Are Narrow Networks Bad or Are There Bad Narrow Networks?

This is a guest post from Tom Barrett of BBG, a highly-regarded employee benefits consulting firm with deep expertise in flexible spending programs and medical management.

The title above plays off of an old adage wisely employed by a very sharp and highly respected colleague.

Here’s one take on narrow provider networks as seen from the trenches.  While it’s mostly informal and unscientific it is cast with an experienced eye when it comes to networks:

Many of the narrow networks offered prior to 2014 placed a more discerning emphasis on contracting with higher performing providers.  We think these networks at least leaned more toward striking the combination of higher quality and lower cost.

Some (“some” emphasized) of the new narrow networks, especially those created primarily for the exchanges, appear almost exclusively aimed at low cost.  In fact, during the run-up to 2014 some carriers indicated that on the exchanges especially, low cost would win. Period. They indicated that network contracts comprised of low fee schedules was the way to get there.  New networks were developed with the key goal of being on the “first page” (lowest cost, think airfare searches, rental cars, hotels, etc.,) when plans were shopped.

Describing how carriers built these new networks, one highly respected industry insider indicated that contracts containing these low fee-schedules were mailed out to the provider community.  Carriers then waited to see which of the providers would accept the low fee schedules and sign-up.  The new networks were then built accordingly.

Probably not surprisingly, some of these new narrow nets bear a striking resemblance to Medicaid networks and are comprised mainly of providers willing to accept Medicaid-like fee-schedules.  We think that it’s safe to say that the quality and outcome side of the equation did not rule the day in the development of these networks.

So what’s the “net” for all of us?

Caveat emptor.  We’re not suggesting it’s necessary or even wise to shy away from all the narrow nets.

Rather, make darn sure you do your homework before building or selecting a plan that’s associated with one.

We don’t expect this to go away and expect provider and network evaluation to continue to grow in importance for everyone going forward, most especially for individuals and small and mid-size businesses ……….



That’s the best way to describe health insurance execs’ views on their business these days.  The massively-screwed-up-but-steadily-improving rollout of the federal exchange is the biggest reason for that uncertainty, but there’d be huge uncertainty even if things had gone flawlessly.

Health care providers are consolidating rapidly, increasing their negotiating leverage.  More and more physicians are working for health systems.  Some employers are dropping coverage, while others are moving to narrow-network based plans. All this against a backdrop of an aging population, increasing income inequality, major growth in Medicaid enrollment, reduced Medicare reimbursement for facilities and a possible “fix” to the fatally-flawed physician reimbursement system/mechanism.

And, the metrics they use to measure performance are in flux as well; the old measurements were fine when insurers could underwrite, adjust benefit designs, change deductibles and copays, and negotiate with providers from a position of strength.

Add to that the uncertainty over who is going to enroll via the exchanges – will there be enough “young immortals” to balance the older, sicker folks who sign up?  More importantly, how will that play out for individual health plans; Plan A isn’t concerned about the overall picture, but is very, very concerned about the demographics of their member group.

It’s no wonder senior management – and other stakeholders – are “uncertain” about the short-term, much less the longer-term.

Amongst all this confusion, there’s one thing that is clear – there isn’t going to be an “Obamacare death spiral”, at least not for three years.  The scaremongering about death spirals and adverse selection that might result from too many old folks and not enough young folks signing up is mis-informed.

There is a financial back-stop in the form of reinsurance that protects insurers from high cost claims for the next three years.  Bob Laszewski has an excellent description of the program and implications thereof here.  Funded by a tax on each insured, the program provides coverage for insurers “selling coverage on the state and federal health insurance exchanges as well as in the small group (less than 50 workers) market…”

By then, things will have settled down, insurers will have figured out what works, what doesn’t, and what they need to do to operate profitably.  Some will drop out of the exchange(s), while others will expand their service offerings and coverage areas.

What does this mean for you?

Lots of uncertainty means lots of opportunity for those aware, nimble, and stalwart enough to take advantage.  Not that there are many in this business that fit that description!


Is group health paying for medical care for work comp injuries?

According to a study published in the December Journal of Occupational and Environmental Medicine, the answer is yes – to the tune of at least $200 million dollars annually.

