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The movement by health plans and employers to shift to narrow networks seems to have hit take-off velocity. Such "high-performance networks" are based on cost and quality criteria.  

A 2011 survey of employers by the benefits consulting firm Mercer found that 14% of large employers were using high-performance networks. Plans and employers say the narrow-network products already are producing annual cost savings of as much as 10% to 25%. They also hope the trend will have broader effects, prompting providers currently outside the narrow networks to improve their performance in order to qualify in the future.  

In some ways, the networks represent a return to the tighter HMO and exclusive-provider model of the 1980s and 1990s, which consumers rejected at least partly because it limited their provider choices too much. But experts say employers and consumers are more accepting of restrictive provider panels now because of the weak economy and desperation to curb costs. Another difference is that health plans have more sophisticated data tools to identify high-performing providers than previously. 

"The stars are aligned now because everyone realizes we have a totally unaffordable, dysfunctional health system, and we have to control costs," says Helen Darling, CEO of the National Business Group on Health. "So plans are delivering the kind of value services they haven't in the past." 

There's also growing recognition that the best hope for controlling costs lies in collaborations between employers, health plans and selected provider groups in redesigning care delivery processes to produce better outcomes. Some of the new narrow-network products feature such performance-improvement collaborations, which tie into the parallel movement toward accountable care organizations. 

"The real money is improving coordination of care and making sure that patient population that consumes the most resources gets the right care, at the right time, in the right way," says Darryl Cardoza, CEO of Hill Physicians Medical Group, a large multispecialty group based in San Ramon, Calif. His group is participating in narrow-network products with Health Net and Blue Shield of California involving collaborative improvement initiatives. 

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Narrow, high performance networks are making a comeback.

Return of the narrow network

Five years ago, Aetna and several large employers confronted Virginia Mason Medical Center in Seattle over how much it was charging for treatment of migraine, severe acid reflux and narrowed aortic valves, and other conditions. Virginia Mason, a not-for-profit hospital system that employs about 400 salaried physicians, took the message to heart. 

Working with the employers and Aetna, doctors and staff began to re-engineer care protocols. For example, the system ensured back pain patients same-day access to a physical therapist and physical medicine physician and sharply reduced medically unnecessary MRI tests and physical therapy visits. From 2004 to 2007, the changes yielded a 50% reduction in lost employee work days due to back pain, almost $2 million in cost savings and high patient satisfaction scores.  

Geisinger has gotten so much attention from politicians that it reportedly hosted tours for more than 70 visiting payers and providers last month.  

Leaders of integrated delivery systems say the model won't work just anywhere. It's challenging to build a culture of high quality and low costs through contractual relationships. Independent delivery markets don't have the dynamic of salaried doctors and instead must manage the powerful fee-for-service forces. 

Robert S. Mecklenburg, MD, medical director of the Center for Health Care Solutions at Virginia Mason, says his system's experience shows how health plans and employers can benefit from collaborating with an integrated hospital-physician group. But, he adds, moving away from fee-for-service to payment models that reward better patient outcomes, higher patient satisfaction and lower costs is key. 

"[Innovative providers] want to be paid for value," he says. "That's very important in straightening out U.S. healthcare."  

Mayo Clinic CEO Dr. Denis Cortese describes integrated systems as having high levels of physician engagement, teamwork, connectivity and greater use of industrial efficiency and quality controls. All this is hard to achieve in contracted networks. 

At the same time, experts say, non-integrated systems haven't felt the pressure-or been given the financial incentive-to change because payers have been slow to revamp payment methods to encourage coordinated delivery. The current fee-for-service model simply rewards greater volume of services. 

So far, Dr. Mecklenburg says, no health plans have agreed to pay Virginia Mason based on actual patient outcomes, except on a temporary experimental basis. He believes the system should realize a positive margin when it meets its quality targets. 

"You won't get system reform without changing the reimbursement dynamics," says Andrew Webber, president of the National Business Coalition on Health in Washington, D.C. "I'm sure the leaders of integrated delivery systems are frustrated with the current payment system." 

Sure, the integrated delivery model produces good outcomes and lower costs, but it's not applicable everywhere, in spite of what politicians think

Author | Harris Meyer

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Return of the narrow network

Quality Models