How physicians can negotiate narrow networks

Physicians are finding ways to squeeze themselves into ever-slimmer health networks, but they should prepare for more change ahead due to payer consolidation and technological innovation.

So-called narrow networks, health plans that limit consumer choice of provider, have taken different forms. Some plans catering to large employers, for example, negotiate with leading, high-quality specialists for certain procedures. 

Related: The rise of direct primary care

With the advent of healthcare exchanges under the Affordable Care Act, however, these networks proliferated to encompass broad swaths of both primary and specialty care, and consumer advocates have charged the focus is solely on cost cutting, resulting in inferior care.

In some markets, providers are feeling the pressure to accept significant reimbursement cuts in order to remain in network among a dwindling number of payers. Working within the boundaries of a given market, providers can maximize their leverage to stay listed in narrow plans—or make the break and try to forego them, experts say.

“The concept is here to stay because it’s the bluntest instrument health plans have” to rein in costs, says Anders Gilberg, MGA, senior vice president for government affairs at the Medical Group Management Association. 

Further reading: Quality metrics—a payer's perspective

Indeed, and providers may bear the brunt. In addition to increased patient bad debt from the higher deductibles in the Affordable Care Act, lower reimbursement from payers in narrow networks was cited as a risk for not-for-profit hospitals in a 2014 research note from Moody’s Investors Service.  The higher volumes traded for lower reimbursements may not materialize or make up for the shortfall, Moody’s warned.

Still, providers haven’t lost all negotiating power. Despite a scaling back in February of network adequacy requirements for 2017 under the Affordable Care Act, plans still need physicians to staff narrow networks, Gilberg says. 

“Plans still have to go out and get the physicians they need, so they can’t create a network that’s unsustainable,” he says. “There is pressure on every side of these relationships.”

Next: How to evaluate the market

Evaluate the market

Knowing which course for physicians to take, then, begins with assessing the market, and knowing which ones are under the greatest pressure to narrow provider ranks as value-based pay becomes more mainstream. 

In a 2016 study of payer mixes in Minneapolis, New Orleans and Dallas, consulting firms KPMG and Leavitt Partners found significant disparity among the three markets’ projected total percentage of care delivered under value-based payment models. New Orleans and Dallas are forecast to lag Minneapolis and the national average by several percentage points over the next seven years, for example.

“It’s one of those situations where if you’ve seen one network, you’ve seen one network,” says Ashraf Shehata, MBA, a Cincinnati-based partner in KPMG’s Global Healthcare Center of Excellence. Markets are moving at different paces when it comes to accountable care and hospital consolidation, he says, so while Minneapolis is moving quickly, Dallas and New Orleans are more fragmented.

Related reading: 10 ways physicians can prepare for value-based pay

And that means providers in more fragmented areas will have more leverage as they join networks, Shehata says. Even in markets with heavier network penetration, he expects some availability of alternatives to narrow provider networks. While consumer demand right now is all about cost cutting, quality measures—including incentive and alternative pay models called for under the Medicare Access and CHIP Reauthorization Act (MACRA)—eventually will create more opportunities, he says.

The key to leveraging those opportunities isn’t always to get bigger through mergers, but rather putting a practice in a better position to demonstrate quality care.  Time- and resource-strapped physicians can actually use payer consolidation as an advantage, says Patricia Barrett, vice president of product design and support for the National Committee for Quality Assurance, a non-profit organization.

“The more physicians can consolidate the patient base with a smaller number of plans, the stronger their position will be with those plans,” she says. 

She recommends scrutinizing payer-generated quality reports.  Correcting errors on these reports helps both parties’ quality scores, she notes.  Also, proactively seeking out third-party certifications—through her own organization, medical associations or state initiatives—is a major plus for smaller practices looking to demonstrate quality, she says.  

Practices can also join together for the sole purpose of consolidating quality data, which keeps them highly independent. Keep in mind that while networks are constricting, they aren’t the only game in town, Shehata says. 

“I think we’re going to see a model where narrow networks is part of the solution, but not the entire solution,” he says. 

Much like the HMO model of the 1990s didn’t completely overtake the fee-for-service model, narrow networks will co-exist with other payer models, he says. And even among narrow networks he sees diversity evolving, particularly among large employers, incorporating premium networks for high-quality care centers with the most prominent providers.

Next: New costs; Data is king

To be sure, there are situations where physicians in a given market will have to opt out of a network because the reimbursement rate is unacceptably low. And on the flipside, networks can drop physicians with little or no explanation. 

The payer-merger effect: What it means

And then there are situations where physicians will decide to accept ultra-low rates because the payer is so large that to ignore it means effectively closing a practice. As payers continue to consolidate, too, the reduced number of options continues to be a challenge to provider profitability, experts say. How to best navigate the storm?

1. New costs

One step is to begin evaluating practice costs not from an internal perspective, but from that of patients, Gilberg says.  

“Physicians have to be aware of costs that they haven’t been measuring before,” he says. In addition to typical practice costs such as equipment and real estate, physicians also must, for example, get a handle on the drug and testing costs their patients are incurring, he says. 

2. Data is king

Tracking all kinds of cost and quality data, and being able to quantify it during negotiations with payers, is critical, Shehata says. “You have to show you’ve made investments in electronic records and quality reporting and that you’ve benchmarked it regionally and nationally,” he says.

Beyond that baseline, practices need to demonstrate their capabilities for consumers, whether it’s offering access to a social worker or home-care coordinator or providing ancillary services related to a specialty, such as rehab services or alternative therapies, he says.

3. Organize

Another step practices can take to boost negotiating power to get into narrow networks—or survive outside them—is to explore organizing amongst other smaller providers without formally taking the step to merge, experts say. 

