It’s harvest season: What are purchasers reaping from their network strategies?

Julianne McGarry, Director of Projects & Research, wrote this blog

Harvest season for health benefits data kicked off last week with the release of KFF’s 2020 Employer Health Benefits Survey. I immediately skipped to the last section of the report:  Employer Practices, Alternative Sites of Care and Provider Networks.  It wasn’t that I wanted to spoil the ending (for that I could just read the Executive Summary); I wanted to answer a question that has consumed my imagination all year: would 2020 be the year that health care purchasers finally abandon broad PPO networks in favor of curated solutions like narrow, tiered or high-performance networks?

The answer is no. As Figure 13.10 shows, in 2019, 4% of firms offered a health plan considered a narrow network; in 2020 the number did not budge.  In 2019, 6% of all surveyed firms eliminated hospitals or health systems from their networks in an effort to reduce costs.  In 2020, 5% pursued this tactic. See Figure 13.10.

I suppose that one should never be surprised at the glacial pace of change in health care.  But here are the reasons why I thought that 2020 might have wrought notable change in network strategy:

1. The pandemic’s softening effect on the labor market. Historically, employers cited fears of plan member backlash over restricted choice as the driving force behind their reluctance to adopt a narrow or high-performance network strategy.  In a strong economy with a tight labor market, any perceived benefit “takeaway” is treated like a third rail.  No one in their right mind should rejoice at the current 8% unemployment rate.  But as the market softens while health care costs continue to inflate, employers and their plan members might be more willing to confront the trade-off of choice and price; especially because…
2. We’re reaching the upper bounds of employee cost-shifting. Instead of saving costs through network design, employers have historically favored high-deductible health plans (HDHPs) and other products that shift costs toward employees at the point of service.  But, according to the KFF survey (Section 7: Employee Cost Sharing), the average deductible for covered workers is now $1,644.  Survey research from Mercer and the Business Group on Health conjecture that health plan deductibles may be approaching their upper bounds.
3. More transparency into distorted hospital prices. The RAND corporation released the third edition of its Hospital Price Study in September.  The report reinforced findings from RAND’s first two rounds of hospital price studies:
   1. Health care prices – not utilization – drive the increase in health care costs in the US
   2. Hospital prices vary widely across and within markets, with little to no correlation to quality or case-mix.

Here’s the thing though – if you’re a health care purchaser reading this article, chances are that you’re already well aware that PPO networks are an expensive grab-bag of the good, the bad and the outrageously overpriced. Perhaps you are part of the 4-6% of firms who have already implemented a curated network strategy, like the one featured in our recent cost-effective network case study – or maybe it’s on your roadmap for next year or the year after.  In any case, Catalyst for Payment Reform has an abundance of free tools and resources designed to help you craft your optimal network design strategy and measure its success.

One of our newest tools is the High-Performance Network Reform Evaluation Framework – affectionately called the HPN REF.  The HPN REF offers purchasers an unbiased comparison of their HPN viz. PPO based on cost of care, quality measures, and utilization – including adherence to the HPN by its enrollees.  With detailed instructions, definitions and caveats, we designed the HPN REF to be informative and user-friendly.  And, if you’re all caught up on Netflix and the NBA finals, you can also watch a fascinating video tutorial that will walk you through each step of the journey.

So, while I was admittedly a little disappointed that 2020 hasn’t moved the needle on network strategy, maybe the absence of a high-performance network stampede shouldn’t be so surprising.  Maybe the changes wrought this year will become more apparent in next year’s survey, especially since a portion of KFF’s 2020 survey interviews were conducted before the pandemic hit the United States.  Perhaps the market factors of 2020 planted seeds, but we won’t see the blossoms until 2021. And if and when purchasers decide to prune back their PPO network to achieve higher quality at a lower price point, CPR will be there to help them take that brave next step and reap its results.

Photo by Robert Zunikoff on Unsplash.