continue to be of increasing value to MedInsight customers. Finally, these tools can also be used to help provider organizations participating in “narrow networks” to create a better relationship with members.

This article first appeared at Milliman MedInsight.

Implications of health insurance exchange implementation

The health benefits purchasing dynamic that has existed for decades in the United States, involving providers, payors, employers, and members, is likely to change dramatically with the emergence of health insurance exchanges, mandated by the Patient Protection and Affordable Care Act (PPACA). As a result, the American healthcare system will see a significant expansion of the power of individuals (rather than employers) to make health plan purchase decisions, in both state and federal exchanges. This approach promises to have a far-reaching impact on the way coverage is marketed and administered, as well as an effect on healthcare analytics as administrative challenges are confronted.

The exchange concept, which figures prominently into PPACA, was originally envisioned decades earlier. Thus, while final determination of the landscape and details are still changing, events currently unfolding are the result of long-established ideas.

Health insurance exchanges are designed to allow individuals within participating employer groups to select coverage from among participating payors, with coordinated billing and administration provided to the employer by the exchange. Even though these individuals will still be employees, the exchange concept will enable them to select the product of their choice. In theory, this process promises to provide increased choice to individuals and families, in a uniform competitive environment, while distributing risk between participating payors among a larger membership base.

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Risk adjustment in PPACA on the horizon

The implementation of the Patient Protection and Affordable Care Act (PPACA) makes risk adjustment an increasingly important element of regulation-driven health insurance products. Medicare Advantage, Medicare Part D, and many Medicaid programs are already leveraging risk adjustment for plan payments, and healthcare reform mandates risk adjustment for exchanges, as well as Pioneer Accountable Care Organizations (ACOs).

Risk adjustment was first introduced as a compliance component in the Balanced Budget Act of 1996, which mandated a phased-in approach to set budgets, as well as payments to Medicare Advantage plans. Subsequently, the federal Centers for Medicare and Medicaid Services (CMS) created a risk adjustment methodology called “Hierarchical Condition Categories” (CMS-HCCs).

Risk adjustment (or risk assessment) methodologies calculate risk for each individual, which supports comparisons of illness burden between or among health plans. This methodology is designed to “level the playing field” between insurers, and requires a two-step process: Assessing the illness burden of each enrollee (risk assessment), then moving funds from plans that enroll lower-risk populations to those that cover higher-risk members (risk adjustment).

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