The researchers concluded that “zero-cost” claims – those that were filed but did not result in any payments from the workers’ comp insurer or TPA – showed higher than expected medical expenses in their group health plans following the date of injury.  Some may, and undoubtedly will, argue that just filing a claim does not mean it is “real”, that many if not most of these “claims” were not occupational in nature and therefore there should NOT have been work comp dollars spent.  Therefore the dollars spent after the date of injury SHOULD have been higher, as there was an injury, it just wasn’t a work comp injury.

Well, not so fast.  These were actual, accepted workers’ comp claims and not attempts to file claims for non-occ injuries.

That being the case, I’d suggest the author’s finding, that about 0.7% of workers’ comp medical expenses have been paid by group health insurers, may be correct.

What does this mean for you?

With group health medical loss ratios fixed at no less than 85%, health plans have dramatically increased their efforts to identify and avoid any and all medical expenses that are not really truly absolutely theirs. Expect much more diligence on the part of those insurers, and a lot more subrogation efforts in the future than we’ve seen to date.  

Thanks to Insurance Journal for the tip!

Request – before you argue, please read the ENTIRE study, available here.  It is pretty well done.


What’s happening with health care premiums and costs?

Employer health insurance premiums increased 4 percent for families, 5 percent for singles this year. While that’s a modest increase, over the last decade, family premiums are up 80 percent.

And, premiums have been held down of late in large part due to rapidly increasing cost-sharing; the average deductible for employers with 3-199 employees hit $1715 this year as the percentage of employers with deductibles over $1000 jumped from 49% in 2012 to 58% this year.

Large insurers’ actual trend rates continue to come in lower than projections, with the latest stats indicate Aetna, CIGNA, and Wellpoint all reporting mid-single digit rises.

Combining Medicare and commercial health care costs as reported by health care providers shows an increase of 3 percent in June over the preceding 12 months.  Medicare’s trend was a lowly 1.27 percent…Medicare is increasing hospital reimbursement by less than 1 percent, a move that will certainly help keep the program’s costs increasing very slowly.

But those price controls are far from the only reason Medicare’s cost trends are at historical lows.

What’s behind the relatively good news on cost increases?  While commercial insurers see the recession as a contributor to past success in keeping trend rates down, the recession doesn’t appear to have had much to do with Medicare’s relatively low cost increases from 2000 to 2010. According to the Congressional Budget Office, the modest trend rate:

“appears to have been caused in substantial part by factors that were not related to the recession’s effect on beneficiaries’ demand for services…other factors–namely, a combination of changes in providers’ behavior and changes in beneficiaries’ demand for care that we did not measure–were responsible for a substantial portion of the slowdown in Medicare spending growth.”

In fact, CBO is projecting Medicare’s total costs by 2020 will be some $169 billion lower than earlier projections.

So, what does this all mean.

Well, mostly good news for folks not in the health care sector.  The decline in projected costs will have a substantial – and very positive – effect on the Federal deficit and long-term debt.

Employers and individuals won’t see costs hit the troposphere just yet – I guess that’s good news, although they certainly aren’t going to drop out of the stratosphere…

For the health care provider sector (broadly defined), what have been wrenching changes to date are about to get even more dramatic.  I’d expect some payers will see increased efforts to cost-shift as providers seek to increase revenues where they can while they struggle to strip cost and inefficiencies out of their operations.





Outsourcing customer service – I don’t get it.

Yesterday my bride was attempting to book a hotel room at a specific Hilton Garden Inn near the Sacramento airport.  She got bounced to Hilton’s intergalactic call center, and then spent 15 minutes trying to get a person – likely in another country – to reserve a room at that specific property at a rate they’d advertised.

My wife is a very patient person (she’s still married to me after 26 years…) but even she had to finally end the call after it became abundantly clear that the customer service agent had no idea where the airport was, what the rate should be, or why we didn’t want to consider another less expensive property located somewhere within a fifty mile radius.

Hilton lost a guest, and all because they decided it is more “cost-effective” to outsource customer service.  At the same time, the chain is working diligently to monitor and improve guests’ experiences on-site; I get a survey request for pretty much every hotel stay these days.

This makes NO SENSE.

Customers are the core of any business.  Without them, you’ve got a big bag of nothing.  Yet many companies – including some in this space – outsource the absolutely-critical business of talking with customers to some outfit on the basis of how cheaply they can get calls answered, how many calls can get answered how fast and other “metrics’.

