I think there’s a lot more to say about narrow networks, and I want to write more newsletters on this topic—if you have something to add, comment below or reply to this email!
I’ve been thinking a lot about the managed care revolution and the ways I suspect it still reverberates in national feelings about health insurance. Insurers are still careful to note (where applicable) that a plan doesn’t require a referral to see a specialist, and patients still seem to expect their insurers to turn them down for necessary procedures and treatments. (To be clear, prior authorizations are still very frustrating and sometimes totally absurd, but denials are less common than they were during the HMO era.)
At the same time, as health insurance costs continue to explode and patients look for more help in navigating a confusing system, it seems almost unavoidable that the U.S. experiences a swing back towards narrow insurance networks over the next few decades. For now, we have an increase in patient navigation.
The managed care revolution
From the late 1980s through the 1990s, the U.S. went through its “managed care revolution,” a short-lived period of time when insurers throughout the country began primarily offering managed care plans. These HMOs had narrow networks and strict rules; many required patients to get a referral to see a specialist and to get a prior authorization for many aspects of care.
It was a “revolution” because it happened very quickly and very prominently. From 1990 to 1995, the number of Americans on an HMO plan increased by nearly 60%, from 36.5 million to 58.2 million people. By 1995, a majority of Americans with employer-provided coverage were part of a managed care plan.
Patients accustomed to having a wide slate of options suddenly found themselves blocked from many healthcare services. HMOs denied so many procedures that whistleblowers appeared before Congress, confessing that they had explicitly put profits ahead of their patients. A snippet of Dr. Linda Peeno’s testimony in May 1996:
In the spring of 1987, as a physician, I denied a man a necessary operation that would have saved his life and thus caused his death. No person and no group has held me accountable for this because, in fact, what I did was I saved the company a half a million dollars for this […]
[In the managed care industry] it is not an ethical issue to sacrifice a human being for a savings, no matter how that savings occurs. And I was repeatedly told that I was not denying care. I was simply denying payment.
Cost savings were uncoupled from any attention to quality of care; insurers had no incentive to pay attention to quality. The incentives were totally misaligned, and, as a Health Services Research article from 2003 notes, “some began to question if markets would evolve into the vertically integrated, tightly managed systems once envisioned.”
HMOs went too far and the model faded away quickly. A tight labor market in the late 1990s meant that employees could demand better benefits, and employers began prioritizing wider network plans to entice potential hires. By 2001, the managed care revolution was over, a short-lived blip.
Since then, PPOs and wide network plans have been the norm, giving providers leverage to negotiate for better rates. A major hospital system in one locality—for example, UPMC in Pittsburgh—is a crucial addition to the network of any plans selling in Western Pennsylvania. With wide network plans almost a necessity in today’s market, UPMC can demand much higher prices.
At the same time, there’s some evidence that a narrower network, high-quality option could save money and provide a better patient experience. Walmart, for example, has partnered with the Mayo Clinic and other well-known hospitals to offer a few procedures to Walmart employees for free. Even covering travel and boarding for the employee and a family member, Walmart saves money through its deal with participating hospitals. At the same time, employees are likely getting a higher quality of care; research suggests that hospitals with a high volume of procedures tend to have fewer errors with those procedures.
Patient navigation: Middleman or path forward?
A 2015 article from JAMA Internal Medicine says it best:
On the one hand, there are good reasons for networks not to be too narrow; consumers need protection against fraudulent insurance products that appear to provide coverage but do not, and policy should prevent the strategic narrowing of networks to appeal only to relatively healthy patients—a practice known as “indirect selection” or “cream skimming.” On the other hand, networks can also be too broad. Narrow networks can help direct patients to high-value clinicians or hospitals, and the option of constructing a narrow network gives insurers bargaining power vis-à-vis physicians and hospitals, which ultimately helps keep prices low for consumers.
Given the sheer volume of patients to whom insurers are trying to appeal, and the complexity of negotiating with each provider in an area (plus MultiPlan), insurers are limited in how carefully they can tailor a network. But another layer, patient navigation, can help guide patients toward the appropriate providers, allowing insurance networks to be narrower while still giving patients what they need.
Of course, looked at another way, patient navigators are just another middleman in an already-complicated system.
This debate was recently highlighted in a MedCityNews article outlining the opinions of Rajeev Singh of Accolade (pro-navigator) and Glen Tullman of Transcarent (navigator-skeptical).
At HLTH, Singh argued that patient navigation is an essential way to guide patients as well as save money. Tullman, meanwhile, contended that it’s impossible to navigate a broken system, and that risk-based payments could achieve the same ends of improved patient care and lower cost. (Obviously both of their arguments overlap with what their respective companies do.)
I think they’re both right. Patient navigation services have matured in recent years: Healthcare entities are adding (and acquiring) more patient navigation to their products, and new companies like Rightway are selling directly to employers, offering to help their employees better navigate the system.
At the same time, patient navigation isn’t the path to a better healthcare future, but rather a stopgap measure until (if ever) risk-based care models incentivize collaboration between healthcare entities on behalf of the patient. In that sense, patient navigators are just one necessary step towards the end goal of building an integrated healthcare system.
Patient navigation isn’t the only way insurers are starting to try out a narrower network concept (although with more restraint than in the 1990s). This year, there is also a new wave of virtual-first plan options that funnel patients towards primary care video visits.
I expect the narrow network trend to continue; healthcare costs are rising quickly, and, if I had to guess, consumers don’t want unlimited choice so much as they want access to the right doctors at the right time. If narrow networks, virtual-first plans, patient navigators, or risk-based care models can figure that out, that would be a marked improvement. Hopefully without the trauma of the 1990s.
This information shouldn’t be taken as investment advice (obviously), and the opinions expressed are entirely my own, not representative of my employer or anyone else.
Really good read on an important topic. Could you link the JAMA Internal Medicine article you reference?
Great article. There is one place where narrow networks are already winning though - the ACA markets. If narrow networks are the future, another place it could show up is in the growth of ICHRA offerings.