…a “network” has ceased to be a neutral mechanism for organizing care. It has become an instrument of control — one that dictates who patients can see, how physicians can practice, and how fiduciaries must spend plan assets they are legally bound to protect.
The Holy “Network”: Why It’s Time to Retire Healthcare’s Most Dangerous Word
— Chris Deacon
In a recent Substack article about the flawed structure and operation of major health plan networks (e.g. BCBS, UHC, Aetna, and Cigna), Chris Deacon makes many great points, including the above.
Her proposed solution? Direct contracting between plan sponsors and healthcare service providers. This may be feasible for an employer with a defined footprint like a school, city, union, or small employer. However, for employers with broader geographic diversity, the approach can quickly become unwieldy.
We’ve been there. One of our Fortune 500 clients set up about 200 direct agreements with health systems and regional PPOs. It quickly became too much for them to manage, so they outsourced it to us. Candidly, this became unwieldy for the providers too. They didn’t want to deal with one-off contracts either. Ultimately, the client decided it was just a lot easier and more practical to tap into a national network (easier in the short-term, albeit more expensive in the long term).
This got me thinking. What if provider prices were fully transparent and easily understood — such as reference-based to Medicare? I mean, what if it was as simple as Hospital A charges 160% of Medicare and Hospital B charges 230% of Medicare? Furthermore, what if the government required networks to allow benefit plan sponsors to pick and choose the specific providers they make available to plan members.
This is totally opposite of the original PPO model in which providers agreed to network contracts with the belief that it would steer business to them as a “preferred provider.” However, over time, virtually every provider became “preferred.” We now generally see 95% to 98% of plan costs as in-network.
As things stand, if employers could pick and choose, there is no incentive for providers to offer “preferred pricing.” But, with fully transparent and easily understandable rates, providers would need to provide “competitive” pricing.
Okay, let’s say this dream comes true. Would employers really pick and choose? Decades of experience suggest not. Historically, the broader the network, the more likely it is to be selected — think GeoAccess and disruption analysis, and the classic network discount analysis that each employer goes through in its periodic RFP processes.
And the vast majority of employers have been unwilling to cut employee access to hospitals and health systems — regardless of quality indicators or price disparities. Imagine proposing to remove the local health system where your CEO is a board member, your company has their name on a building, and/or you’re using for executive physicals.
Furthermore, real life experience has shown that most employees will pay extra for unrestricted provider access. And, ironically, employees often mistakenly equate higher prices with higher quality. Plus, when somebody else (like “the insurance company”) is paying for most of it, people are very comfortable choosing the highest cost provider.
Where does that leave us? I am all for disaggregating the major PPO networks and easily understandable and fully transparent price information. I’m also up for the flexibility to pick and choose your network providers. However, the best I think this will do is trim out a portion of the middleman’s cost, and reduce hidden profiteering (from vertical integration, skimming, and packaging requirements).
Nonetheless, this is worth doing, even if employers would only have the courage to cut out the worst (value) 10% of providers. I think we would also see slower price escalation — maybe spurred on by recent clarifications of fiduciary duties and the potential of class action lawsuits.
Even this ideal world of understandable transparency would leave us wanting. Reality is that value varies from hospital department to hospital department regardless of what billboards say. A hospital can be top tier in cardiology and bottom tier in orthopedics. Whereas another can be top tier in cancer and bottom tier in rheumatology.
In the meantime, we (plan managers) need to do what we can. I am frequently surprised at the variation in per employee spend among employers. These variations are rarely attributable to the size of the plan, industry, geographic location, or workforce demographics. We see some employers spending double the average and others half as much. These may be extremes, but there’s still a big difference between 25th and 75th percentile spend.
We can be better stewards of corporate health plans. When is the last time you asked a vendor or a consultant who (which plan sponsor) is best in class? What are their outcomes? How did they achieve them? What were the pain points and how can we avoid them? How can we improve upon these results? These questions need to be asked frequently and broadly, with the answers properly vetted so you don’t get duped by some self-serving sales pitch.
We need to fight the good fight. The low-hanging fruit these days is usually in the drug benefit. There is also much waste in shared savings fees, commissions, overrides and ineffective point solutions. For larger employers, these areas are going to be more fruitful in the near-term. Then we can move on to the harder stuff.