Tag Archives: Tiered Provider Network

Risk adjustment cannot solve all selection issues—network contracting edition

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Risk adjustment cannot solve all selection issues—network contracting edition

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In our Hamilton Project paper, Nicholas Bagley, Amitabh Chandra, and I explain why a health insurance market in which plans compete on cost effectiveness won’t work. (Click through, download the PDF, and read Box 2 on page 9, titled “Why Health Plans Cannot Differentiate on Coverage.”)

The recent NBER paper by Mark Shepard makes the same argument we made, but to illustrate problems in hospital markets with heterogeneous preferences for costly, star hospitals. Some key quotes from Mark’s paper:

But even excellent risk adjustment is unlikely to offset costs arising from preferences for using star (or other expensive) providers. These preferences create residual cost variation that can lead to a breakdown of risk adjustment (Glazer and McGuire 2000). Second, the two channels may have different cost and welfare implications. While sickness makes individuals costly in any plan, preferences for a star hospital only make enrollees costly if a plan covers that star hospital. Stated differently, preferences affect how much an individual’s costs increase when their plan adds coverage of the star hospital. […]

My results suggest that consumer preferences for high-cost treatment options – star hospitals in my study, but the same idea could apply to any expensive provider, drug, or treatment – can naturally lead to adverse selection, and specifically selection on moral hazard. […]

In the current system, consumers get access to star hospitals based on their plan choice, after which use of these providers is highly subsidized by the insurer. This setup leads to higher costs (moral hazard) and selection on moral hazard. Policies that reduce this moral hazard – e.g., higher “tiered” copays for expensive hospitals or incentives for doctors to refer patients more efficiently – may also mitigate the adverse selection. Differential plan prices for different groups may also improve the efficiency of consumer sorting across plans.

Mark’s paper is also noteworthy because it is one of the few to address consequences of network contracting. This is a hard area to study because plans’ hospitals and physician networks are not easily observed. Other good work in this area has been done by my colleagues at the Leonard Davis Institute.

Enrollment in a Health Plan with a Tiered Provider Network Decreased Medical Spending by 5 Percent

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http://www.commonwealthfund.org/publications/in-the-literature/2017/may/tiered-provider-network-enrollment?omnicid=EALERT1207817&mid=henrykotula@yahoo.com

Synopsis

Employers and health plans are increasingly using tiered provider networks to steer patients to doctors and hospitals that provide higher-quality care at a lower cost. An analysis of tiered network plans in Massachusetts found that they were associated with a 5 percent decrease in spending—$43.36 less per member per quarter compared with per-member spending in similar plans not offering tiered networks.

The Issue

“Tiered-network benefit designs have the potential to deliver higher value and be a tool that employers and other payers can use to decrease spending in the U.S. health care system.”

In health insurance plans featuring tiered provider networks, providers (e.g., physicians and hospitals) are categorized by the quality and cost of their patient care. Providers with higher quality and lower costs are typically placed in the most-preferred tier rankings. Plans furnish their enrollees with information about providers’ relative value and use financial incentives like lower cost-sharing to steer them to preferred providers. In this Commonwealth Fund–supported study, researchers examined the impact of tiered primary care physician groups and hospitals—offered through Blue Cross Blue Shield of Massachusetts (BCBSMA)—on inpatient care, outpatient care, outpatient radiology, and total health care spending.

Key Findings

  • The tiered network plans offered by BCBSMA were associated with lower total adjusted medical spending of $43.36 per member per quarter relative to enrollee spending in similar plans without a tiered network ($830.07 vs. $873.43). This represents a 5 percent decrease in spending.
  • The tiered network plans were also associated with 4.6 percent lower spending on outpatient care per member per quarter compared with nontiered network plans ($576.89 vs. $604.76) and 6.5 percent lower spending on outpatient radiology ($93.71 vs. $100.23). Savings for inpatient care were not significant.
  • Results were similar when the researchers compared spending only within large-group plans, and only within small-group plans.

The Big Picture

Tiered network plans may be more palatable to consumers than narrow-network plans, the authors say, since they cover care from nonpreferred providers, albeit with higher cost-sharing. These findings also suggest that tiered network plans may be a valuable tool for providers that are under pressure to decrease spending. Provider groups could mirror their referral patterns to match tiered networks.

About the Study

The study population consisted of 184,385 nonelderly enrollees (age 64 and younger) who were enrolled in a Blue Cross Blue Shield of Massachusetts smallor large-group tiered network plan for at least one quarter in 2008–2012 and 927,491 nonelderly enrollees in health plans with matched benefit designs, except for no tiered network, in the same period. Enrollees in the tiered network plans paid different cost-sharing levels depending on the tier ranking of their provider.

The Bottom Line

Tiered provider networks have the potential to reduce overall health care spending.