Where’s the metric for “pissed off customers”?

There are processes and workflows that are not core, or central to a managed care business – maybe telecommunications, real estate management, accounting/auditing (perhaps).  But talking to your customers? How is that not the most important thing your company does? And why would you not want to have absolute, complete, 100% control over that at all times?

My sense is the reason we see outsourcing of call centers in managed care services is the ops folks are focused on keeping costs down.  That’s fine, but it ignores the overall importance of customer interactions.  It is very, very hard to acquire new customers, and very expensive to boot.  Cost of sales is escalating in this business, making customer retention critically important.

I’m aware of a couple firms that went to outsourced call centers only to reverse that decision and internalize the function.  My guess is the cost per call went up, and customer satisfaction went waaaay up.  Kudos to those companies for recognizing a problem and fixing it quickly.

What does this mean for you?

Figure out what’s important, and do it yourself.


Coventry’s last earnings report

I’ll admit it, I’ve been slacking…It’s now five days since Coventry released their last-ever earnings report, and I’m only now posting on it.  Mea culpa; too darn much work. Here are a few quick takeaways followed by my perspective on the company and their results this quarter. 

(and so much for my title for the Q4 earnings report as the “last ever…”)

  • Very solid earnings – up 61% from the prior year quarter.  Pretty impressive.
  • Revenues were flat after some Medicare Advantage bookkeeping stuff
  • Commercial membership – and revenues – are down again.
  • Medical loss ratios (MLR) for Commercial risk and Medicaid are looking very good, improving substantially over the previous quarter; Part D is not.
  • Workers’ comp revenue is down substantially.

Let’s start with work comp (sorry David Young).  2012 was a tough year – revenue  decreased $26 million or 3.3 percent from the prior year. And Q1 was no improvement; revenues declined almost $8 million from the previous quarter; $16 million from the same quarter in 2012.

The main driver was likely pharmacy; the full impact of the loss of ESIS’ PBM business to Progressive was felt; the numbers may also reflect the USPS’ decision to change from Coventry’s FirstScript PBM to PMSI. Because ALL pharmacy revenue counts as “top line”, losing a PBM customer has a disproportionate impact on financials – just as winning one does (First Script won the Selective Insurance business recently).

I’ve said before – and will repeat again – Aetna is NOT going to dump the WC business.  If anything, they’ll likely invest in the sector.  There’s a bunch of reasons private equity is all over workers’ comp services these days: there’s lots of upside from automation; margins are very healthy; regulatory risk is minimal; and it is a good counterbalance to the group/public sector health plan business.

Overall, decent growth in Medicare Advantage and Part D revenues.  Medicaid growth was negative, driven by exiting one market and increasing membership in two others.  Overall, Coventry’s public-sector business continues to be the largest of the company’s three business segments – while commercial membership and revenues continue to sag.

This is why Aetna is buying Coventry – public sector expertise, market share, and membership.  Mother Aetna has the commercial sector pretty much figured out (as much as anyone does in these pre-ACA-implementation days); they need help in the public-sector health plan markets.

Unless the world ends, this will REALLY be their last earnings report.

What does this mean for you?

Size matters in the post-ACA days – a lot.  Expect more mergers and acquisitions, and some big ones too.



Inflation in Medicare, private insurance, and work comp

Credible research indicates health cost inflation rates will remain fairly low during this decade, driven by “greater cost-sharing in private insurance, new Medicare payment policies, slower growth in prescription drug spending, and an upcoming tax on high-cost insurance premiums.”
Note two of the primary drivers are reduced payments to providers by Medicare and Medicaid and more spending by individuals. These ‘cost-moderators’ are countered (somewhat) by the growth in Medicare eligibles.
The result is overall inflation rates will be about the same for private payers and Medicare at 5.7%. However, on a per-enrollee basis, Medicare’s trend is substantially lower (more than two points) than private insurance. Again, cuts in Medicare’s reimbursement to providers is the primary driver.
It is important to understand the difference between overall program and per-enrollee
cost inflation; it’s also important to think thru the implications for other payers – work comp and auto specifically.
With significant growth in Medicare and Medicaid enrollment coupled with low growth in the number of privately insureds, providers will see flat to declining compensation from a large chunk of their patient population. The latest figures indicate physician compensation rates have been relatively stable; given low overall inflation this is likely “acceptable”. Notably, some specialities saw increases while others dealt with reduced compensation.
However, as patient mix changes, the decline in compensation is inevitable, and will have far-reaching consequences.
What does this mean for you?
Expect utilization to increase, along with charges for services billed to all payers. Those payers without strong fee schedule or contractual controls on price will likely see significant price inflation as well.


