As payers continue to pursue narrow networks, addressing legal issues early on is critical
Despite a bumpy start, many citizens successfully purchased insurance through the state exchanges. More importantly, the exchanges designed to help small employers are a long way from full implementation and will not be functional for small employers until at least the fall of this year-more likely 2015.
Because of the adverse selection issue, along with the inability of small employers to move to an exchange plan, the risk pool associated with exchange plans is not favorable. This is not only catching up to the individual exchange plans, but also leading to a ripple effect in the private market that caters to small employers. The first report to Congress on the impact on premiums as a result of the ACA shows that approximately 65% of small employers will see insurance premiums rise over the next few years. This translates into roughly 11 million individuals who will face higher insurance premiums.
As a result, many small businesses might conclude that it is in their best interests, as well as the best interests of their employees, to cease providing group health insurance. In addition, the individual exchange plans are unlikely to pick up these folks anytime soon, since the government is expected to push back the mandate penalty beyond 2015.
One strategy for guarding against premium rate increases is the development and promotion of narrow networks, which have been steadily increasing over the last several years. Many of the individual plans offered on the various state exchanges are narrow or ultra-narrow network plans.
The theory behind narrow networks may work to some extent. However, narrow networks that focus solely on costs as the determining factor to include providers on panels miss the point and are likely to fail at achieving the cost efficiencies and savings desired.
Narrow networks that stand the best chances to succeed include innovative payer/provider arrangements designed to align the interests of all parties. In these settings, panel providers are not evaluated solely on costs but factors such as the provider’s quality metrics and willingness to focus on total cost of care (not just simply fee-for-service).
In turn, including providers that have historically outperformed their peers on quality, efficiency and satisfaction benchmarks may lessen the negative perceptions of the beneficiaries. Rather than focusing on lack of patient choice, narrow networks are able to champion stable, if not lower premiums, while being able to convince patients that they will receive top notch, highly efficient healthcare.
In implementing narrow networks with financial risk models, payers should be careful. There are a myriad of legal issues that need to be considered. Payers will first need to determine if a desired network meets the clinical or financial integration requirements necessary to avoid scrutiny under the anti-trust laws. Payers will also need to ensure their networks do not impermissibly reward providers to make referrals or deny beneficiaries access to healthcare services. Other legal issues, such as provider contracting, network governance, information technology, will be significant items to address.
In the end, it is hard to tell if narrow networks with risk-based payment models will have any effect on premiums. Evaluations must be done on an ongoing basis considering how the healthcare landscape is continually evolving in response to new government rules and consumer, provider and payer reaction to those rules. As payers continue to pursue these networks as alternatives, addressing legal issues early in the process is critical.
Williams is a partner in the Health Care & Bioscience Practice Group of Cleveland-based Walter | Haverfield, LLP.