Groups of specialists can work with primary care groups as an informal partnership and perhaps go as far as sharing clinical records and some ancillary staff.  They can also form networks for coordinating more seamless patient care. The trick, Shehata says, is staying clear of laws governing co-ownership and moving too close to Stark law prohibitions. Eventually these informal partners may need to decide if an outright merger into a single entity is worth it, and there are a lot of complexities at stake, he says.

Next: Know the risks

4.  Know the risks

While the Affordable Care Act created millions of newly insured potential patients, it also raised the stakes on taking advantage of the new patient flow, says Joseph Kra, a New York partner with benefits consulting firm Mercer.

“There has clearly been a spike in narrow networks, primarily around cost,” he says referring to health exchange plans. “I can understand a physician being worried about maintaining a viable business.” 

Non-exchange plans tend to better reward  higher-quality providers, and that can drive positive financial outcomes for physicians, he says.

5. Focus on key metrics

When trying to appear more attractive to a narrow network, it may be tempting to demonstrate a vast array of cost-cutting or quality initiatives. That’s a mistake, because front-line staff and providers lose focus on what’s really important, according to Jonathan Gottlieb, MD, chief medical executive for Indiana University Health.

Gottlieb recently slashed the number of IU Health’s quality metrics its front-line providers actively track from nearly 200 down to 10, based on conversations with physicians and staff about what is most important to patients. 

Providers now focus heavily on these 10 metrics: 

CAUTI(catheter associated urinary tract infection)

CLABSI (central line associated bloodstream infection)

Surgical site infections

Clostridium difficult cases

Falls with injury

Medication errors with injury

Hospital acquired pressure ulcers

Procedure related injury and other reportable events 

Venous thromboembolism prevention

Hand hygiene compliance

“Ultimately, we’re trying to build a foundation that will help us navigate this transition from high volume to high value,” Gottlieb says. 

Managing a large and changing mix of priorities proved to be ineffective, but focusing on a “hot list” of issues creates focus and motivation, he says. 

Next: Starting at home

6. Start at home

When Cornerstone Health Care, a North Carolina multispecialty group with more than 330 providers, created a network with Wake Forest Baptist Medical Center about two years ago, the focus was on demonstrating lower cost and better health outcomes among employees of the two systems, says Grace Terrell, MD, Cornerstone’s chief executive officer.  

The organizations offered a tiered network, with a traditional PPO option and cost incentives for patients choosing a narrower band of providers. In a trial program among its own workforce, diabetes patients received free medications if they chose an alternative care model.

“From the early data we’ve seen, we believe we’re going to be able to demonstrate improvements in both cost and quality for our own employees, and then we can offer it to other employers in our area,” she says. “If it’s truly a high-performing network, then it’s a value to patients and if you invest in care models and analytics that demonstrate value, that’s a good thing.”

7. Be wary 

Some providers still worry about financial motives overtaking the narrow network structure, resulting in sub-par healthcare quality while denying consumers realistic opportunities to opt out.

The recent scaling back of some proposed Centers for Medicare & Medicaid Services’ requirements under the ACA for narrow network adequacy is a case in point, notes R. Myles Riner, MD, an emergency physician in Mill Valley, California. “I understand one of the responsibilities of a health plan is to make sure doctors and hospitals are responsible actors and not doing unnecessary surgeries or overcharging. I get that,” he says. “But in some cases what’s really happening is economic credentialing.” 

Health plans use huge data sets on claims to remove doctors who appear to generate higher costs per patient, which could be doctors who take on sicker patients, he says. 

“You weed out the most skilled, effective doctors willing to take on more difficult-to- manage patients” and include doctors who avoid those patients, he says, with the result being a network driven mostly by cost concerns. Some doctors who need to fill office hours will be the ones accepting the lower reimbursement rates of a narrow network, creating a bottom-fishing situation, he says.  

Next: Question authority

Riner also worries about a short-term mentality in narrow networks, many of which are heavily laden with health exchange patients who may be less likely to stay in a plan for many years.  So those plans might not include physicians who screen for hepatitis C, for example, because it is a costly test. If a patient stayed with a plan for decades, that screen might pay off in fewer liver transplants, for example, but from a shorter term perspective a plan might not want someone who does a lot of those screenings, he says.

Riner urges physicians to get more involved in advocacy regarding narrow networks and other major healthcare reform issues, which he did several years ago in California by starting an advocacy fund among providers to pay for a state lobbyist on the issue of balance billing.

Jonathan Gruber, Ph.D., an economics professor at MIT, believes the early evidence shows narrow networks are lowering patient costs without lowering quality. 

“I think it’s an important area to study and I’m happy to have my mind changed, but for now doctors shouldn’t be fighting a losing battle” against the existence of networks, he says. “They should be fighting for smarter networks based on true value—that’s the better direction to head.”

That direction could also lead to more direct—and lucrative—payer relationships, says Kra. “The market may be heading toward having a large employer contract directly with a physician group or ACO, with traditional carriers cut out. Providers will ultimately need better metrics to get there, though, and I’m not saying this is easy.”

8. Question authority

Payers already are building algorithms to better answer the outcomes issue, and providers must decide if they will sit back and wait for the results or build their own data sets, he says. “There will definitely be winners and losers.”

Providers need to continue to fight against plans that try to cherry pick certain providers for narrow networks and they need to question carriers’ quality and cost data, says Donald Fisher, Ph.D., president and chief executive officer of the American Medical Group Association. 

Insist on transparency, he advises. Physicians excluded from a network should ask to see the data that led to the decision. Even those inside a network should understand the metrics the carrier has on their practice so that when it’s time to renegotiate, providers know the benchmarks.