$20,728 – your family’s 2012 health care cost

That’s the figure reported by Milliman earlier today.
Yep, almost twenty-one grand just for health insurance and out-of-pocket costs.
The good news (!) is the annual rate of increase was a paltry 6.9%, the lowest trend in a decade.
The bad news? In six years, the average family of four’s premium and out-of-pocket costs will be $31,000. That’s if the inflation rate stays the same; if it reverts to the norm, we’ll see costs pierce the thirty grand level in 2017.
Here’s hoping someone – anyone – finds a solution. We know that Massachusetts’ premium increases are among, if not the, lowest in the country; we also know Medicare’s rate of increase is lower than commercial plans’. Perhaps there is a role for big government; altho I’m hoping private insurers figure out how to control costs without the threat of price caps.
Then again, we’ve tried that – for about fifty years – with pretty poor results


Pharmacy Benefit Managers – if they report, why doesn’t everyone?

Last week’s post on the recent release of Annual Reports by PBMs Progressive, PMSI, and Express Scripts, got me thinking (spurred by a friend’s query); if PBMs produce these reports as a matter of course, why don’t other specialty medical management companies?
The wealth of information contained in these reports provides readers with insights into cost drivers; pricing; changes in prescribing and treatment patterns; differences due to geography, claim duration, and diagnosis; new treatment options; and changes over time in all of these categories/metrics.
It strikes me that industry/speciality appropriate information would be pretty valuable and help differentiate as well.
PBMs have raised the annual report to an art form; PMSI’s is extremely detailed and clinically robust; Cypress Care’s upcoming report differentiates between older (> 3years) and new claims; Express focused on opportunities to reduce costs thru increased use of step therapy and generics; Progressive’s discussion of regulatory changes was comprehensive and thorough.
The short answer is “it takes a lot of resources.” True, but the payoff is likely commensurate with the investment. Others are concerned that somehow competitors will learn the ingredients of their “secret sauce” and use it against them. Possibly, but not if you’re smart and careful.
There’s precious little real differentiation in the managed care services industry. Clearly it’s working for PBMs; undoubtedly it will work in other sectors as well.
and a “thanks for the thinking” to Peter Rousmaniere.


The necessary demise of Usual & Customary

As insurers abandon the traditional “usual and customary” metric in favor of Medicare’s rates for out of network reimbursement, consumers are getting hit with higher bills, and many are protesting.
That’s understandable; it’s also necessary.
The usual and customary reimbursement methodology is used to pay providers that aren’t in the member’s ‘network’; it is based on what other providers in the same area charge for the same procedures during the same time frame. For decades providers have gamed the system by charging more and more every year for the same procedure, thereby ensuring they’ll get paid more next time for the same procedure.
Health plans, struggling to hold down costs, have finally given up, switching from U&C to a methodology based on Medicare’s RBRVS system, albeit one paying at 150% – 250% of Medicare – again for out of network care.
Many members have been surprised/shocked/dismayed/furious when they discover their share of the cost is much higher than they expected, and they’re blaming their insurer. While that’s understandable, it is also anger misplaced.
Members going out of network do so because they are either a)ignorant (our son just went to an OON provider for his elbow MRI…) or b) they want care from a specific physician(s). In the case of a), shame on us for not educating the young man on the intricacies of health plan contracts.
For b), it’s not quite so straightforward.
These folks chose to go out of network for the care they wanted, and that’s entirely their right. In so doing, they forewent the binding rates negotiated – on their behalf – by their insurer with in-network providers. If they’d stayed in network, their out-of-pocket costs would have been much, much lower.
I’ve pilloried insurers for years for their inability to do what they’re supposed to do as a matter of course – deliver quality care at a manageable cost. The change from the easily-gamed U&C system to one based on Medicare is an appropriate and necessary one. Yes, it’s also painful, but controlling health care costs is going to be ever-more-painful, requiring all of us to choose between increasingly-distasteful choices – higher premiums or more access.

Now I’ve got to go spend some quality time with our son explaining all this. Yippee.